As filed with the Securities and Exchange Commission on January 13, 2004
Registration No. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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KOPPERS INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 2491 25-1588399
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
436 Seventh Avenue
Pittsburgh, Pennsylvania 15219
(412) 227-2001
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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See Table of Additional Registrants
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Steven R. Lacy
Vice President, Law and Human Resources
and Secretary
Koppers Inc.
436 Seventh Avenue
Pittsburgh, Pennsylvania 15219
(412) 227-2001
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of communications to:
Richard E. Farley, Esq.
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
(212) 701-3000
Approximate date of commencement of proposed sale of the securities 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
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Proposed
Amount Maximum Proposed
Title of Each Class of to Be Offering Price Per Maximum Aggregate Amount of
Securities to Be Registered Registered Security Offering Price(1) Registration Fee
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9 7/8% Senior Secured Notes due 2013 $320,000,000 100% $320,000,000 $25,888
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Guarantees of 9 7/8% Senior Secured Notes due $320,000,000 -- -- -- (3)
2013 (2)
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(1) Represents the maximum principal amount at maturity 9 7/8% Senior Secured
Notes due 2013 that may be issued pursuant to the exchange offer described
in this registration statement. The registration fee was calculated
pursuant to Rule 457(f) under the Securities Act of 1933.
(2) The guarantors are wholly owned subsidiaries of Koppers Inc. and have
guaranteed the Exchange Notes being registered (the "Exchange Notes").
(3) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee
is payable for the Guarantees.
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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ADDITIONAL REGISTRANTS
State or Other Jurisdiction Primary Standard
Exact Name of Registrant of Incorporation or Industrial Classification I.R.S. Employer
as Specified in Its Charter Organization Code Number Identification No.
- ------------------------------------ --------------------------- ------------------------- ------------------
Concrete Partners, Inc. Delaware 2491 25-1669803
Koppers Concrete Products, Inc. Delaware 2491 25-1655686
Koppers Industries of Delaware, Inc. Delaware 2491 51-0370974
World-Wide Ventures Corporation Delaware 2491 51-0340346
Koppers Redemption, Inc. Delaware 2491 25-1604704
Koppers Australia Holding Company
Pty Ltd Australia 2491 98-0403540
Koppers Australia Pty Ltd Australia 2491 98-0188088
Koppers Carbon Materials & Chemicals
Pty Ltd Australia 2491 98-0188396
Koppers Wood Products Pty Ltd Australia 2491 98-0188395
Koppers Shipping Pty Ltd Australia 2491 98-0188393
Continental Carbon Australia Pty Ltd Australia 2491 98-0188394
Koppers Investment Subsidiary Pty Ltd Australia 2491 98-0188387
The information in this prospectus is not complete and may be changed. We may
not consummate the exchange offer until the registration statement filed with
the SEC is effective. This prospectus is not an offer to sell or exchange these
securities and it is not soliciting an offer to acquire or exchange these
securities in any jurisdiction where the offer, sale or exchange is not
permitted.
SUBJECT TO COMPLETION, DATED JANUARY 13, 2004
PROSPECTUS
$320,000,000
Koppers Inc.
Exchange Offer for All Outstanding
9 7/8 % Senior Secured Notes Due 2013
The Exchange Notes
o The terms of the Exchange Notes we are issuing will be substantially
identical to the outstanding notes that we issued on October 15, 2003
(the "Old Notes", and collectively with the Exchange Notes, the
"Notes"), except for the elimination of some transfer restrictions,
registration rights and additional interest payments relating to the
Old Notes.
o Interest on the Exchange Notes will accrue at the rate of 9 7/8% per
year, payable on April 15 and October 15 of each year, beginning April
15, 2004, and the Notes will mature on October 15 , 2013.
o The Exchange Notes will be secured and will rank equally with all of
our existing and future senior obligations.
o We may redeem some or all of the Exchange Notes at any time at the
prices described under the heading "Description of the Exchange Notes
-- Optional Redemption." The Exchange Notes will not have the benefit
of any sinking fund.
o The Exchange Notes are expected to be eligible for trading in The
PortalSM Market ("Portal"), a subsidiary of The Nasdaq Stock Market,
Inc.
Material Terms of the Exchange Offer
o The exchange offer expires at 5:00 p.m., New York City time, on ,
2004, unless extended.
o The exchange offer is not conditioned on any minimum principal amount
of outstanding Old Notes being tendered.
o Our completion of the exchange offer is subject to customary
conditions, which we may waive.
o Upon our completion of the exchange offer, all outstanding Old Notes
that are validly tendered and not withdrawn will be exchanged for an
equal principal amount of Exchange Notes that are registered under the
Securities Act.
o Tenders of outstanding Old Notes may be withdrawn at any time before
the expiration of the exchange offer.
o The exchange of Exchange Notes for outstanding Old Notes will not be a
taxable exchange for U.S. Federal income tax purposes.
o We will not receive any proceeds from the exchange offer.
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. The letter of
transmittal states that by so acknowledging 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. 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 where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, for a period of 180
days after the expiration date (as defined herein), we will make this prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
For a discussion of factors that you should consider before participating
in this exchange offer, see "Risk Factors" beginning on page 13 of this
prospectus.
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Neither the SEC nor any state securities commission has approved or
disapproved of these securities or passed on the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
Forward-Looking Statements.....................................................i
Where You Can Find More Information...........................................ii
Adjusted EBITDA...............................................................ii
Enforceability of Judgments...................................................ii
Prospectus Summary.............................................................1
Risk Factors..................................................................13
Use of Proceeds...............................................................30
Capitalization................................................................31
Selected Consolidated Financial Data..........................................32
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................36
Business......................................................................49
The Exchange Offer............................................................60
Management....................................................................73
Executive Compensation........................................................76
Summary Compensation Table....................................................76
Option/SAR Grants in Last Fiscal Year.........................................77
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values..................................................77
Security Ownership of Certain Beneficial Owners and Management................80
Certain Relationships and Related Party Transactions..........................83
Description of Senior Secured Credit Facilities...............................84
Description of the Exchange Notes.............................................87
Material Tax Considerations..................................................139
Plan of Distribution.........................................................143
Legal Matters................................................................143
Experts......................................................................143
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may be accurate only
on the date of this document.
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FORWARD-LOOKING STATEMENTS
Some written and oral statements in this prospectus are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and may include, but are not limited to, statements about sales levels,
restructuring, profitability and anticipated expenses and cash outflows. We are
including this cautionary statement to make applicable and take advantage of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
for any such forward-looking statements. Forward-looking statements can be
identified by the use of terminology such as "believe," "anticipate," "expect,"
"estimate," "may," "will," "should," "continue," "plans," "intends," "likely" or
other similar words or phrases. We caution you that forward-looking statements
involve risks and uncertainties that may cause actual results to differ
materially from forward-looking statements.
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WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the SEC. You may read and, for a
fee, copy any document that we file with the SEC at the public reference
facility maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of these documents may also be obtained at
prescribed rates from the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. You may also obtain the documents that we file electronically
from the SEC's website at http://www.sec.gov. Such information is also available
without charge by written or verbal request to our Secretary, Steven R. Lacy, at
Koppers Inc., 436 Seventh Avenue, Pittsburgh, Pennsylvania 15219-1800; telephone
number: (212) 227-2001.
ADJUSTED EBITDA
We have presented Adjusted EBITDA in this prospectus because we believe it
is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in our industry. However, other companies
in our industry may calculate Adjusted EBITDA differently than we do. Adjusted
EBITDA is not a measurement of financial performance under generally accepted
accounting principles and should not be considered as an alternative to cash
flow from operating activities or as a measure of liquidity or as an alternative
to net income as an indication of our operating performance derived in
accordance with generally accepted accounting principles. Adjusted EBITDA is
defined as net income before interest expense, income taxes, depreciation and
amortization and cumulative effect of change in accounting (as defined in
footnote 4 to "Selected Consolidated Financial Data". We believe that Adjusted
EBITDA is useful to investors because the change in accounting principle was a
cumulative charge relating to numerous prior years and that Adjusted EBITDA
provides a useful indication of our ability to service our debt prospectively.
ENFORCEABILITY OF JUDGMENTS
Koppers Australia Pty Ltd, one of our Subsidiary Guarantors (as defined
herein), is a company by shares incorporated under the laws of certain States
and territories of the Commonwealth of Australia. Many of the directors and
executive officers of Koppers Australia Pty Ltd (and certain of the experts
named in this prospectus) are citizens or residents of jurisdictions other than
the United States. All or a substantial portion of the assets of such directors,
executive officers and experts residing outside of the United States and all of
the assets of Koppers Australia Pty Ltd are or may be located outside of the
United States, primarily in Australia. As a result, it may not be possible to
effect service of process on such directors and executive officers, such experts
or on Koppers Australia Pty Ltd in the United States or to enforce, collect or
realize upon, in the United States courts, judgments against such persons
obtained in U.S. courts and predicated upon civil liability under United States
securities laws. We have been advised by our special Australian counsel, Baker &
McKenzie, that there is doubt as to the enforceability of civil liabilities
under U.S. securities laws in actions originating in federal and state courts in
Australia. Baker & McKenzie has also advised us, however, that subject to
certain conditions, exceptions and time limitations, Australian courts will
enforce foreign (including United States) judgments for liquidated amounts in
civil matters, including (although there is no express authority relating
thereto) judgments for such amounts rendered in civil actions under U.S.
securities laws. Such counsel has further advised us that an Australian court
may allow the enforcement of a judgment to be effected in U.S. dollars if such
court is satisfied that this best expresses the relevant loss of a plaintiff,
although no opinion is expressed as to whether or not enforcement of any
judgment against Koppers Australia Pty Ltd would be effected in any currency
other than Australian dollars and, if in Australian dollars, the date of
determination of the applicable exchange rate from United States dollars to
Australian dollars.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information appearing elsewhere in this prospectus and the financial statements
included in this prospectus. Effective as of February 24, 2003, we changed our
name from Koppers Industries, Inc. to Koppers Inc. In this prospectus, when we
use the terms "Koppers," the "Company," "we," "our" or "us," we mean Koppers
Inc. and its subsidiaries on a consolidated basis, unless otherwise indicated or
the context requires otherwise.
OUR COMPANY
We are the world's largest integrated producer of carbon compounds and
treated wood products. Our chemical products are used in a wide variety of end
markets and applications in the aluminum, railroad, specialty chemical, utility,
rubber and steel industries. In 2002, we generated approximately 60% of our net
sales from products in which we believe we held the number one or two market
share position by volume. The "Koppers" brand name has been associated with the
carbon compounds and wood treating businesses for many years, and is
well-recognized as a leader in these industries. We sell our products to over
2,300 customers across 69 countries. Our reputation has enabled us to establish
strong relationships with numerous companies preeminent in their respective
markets, including Alcoa Inc., CSX Transportation, Inc., Burlington Northern and
Santa Fe Railway, Union Pacific Railroad Company, Hydro Aluminum and UCAR Carbon
Company Inc. Nine out of our top ten customers are served under long-term
contracts with an average length of five years. In addition, for the twelve
months ended June 30, 2003, we benefited from having 51% of our revenue derived
from contracts of two years or more in duration. During 2002, North America,
Australasia and Europe represented 61%, 25% and 14% of our Adjusted EBITDA
(defined under "Adjusted EBIDTA"), respectively. For the twelve months ended
September 30, 2003, we generated net sales of $765.2 million and Adjusted EBITDA
of $71.3 million.
We operate two principal businesses, Carbon Materials & Chemicals and
Railroad & Utility Products. During 2002, our Carbon Materials & Chemicals
business and Railroad & Utility Products business accounted for 55% and 45% of
net sales, respectively. Through our Carbon Materials & Chemicals business, we
process coal tar into a variety of products, including carbon pitch, creosote
and phthalic anhydride, which are intermediate materials necessary in the
production of aluminum, the pressure treatment of wood and the production of
plasticizers and specialty chemicals, respectively. We believe that our primary
carbon materials and chemicals products are essential components used in our
customers' production processes. For example, carbon pitch is necessary for the
production of aluminum and the electric arc furnace steel-making process.
Through our Railroad & Utility Products business, we are the largest North
American supplier of treated wood products, such as railroad crossties and
utility poles, to railroads and the electric and telephone utility industries.
In 2002, railroad crosstie and related products sales comprised 74% of the net
sales of our Railroad & Utility Products business. Treated wood creates more
durable structures that resist decay, increase safety and reduce replacement
costs.
We operate 39 facilities located in the United States, the South Pacific
(primarily Australia and New Zealand), Europe and South Africa. We also maintain
an indirect ownership interest in an additional facility in the United States
through our domestic joint venture, KSA Limited Partnership. Additionally, we
hold a 60% interest in an operation in China, which began production in 2001.
INDUSTRY OVERVIEW
We believe that our two principal businesses are substantially affected by
demand for aluminum and railroad track maintenance. Worldwide aluminum
production is estimated to increase 7.1% to 27.6 million metric tons in 2003
from 25.4 million metric tons in 2002, and is estimated to grow to 28.3 million
metric tons in 2005, for a compound annual growth rate of 3.7% since 2002.
Carbon pitch requirements for the aluminum industry are expected to be
approximately 2.8 million metric tons in 2003, up from 2.6 million metric tons
in 2002.
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The North American railroad crosstie market is a mature market with
approximately 17.0 million replacement crossties purchased during 2002,
representing an estimated $440.0 million in sales. Historically, investment
trends in track maintenance by domestic railroads have been linked to general
economic conditions in the railroad industry. During the past several years,
domestic railroads have underinvested in track maintenance due to the recession
and a focus on capital equipment programs, such as investments in locomotives.
Recently, the largest seven railroads in North America (the "Class 1 railroads")
have increased their spending on track maintenance, which has caused an increase
in demand for railroad crossties. We believe this increase in demand will
continue for the near term.
KEY COMPETITIVE STRENGTHS
We believe that we are distinguished by the following key competitive
strengths:
Leading Market Positions Across Business Segments. We are the world's
leading integrated distiller of coal tar and supplier of treated wood products
with operations strategically located around the world. We believe that our coal
tar distillation capacity accounts for over 66% of total North American coal tar
distillation capacity. In 2002, we generated approximately 60% of our net sales
from products in which we held the number one or two market share position by
volume. We believe our leading market positions and strong reputation provide us
with improved opportunities to gain new business, source appropriate quantities
of raw materials and reliably provide products to our customers.
Strong Customer Relationships Under Contract Arrangements. The "Koppers"
name has been associated with quality and reliability for over 70 years. We sell
our products to over 2,300 customers across 69 countries. Our reputation has
enabled us to establish strong relationships with numerous companies preeminent
in their respective markets, including Alcoa Inc., CSX Transportation, Inc.,
Burlington Northern and Santa Fe Railway, Hydro Aluminum and UCAR Carbon Company
Inc. Nine out of our top ten customers are served under long-term contracts with
an average length of five years. For the twelve months ended June 30, 2003, 51 %
of our net sales were made under contract arrangements of two or more years.
Based on our existing contract arrangements, we estimate that 2003 net sales
from these contracts will total approximately $400.0 million. Our global
presence and strategically located facilities make us a preferred provider of
our customers' requirements. For example, for our top ten customers with whom we
have long-term contract arrangements, we have provided an average of 64% of
their carbon materials and treated wood product requirements during 2003.
Vertical Integration. Our ability to utilize products produced in our
Carbon Materials & Chemicals business in our manufacturing processes provides us
with significant cost savings. We use approximately 50% of our creosote, a major
co-product of the coal tar distillation process, as a raw material in the
treatment of wood by our Railroad & Utility Products business. We also believe
that we have a significant cost advantage over our competitors as a result of
our ability to use internally generated naphthalene as a primary feedstock in
the production of phthalic anhydride. All of our domestic competitors currently
use orthoxylene, which is generally a higher-cost feedstock than naphthalene, in
the production of phthalic anhydride.
Diversified Supply Base. Our leading position in coal tar distillation
capacity enhances our ability to source high-quality coal tar from multiple
suppliers. In turn, this provides us with a significant competitive advantage in
meeting customer requirements in a timely and economically advantageous manner.
In addition, we believe our ability to source coal tar globally is critical to
obtaining the quality of coal tar needed to satisfy our global customers' needs.
Global and Diverse Product Markets. We sell our carbon materials and
treated wood products to diverse markets across all major regions of the world.
During 2002, North America, Australasia and Europe represented 61%, 25% and 14%
of our Adjusted EBITDA (defined under "Adjusted EBITDA"), respectively. Our more
than 2,300 customers operate in diverse end markets such as aluminum, railroads,
specialty chemicals, including polyester resins, paints, coatings and
plasticizers, steel, utilities, rubber tires, wood preservation, roofing and
pavement sealers. We believe that our broad product line and end markets allow
us to reduce our exposure to any one market segment.
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Experienced and Incentivized Management Team. Our senior management team
has an average of 27 years of industry experience. Our president and chief
executive officer, Walter W. Turner, has been in the business since our
formation and was named chief executive officer in 1998. Our other ten executive
officers have an average of more than 25 years of industry experience. Our
directors, management team and employees own approximately 27% of our fully
diluted common equity (collectively referred to herein as our "management
investors").
OUR BUSINESS STRATEGY
The key elements of our strategy are to:
Increase Market Penetration. We believe we have opportunities to increase
sales of our products to our existing customers. For example, in 2003, our
largest competitor in the railroad wood treating industry announced its
intention to exit the business by the end of the year. As a result of this exit,
we have entered into new long-term contracts with the Burlington Northern and
Santa Fe Railway and Union Pacific Railroad Company, both existing customers. We
believe these contracts will produce approximately $30.0 million of aggregate
incremental sales with minimal capital investment. In addition to strong market
positions in North America and Australia, we believe we have opportunities to
further penetrate the Asian and European markets. Due to increased exports of
Radiata Pine from New Zealand, increased harvesting of renewable plantation
forests throughout Australasia and increased demand for wood treatment
capabilities, we expect to capitalize on our established geographic presence in
Australasia to grow our Railroad & Utility Products business. With our extensive
production capabilities, product breadth, reputation in the industries we serve
and global distribution capabilities, we are well positioned to take advantage
of market opportunities as they arise.
Expand Our Product Portfolio and Customer Base. We expect to expand many of
our product lines through the development of related products to meet new
end-use applications. For instance, we have introduced a coal tar and petroleum
pitch blend that results in up to a 60% reduction in the regulated constituents
in air emissions from aluminum smelters utilizing the Soderberg process.
Additionally, we have patents pending for, and we are in the developmental stage
of, new pitch products to be used in friction materials (brakes),
carbon/graphite and rubber products. A number of trials are in progress with
aircraft and automotive brake manufacturers to replace higher-cost, less
effective additives currently in use with our coal tar products.
Continue to Enhance Productivity and Implement Cost Reduction Initiatives.
We continue to focus on productivity and cost reduction initiatives to improve
our profitability. During 2002, we completed programs that resulted in annual
cost savings of $2.5 million, before giving effect to severance and other costs,
as a result of rationalizing tar distillation capacity by 19% and eliminating
the need for offsite disposal costs of a phthalic anhydride waste stream. We
also implemented energy saving initiatives and sludge reduction and capacity
utilization measures to improve our productivity. As a result of these and other
initiatives, we increased our revenue per employee 7.6% to $353,000 in 2002 from
$328,000 in 2001. We continually evaluate our operations for potential
improvements in productivity and cost reduction initiatives.
RECENT DEVELOPMENTS
New Long-Term Contracts. We continue to expand our base of customers
serviced under long-term contracts. In September 2003, we entered into contracts
with International Steel Group that require us to supply it with approximately
350,000 net tons of coke, or 100% of our production, for a three-year term and
International Steel Group to supply us with approximately 25.0 million gallons
of coal tar for a five-year term. We expect to gain incremental sales and profit
during 2004 as a result of this contract.
Our largest competitor in the railroad wood treating industry announced its
intention to exit the business by the end of 2003, which has created
opportunities to gain business for our Railroad & Utility Products business.
During the second quarter of 2003, we entered into a new contract with
Burlington Northern and Santa Fe Railway, an existing customer, that will add
incremental sales of approximately $13.0 million during 2004.
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Additionally, in November 2003 we entered into a new six-year contract with
Union Pacific Railroad Company customer to procure and treat crossties and
switch ties. We expect to gain an incremental $30.0 million in annual sales upon
the effectiveness of these two contracts.
Restructuring Activities. We continually focus on productivity and cost
reduction initiatives to improve profitability. In December 2003, we ceased
production at our carbon materials facility in Woodward, Alabama, resulting in a
charge to fourth quarter pre-tax income of $5.0 million to $5.5 million. We also
concluded that our carbon materials port operation in Portland, Oregon is an
impaired facility based on its current and long-term economic prospects as a
result of recent negotiations with a significant customer. The impairment charge
and other costs for this facility are expected to result in a charge to fourth
quarter pre-tax income of $3.0 million to $4.0 million. The negative business
outlook for this facility has also resulted in a tentative agreement for the
settlement of a freight contract in the amount of $1.4 million. The total
anticipated charge to fourth quarter pre-tax income for these items is expected
to be approximately $9.5 million to $11.0 million. Additionally, on September
30, 2003 we closed our Logansport, Louisiana utility wood treating plant due to
deteriorating local market conditions and their impact on volumes and
profitability. The closure resulted in a $2.9 million charge in the third
quarter, of which $1.2 million is non-cash. The closure is expected to generate
approximately $0.7 million of annual savings. We believe the U.S. market for
wood treated utility poles suffers from over-capacity, and we will continue to
evaluate future productivity and cost reduction initiatives in this business.
Dividends. Dividend payments of $45.0 million and $25.0 million were made
in November 2003 and January 2004, respectively.
Business Outlook. We expect a continuation of the economic environment that
has been impacting the United States Carbon Materials & Chemicals business
through at least the end of 2003. In addition, reductions in railroad crosstie
volumes are expected to impact our profitability in the fourth quarter of 2003.
CORPORATE INFORMATION
We are a Pennsylvania corporation incorporated in October 1988. Our
principal offices are located at 436 Seventh Avenue, Pittsburgh, Pennsylvania
15219-1800. Our telephone number is (412) 227-2001.
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THE EXCHANGE OFFER
The following is a brief summary of certain terms of this exchange offer.
For a more complete description of the terms of the exchange offer, see "The
Exchange Offer" in this prospectus.
The Exchange Offer The exchange offer relates to the exchange of up
to $320.0 million aggregate principal amount of
our 9 7/8% Senior Secured Notes due 2013 that have
been registered under the Securities Act of 1933
for an equal aggregate principal amount of our
outstanding unregistered 9 7/8% Senior Secured Notes
due 2013. On October 15, 2003, we issued and sold
$320.0 million in aggregate principal amount of
these Old Notes in a private placement. The form
and terms of the Exchange Notes are substantially
the same as the form and terms of the Old Notes,
except that the Exchange Notes have been
registered under the Securities Act and will not
bear legends restricting their transfer. We issued
the Old Notes under an indenture which grants you
a number of rights. The Exchange Notes also will
be issued under that indenture and you will have
the same rights under the indenture as the holders
of the Old Notes. See "Description of Exchange
Notes." We are offering to exchange $1,000
principal amount of our Exchange Notes for each
$1,000 principal amount of Old Notes.
Accrued Interest on the
Exchange Notes Interest on the Exchange Notes will accrue from
the last interest payment date on which interest
was paid on the Old Notes or, if no interest was
paid on the Old Notes, from the date of issuance
of the Old Notes, which was October 15, 2003.
Holders whose Old Notes are accepted for exchange
will be deemed to have waived the right to receive
any interest accrued on the Old Notes.
No Minimum Condition We are not conditioning the exchange offer on the
tender of any minimum principal amount of Old
Notes.
Expiration Date The exchange offer will expire at 5:00 p.m., New
York City time, on , 2004 unless we decide to
extend the exchange offer.
Withdrawal Rights You may withdraw your tender at any time before
the exchange offer expires.
Conditions to the Exchange Offer The exchange offer is subject to customary
conditions, which we may waive. We currently
anticipate that each of the conditions will be
satisfied and that we will not need to waive any
conditions. We reserve the right to terminate or
amend the exchange offer at any time before the
expiration date if any of the conditions occurs.
See "The Exchange Offer-- Certain Conditions to
the Exchange Offer."
Procedures for Tendering If you are a holder of Old Notes who wishes to
Old Notes accept the exchange offer, you must:
o complete, sign and date the accompanying letter
of transmittal, or a facsimile of the letter of
transmittal, and mail or otherwise deliver the
letter of transmittal, together with
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your Old Notes, to the exchange agent at the
address provided in the section "The Exchange
Offer -- Exchange Agent;" or
o arrange for The Depository Trust Company to
transmit certain required information, including
an agent's message forming part of a book-entry
transfer in which you agree to be bound by the
terms of the letter of transmittal, to the
exchange agent in connection with a book-entry
transfer.
Resale Without Further
Registration We believe that you may resell or otherwise
transfer the Exchange Notes that you receive in
the exchange offer without complying with the
registration and prospectus delivery provisions of
the Securities Act so long as you are not a
broker-dealer and you meet the following
conditions: o you are not an "affiliate" of ours
within the meaning of Rule 405 of the Securities
Act;
o you are acquiring the Exchange Notes issued in
the exchange offer in the ordinary course of your
business; and
o you have no arrangement or understanding with
any person to participate in the distribution of
the Exchange Notes.
By signing the letter of transmittal and tendering
your Old Notes or making arrangements with The
Depository Trust Company as described above, you
will be making representations to this effect. You
may incur liability under the Securities Act if:
o any of the representations listed above are not
true; and
o you transfer any exchange note issued to you in
the exchange offer without complying with the
registration and prospectus delivery requirements
of the Securities Act, unless the transfer
otherwise meets an exemption from the registration
requirements under the Securities Act.
We do not assume, or indemnify you against,
liability under these circumstances, which means
that we will not protect you from any loss you
incur as a result of this liability.
Restrictions on Resale by
Broker-Dealers Each broker-dealer that has received Exchange
Notes for its own account in exchange for Old
Notes that were acquired as a result of
market-making or other trading activities must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of the Exchange Notes.
A broker-dealer may use this prospectus in
connection with any resale for a period of 180
days after the end of the exchange offer.
-6-
Special Procedures for
Beneficial Owners If you beneficially own Old Notes registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to
tender your Old Notes in the exchange offer, you
should contact the registered holder promptly and
instruct it to tender on your behalf. If you wish
to tender on your own behalf, you must, prior to
completing and executing the letter of transmittal
and delivering your Old Notes, either arrange to
have your Old Notes registered in your name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery Procedures If you wish to tender your Old Notes and time will
not permit your required documents to reach the
exchange agent by the expiration date, or the
procedures for book-entry transfer cannot be
completed on time, you may tender your Old Notes
according to the guaranteed delivery procedures
described in the section "The Exchange Offer--
Procedures for Tendering Old Notes."
Acceptance of Old Notes and
Delivery of Exchange Notes We will accept for exchange all Old Notes which
are properly tendered in the exchange offer prior
to 5:00 p.m., New York City time, on the
expiration date. The Exchange Notes issued in the
exchange offer will be delivered promptly
following the expiration date. See "The Exchange
Offer -- Acceptance of Old Notes for Exchange;
Delivery of Exchange Notes."
Use of Proceeds We will not receive any proceeds from the issuance
of Exchange Notes in the exchange offer. We will
pay for our expenses incident to the exchange
offer.
Federal Income Tax The exchange of Exchange Notes for Old Notes in
the exchange offer will not be a taxable event for
federal income tax purposes. See "Material Tax
Considerations."
Effect on Holders of Old Notes As a result of this exchange offer, we will have
fulfilled a covenant contained in the registration
rights agreement dated as of September 30, 2003 by
and among Koppers Inc., each subsidiary guarantor
and each of the initial purchasers named in the
agreement and, accordingly, there will be no
increase in the interest rate on the Old Notes. If
you do not tender your Old Notes in the exchange
offer:
o you will continue to hold the Old Notes and will
be entitled to all the rights and limitations
applicable to the Old Notes under the indenture
governing the Old Notes, except for any rights
under the registration rights agreement that
terminate as a result of the completion of the
exchange offer; and
o you generally will not have any further
registration or exchange rights and your Old Notes
will continue to be subject to restrictions on
transfer. Accordingly, the trading market for
untendered Old Notes could be adversely affected.
-7-
Exchange Agent JPMorgan Chase Bank is serving as exchange agent
in connection with the exchange offer.
-8-
The Exchange Notes
Issuer Koppers Inc.
Exchange Notes Offered $320.0 million aggregate principal amount of 9 7/8%
Senior Secured Notes Due 2013.
o the Exchange Notes will have been registered
under the Securities Act, will not contain
transfer restrictions and will not bear legends
restricting their transfer;
o the Exchange Notes will not contain terms
providing for the payment of additional interest
under circumstances relating to our obligation to
file and cause to be effective a registration
statement;
o the Exchange Notes will be represented by one or
more global notes in book-entry form; and
o the Exchange Notes will be issuable in
denominations of $1,000 and multiples thereof.
Maturity Date October 15, 2013.
Interest Payments Interest will be payable semi-annually in arrears
on April 15 and October 15 of each year, beginning
April 15, 2004.
Optional Redemption We may redeem some or all of the Exchange Notes
beginning on October 15, 2008 at the redemption
prices listed under "Description of the Exchange
Notes--Optional Redemption."
Prior to October 15, 2006, we may redeem up to 35%
of the aggregate principal amount of the Notes
with the net proceeds of certain equity offerings.
Interest will accrue from October 15, 2003, the
date of issuance of the Old Notes, or, if interest
has already been paid, from the date it was most
recently paid.
Change of Control If a change of control occurs, subject to certain
conditions, we must give holders of the Notes an
opportunity to sell their Exchange Notes to us at
a purchase price of 101% of the principal amount
of the Exchange Notes, plus accrued and unpaid
interest to the date of the purchase. See
"Description of the Exchange Notes--Change of
Control."
Guarantees The Exchange Notes will be guaranteed, jointly and
severally, on a senior secured basis by some of
our current and future subsidiaries. See
"Description of the Exchange Notes--Guarantees."
Collateral The Exchange Notes and the subsidiary guarantees
will be secured, subject to specified permitted
liens and except as described below, by a second
priority lien on and security interest in
substantially all of the assets owned by us and
our subsidiary guarantors that secure our
obligations under our senior secured credit
facilities or future
-9-
indebtedness incurred to refinance or replace such
facilities on a first priority basis. These assets
include (i) 100% of the capital stock of each of
our existing and future domestic subsidiaries that
are owned directly by us or a subsidiary
guarantor, (ii) a portion of the capital stock of
our Australian subsidiaries, (iii) 65% of the
capital stock of each of our existing and future
foreign subsidiaries that are owned directly by us
or a subsidiary guarantor (but only, in the case
of clauses (i), (ii) and (iii) as to any single
subsidiary, to the extent that, from time to time,
the aggregate principal amount, par value, book
value as carried by us or market value (whichever
is greatest) of such capital stock of any such
subsidiary is not equal to or greater than 20% of
the then outstanding aggregate principal amount of
Notes outstanding) and (iv) substantially all of
the tangible and intangible assets owned by us and
our subsidiary guarantors (but only to secure
$75.0 million aggregate principal amount of the
Notes, in the case of the capital stock of our
Australian guarantors and assets owned by our
Australian guarantors).
The collateral securing the Exchange Notes may be
released without the consent of the holders of the
Exchange Notes in certain circumstances. In
addition, amendments to or waivers of the
collateral documents governing the first priority
liens will, in certain circumstances,
automatically apply, without consent of the
holders of the Notes, to the collateral documents
governing the second priority liens of the Notes.
Also, in the event of a foreclosure, liquidation,
bankruptcy or similar proceeding of us or any of
our subsidiary guarantors, no assurance can be
given that the proceeds from any sale or
liquidation of the collateral will be sufficient
to pay any of our obligations under the Exchange
Notes or any of the guarantees thereof, in full or
in part, after first satisfying our obligations
and those of our subsidiary guarantors under our
senior secured credit facilities. See "Description
of the Exchange Notes--Security."
Subject to certain exceptions, the security
documents governing the collateral will provide
that the first priority lienholders will control
all remedies and other actions related to the
collateral at all times prior to the payment in
full of the obligations secured by the first
priority liens, the termination of all commitments
thereunder and the termination or cash
collateralization of all letters of credit. As a
result, in most circumstances neither the
collateral agent or trustee nor the holders of the
Notes will be able to force a sale of the
collateral or otherwise exercise remedies normally
available to secured creditors without the
concurrence of lenders under the senior secured
credit facilities and other holders of first
priority liens. To the extent we re-grant first
priority liens on any such collateral in the
future, we will in most cases re-grant to the
holders of the Exchange Notes a second priority
lien on such collateral.
Intercreditor Agreement Pursuant to an intercreditor agreement, the liens
securing the Exchange Notes will be expressly
second in priority to all liens that secure our
senior secured credit facilities and future
indebtedness incurred to replace or refinance our
senior secured credit facilities
-10-
in accordance with the terms of the indenture. The
second priority liens securing the Exchange Notes
may not be enforced at any time when the
obligations secured by first priority liens are
outstanding, subject to certain limited
exceptions. Any release of all first priority
liens upon any collateral approved by holders of
the first priority liens shall also release the
second priority liens securing the Exchange Notes
on the same collateral, subject to certain limited
exceptions, including that after giving effect to
the release, obligations and, subject to certain
limitations, commitments in respect thereof, of
not less than $30.0 million secured by first
priority liens on the remaining collateral remain
outstanding. Any proceeds received by the trustee
on behalf of the holders of the Exchange Notes
from the sale of the collateral securing the
Exchange Notes and the guarantees prior to the
payment in full of our and our subsidiary
guarantors' obligations secured by the first
priority liens must be delivered to the holders of
those obligations. See "Description of the
Exchange Notes--Security."
Ranking The Notes and the guarantees will be our and our
subsidiary guarantors' senior secured obligations,
and will rank:
o equally in right of payment with all of our and
our subsidiary guarantors' existing and future
senior indebtedness, including indebtedness under
our senior secured credit facilities and the
guarantees thereof;
o senior to all of our and our subsidiary
guarantors' future subordinated indebtedness; and
o effectively junior to (i) our and our subsidiary
guarantors' obligations under our senior secured
credit facilities and any other existing and
future obligations secured by a first priority
lien on the collateral securing the Notes to the
extent of the value of such collateral and (ii)
our and our subsidiary guarantors' obligations
under any existing and future obligations that are
secured by a lien on assets that are not part of
the collateral securing the Notes, to the extent
of the value of such assets. See "Description of
the Exchange Notes--Security."
In addition, the Exchange Notes will be
structurally subordinated to the existing and
future liabilities, including trade payables, of
our subsidiaries that are not providing
guarantees.
As of September 30, 2003, after giving effect to
the offering of the Old Notes and use of proceeds
therefrom:
o we, excluding our subsidiaries, would have had
approximately $330.0 million of senior
indebtedness, including $320.0 million of
indebtedness represented by the Old Notes, of
which $10.0 million would have been secured by
first priority liens on the collateral securing
the Notes;
-11-
o our subsidiary guarantors would have had
approximately $342.7 million of senior
indebtedness, including $320.0 million of
indebtedness represented by our subsidiary
guarantors' guarantees of the Notes and $10.0
million of indebtedness represented by our
subsidiary guarantors' guarantees of loans under
our senior secured credit facilities, all of which
guarantees in respect of our senior secured credit
facilities would have been secured by first
priority liens on the collateral securing the
Notes; and
o our subsidiaries not guaranteeing the Notes
would have had approximately $59.3 million of
indebtedness and other liabilities outstanding,
including trade payables but excluding
intercompany indebtedness.
Restrictive Covenants The indenture governing the Exchange Notes
contains covenants that limit our ability and
certain of our subsidiaries' ability to:
o incur or guarantee additional debt and issue
certain types of preferred stock;
o pay dividends on our capital stock or redeem,
repurchase or retire our capital stock or
subordinated debt;
o make investments;
o create liens on our assets;
o enter into sale and leaseback transactions;
o sell assets;
o engage in transactions with our affiliates;
o create restrictions on the ability of our
restricted subsidiaries to pay dividends or make
other payments to us;
o consolidate, merge or transfer all or
substantially all of our assets and the assets of
our subsidiaries; and
o transfer or issue shares of stock of
subsidiaries.
These covenants are subject to important
exceptions and qualifications, which are described
under "Description of the Exchange Notes--Certain
Covenants."
Use of Proceeds We will not receive any cash proceeds from the exchange offer.
-12-
RISK FACTORS
You should consider carefully each of the risks described below, together
with all of the other information contained in this prospectus, before deciding
to invest in the Exchange Notes.
Risks Relating to the Exchange Notes
We have a substantial amount of indebtedness following the offering of the Old
Notes, which could harm our ability to operate our business, remain in
compliance with debt covenants and make payments on our debt, including the
Exchange Notes.
As of September 30, 2003, on an as adjusted basis to reflect the offering
of the Old Notes and the application of the net proceeds from the offering of
the Old Notes:
o we, excluding our subsidiaries, would have had approximately $330.0
million of senior indebtedness, including $320.0 million of
indebtedness represented by the Exchange Notes, of which $10.0 million
would have been secured by first priority liens on the collateral
securing the Exchange Notes;
o our subsidiary guarantors would have had approximately $342.7 million
of senior indebtedness, including $320.0 million of indebtedness
represented by our subsidiary guarantors' guarantees of the Exchange
Notes and $10.0 million of indebtedness represented by our subsidiary
guarantors' guarantees of loans under our senior secured credit
facilities, all of which guarantees in respect of our senior secured
credit facilities would have been secured by first priority liens on
the collateral securing the Exchange Notes; and
o our subsidiaries not guaranteeing the Exchange Notes would have had
approximately $59.3 million of indebtedness and other liabilities
outstanding, including trade payables but excluding intercompany
indebtedness.
The degree to which we are leveraged could have important consequences to
the holders of the Exchange Notes, including:
o our ability to satisfy our obligations under the Exchange Notes or
other debt could be affected and any failure to comply with the
requirements, including financial and other restrictive covenants, of
any of our debt agreements could result in an event of default under
the indenture governing the Exchange Notes and the agreement governing
such other indebtedness;
o a substantial portion of our cash flow from operations will be
required to make interest and principal payments and may not be
available for operations, working capital, capital expenditures,
expansion, acquisitions or general corporate or other purposes;
o our ability to obtain additional financing in the future may be
impaired;
o we may be more highly leveraged than our competitors, which may place
us at a competitive disadvantage;
o our flexibility in planning for, or reacting to, changes in our
business and industry may be limited; and
o our degree of leverage may make us more vulnerable in the event of a
downturn in our business, our industry or the economy in general.
-13-
The occurrence of any one of these events could have a material adverse
effect on our business, financial condition, results of operations, cash flows
and business prospects.
We are able to incur more indebtedness, which may intensify the risks associated
with our substantial leverage, including our ability to service our
indebtedness.
The indenture governing the Exchange Notes and the credit agreement
governing our existing bank debt permit us, subject to specified conditions, to
incur a significant amount of additional indebtedness, including indebtedness
under our $100.0 million revolving credit facility. If we incur additional
indebtedness, the risks associated with our substantial leverage, including our
ability to service our debt, would increase.
To service our indebtedness, we will require a significant amount of cash. Our
ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness,
including the Exchange Notes, and to fund planned capital expenditures and
research and development efforts will depend on our ability to generate cash
from operations in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our senior secured credit facilities in an amount
sufficient to enable us to pay our indebtedness, including these Exchange Notes,
or to fund our other liquidity needs. If we cannot service our debt, we will
have to take actions such as reducing or delaying investments, joint ventures
and potential acquisitions, selling assets, restructuring or refinancing our
debt or seeking additional equity capital. We cannot assure you that any of
these remedies could, if necessary, be effected on commercially reasonable
terms, or at all. In addition, the terms of our debt instruments, including the
indenture governing the Exchange Notes and the credit agreement governing our
bank indebtedness, may restrict us from adopting any of these alternatives.
Because of these and other factors beyond our control, we may be unable to pay
the principal, premium, if any, interest or other amounts on the Exchange Notes.
Rights of holders of Exchange Notes in the collateral may be adversely affected
by the failure to perfect security interests in certain collateral acquired in
the future.
The collateral securing the Notes includes assets of us and our subsidiary
guarantors, both tangible and intangible, whether now owned or acquired or
arising in the future. Applicable law provides that certain property and rights
acquired after the grant of a general security interest can only be perfected at
the time such property and rights are acquired and identified. There can be no
assurance that the trustee or the collateral agent will monitor, or that we will
inform the trustee or the collateral agent of, the future acquisition of
property and rights that constitute collateral, or that the necessary action
will be taken to properly perfect the security interest in such after-acquired
collateral. The collateral agent for the Exchange Notes has no obligation to
monitor the acquisition of additional property or rights that constitute
collateral or the perfection of any security interests therein. Such failure may
result in the loss of the security interest therein or the priority of the
security interest in favor of the Exchange Notes against third parties.
We may not have access to the cash flow and other assets of our subsidiaries
that may be needed to make payment on the Exchange Notes.
Although much of our business is conducted through our subsidiaries, none
of our subsidiaries is obligated to make funds available to us for payment on
the Exchange Notes. Accordingly, our ability to make payments on the Exchange
Notes is dependent on the earnings and the distribution of funds from our
subsidiaries. Furthermore, our subsidiaries will be permitted under the terms of
the indenture to incur additional indebtedness that may severely restrict or
prohibit the making of distributions, the payment of dividends or the
-14-
making of loans by such subsidiaries to us. We cannot assure holders of the
Exchange Notes that the agreements governing the current and future indebtedness
of our subsidiaries will permit our subsidiaries to provide us with sufficient
dividends, distributions or loans to fund payments on these Exchange Notes when
due.
The Exchange Notes are structurally subordinated in right of payment to the
indebtedness and other liabilities of those of our subsidiaries that are not
guaranteeing the Exchange Notes and, if the guarantees are deemed unenforceable,
to those of our guarantor subsidiaries, and the assets of such subsidiaries that
remain, if any, after the discharge of such indebtedness and other liabilities
may not be sufficient to make any payments on the Exchange Notes.
The Exchange Notes are structurally subordinated to all liabilities of our
subsidiaries that are not guarantors. In addition, none of the assets or
property owned by our non-guarantor subsidiaries are part of the collateral
securing the Exchange Notes. Although the guarantees provide the holders of the
Exchange Notes with a direct claim as creditors against the assets of the
subsidiary guarantors, the guarantees may not be enforceable (as described in
more detail below). If the guarantees by the subsidiary guarantors are not
enforceable, the Exchange Notes would be effectively subordinated to all
liabilities of the subsidiary guarantors, including trade payables. As a result
of being structurally subordinate to the liabilities of a subsidiary, if there
was a dissolution, bankruptcy, liquidation or reorganization of such subsidiary,
the holders of the Exchange Notes would not receive any amounts with respect to
the Exchange Notes from the assets of such subsidiary until after the payment in
full of the claims of creditors of such subsidiary.
Our subsidiaries that are not guarantors generated 24% of our net sales to
third parties for the twelve months ended September 30, 2003. As of September
30, 2003, our subsidiaries that are not guarantors accounted for 19% of our
total assets and had total liabilities (excluding liabilities owed to us) of
$59.3 million. As of September 30, 2003, after giving effect to the offering of
the Old Notes and the use of proceeds therefrom, our subsidiaries that are not
guarantors would have had total liabilities (excluding liabilities owed to us)
of $59.3 million, and our subsidiaries that are guarantors would have had total
liabilities (excluding liabilities owed to us and guarantees of the Exchange
Notes and of the senior credit facilities) of $12.9 million.
The holders of the Exchange Notes may not be able to realize fully the value of
the liens securing the Exchange Notes.
The Exchange Notes will be secured by second priority liens, subject to
specified permitted liens, on substantially all of our assets and the assets of
our subsidiary guarantors. All of these assets are also pledged to secure
existing and future debt under our senior secured credit facilities, future debt
incurred to refinance or replace the facilities, as well as other future debt,
in each case on a first-priority basis. Accordingly, the Exchange Notes will be
effectively subordinated in right of payment to all of our and our subsidiary
guarantors' existing and future first priority secured debt that is secured by
the collateral securing the Exchange Notes. As of September 30, 2003, after
giving pro forma effect to the offering of the Old Notes and the use of proceeds
therefrom, the debt secured by first priority liens on collateral securing the
Exchange Notes would have been approximately $10.0 million. The total amount of
indebtedness that is permitted by the indenture to be secured on a first
priority basis ahead of the claims of holders of the Exchange Notes is the
greater of (1) $130.0 million and (2) the sum of 60% of the book value of our
inventory and that of our restricted subsidiaries and 80% of the book value of
our accounts receivable and those of our restricted subsidiaries, plus in either
case $20.0 million. As of September 30, 2003, after giving effect to the
offering of the Old Notes, we could have incurred an additional $158.7 million
of debt that would have been first priority debt.
All rights against the collateral will be subject to the terms of an
intercreditor agreement. The holders of the first priority liens or their credit
agent will control all decisions and actions with respect to the collateral
until the debt secured by the first priority liens is paid in full. Accordingly,
the holders of the Exchange Notes will not have any right to initiate or direct
the exercise of remedies against the collateral while the first priority lien
debt is outstanding. As a result, even following an event of default, including
a bankruptcy proceeding, the holders of the Exchange Notes will not have any
right or ability to exercise or cause the exercise of remedies
-15-
against the collateral while the first-priority lien debt is outstanding, other
than to file a claim of interest in a bankruptcy proceeding to preserve the
second-priority liens against the collateral.
Under the terms of the intercreditor agreement, if the lenders under the
first priority lien debt release the first priority liens, then the holders of
the Exchange Notes will be deemed to have released the second priority liens on
the same collateral securing the Exchange Notes, subject to certain limitations.
Any sale or disposition of collateral that does not violate the asset
disposition covenant in the indenture will result in a release of the liens on
that collateral.
If the lenders holding the first priority lien debt enter into any
amendment, waiver or consent in respect of any of the documents securing the
first priority liens for the purpose of adding to, or deleting from, or waiving
or consenting to any departures from any provisions of such documents, or
changing in any manner the rights of the first priority lenders, our rights or
the rights of our subsidiary guarantors, then such amendment, waiver or consent
shall apply automatically, with certain exceptions, to any comparable provision
of the security documents securing the second priority liens.
The holders of these first priority liens will receive all proceeds from
the liquidation of the collateral securing the Exchange Notes until all
obligations under such indebtedness (including our senior secured credit
facilities and outstanding interest rate protection agreements, if applicable)
are paid in full. The amount to be received from a liquidation of the collateral
will depend upon numerous factors, including market and economic conditions, the
availability of buyers, the timing and manner of sale and similar factors. There
can be no assurance that the collateral can or will be liquidated in a short
period of time. No independent appraisals of any of the pledged property have
been prepared by or on behalf of us in connection with this offering of Exchange
Notes. Accordingly, the Exchange Notes are secured by the collateral only to the
extent the first priority lien debt is over-secured by such collateral, and we
cannot assure the holders of the Exchange Notes that the proceeds of any sale of
the pledged assets would be sufficient to satisfy, or would not be substantially
less than, amounts due on the Exchange Notes after satisfying our obligations
secured by the first priority liens.
In certain jurisdictions, we will likely be unable to complete lien
searches or other searches of security interests to confirm that there are no
preexisting liens, other than the first priority liens, on the collateral
located in such jurisdictions securing the Exchange Notes. Although we believe
there are no other liens on such collateral other than the first priority liens
and other permitted liens, we will likely not have independent confirmation of
that fact. As a result, the collateral in such jurisdictions securing the
Exchange Notes and the guarantees may be subject to pre-existing second priority
liens which may significantly limit the availability of proceeds from such
collateral to pay the amounts due on the Exchange Notes.
There may not be sufficient collateral to pay all or any amounts due on the
Exchange Notes. Any claim for the difference between the amount, if any,
realized by the holders of the Exchange Notes from the sale of the collateral
securing the Exchange Notes and the obligations under the Exchange Notes will
rank equally in right of payment with all of our other senior unsecured
indebtedness and other obligations, including trade payables.
The collateral securing the Exchange Notes is limited and may be diluted under
certain circumstances.
Although the Exchange Notes and the guarantees are secured by second
priority liens on substantially all of our and our subsidiary guarantors'
assets, your ability to foreclose on the collateral granted by our Australian
subsidiaries is limited. Under the security documents governing the Australian
security interests, holders of the Exchange Notes may not rely on proceeds from
the sale of the Australian collateral to satisfy more than $75.0 million of
indebtedness under the exchange. Even if the value of the Australian security is
in excess of $75.0 million, holders of the Exchange Notes will not be able to
rely on such excess in the event of a foreclosure.
Additionally, the collateral securing the Exchange Notes may also secure
additional indebtedness (on a first or second priority basis) to the extent
permitted by the indenture governing the Exchange Notes and the
-16-
credit agreement governing our senior secured credit facilities. The rights of
the holders of the Exchange Notes to the collateral would be diluted by any
increase in the indebtedness secured by the collateral. Under the indenture, we
are entitled to issue up to an additional $75.0 million of Notes, all of which
would be pari passu in all respects with the Exchange Notes offered hereby,
without adding any additional collateral for the benefit of holders of Exchange
Notes.
The capital stock securing the Exchange Notes will automatically be released
from the collateral to the extent the pledge of such collateral would require
the filing of separate financial statements for any of our subsidiaries with the
SEC.
The indenture governing the Exchange Notes and the security documents
provide that, to the extent that any rule is adopted, amended or interpreted
which would require the filing with the SEC (or any other governmental agency)
of separate financial statements of any of our subsidiaries due to the fact that
such subsidiary's capital stock or other securities secure the Exchange Notes,
then such capital stock or other securities will automatically be deemed, for so
long as such requirement would be in effect, not to be part of the collateral
securing the Exchange Notes to the extent necessary to not be subject to such
requirement. In such event, the security documents may be amended, without the
consent of any holder of the Exchange Notes, to the extent necessary to evidence
the absence of any liens on such capital stock or other securities. The lenders
under our credit facility are not subject to a similar requirement. As a result,
holders of the Exchange Notes could lose their security interest in such portion
of the collateral if and for so long as any such rule is in effect, in which
case the lenders under our new credit facility will have a first priority lien
on such portion while such provision is applicable. In addition, the absence of
a lien on a portion of the capital stock of a subsidiary pursuant to this
provision in certain circumstances could result in less than a majority of the
capital stock of a subsidiary being pledged to secure the Exchange Notes, which
could impair the ability of the collateral agent, acting on behalf of the
holders of the Exchange Notes, to sell a controlling interest in such subsidiary
or to otherwise realize value on its security interest in such subsidiary's
stock or assets.
Restrictions in our debt agreements could limit our growth and our ability to
respond to changing conditions.
Our senior secured credit facilities and the indenture governing the
Exchange Notes contain a number of significant covenants in addition to
covenants restricting the incurrence of additional debt. These covenants limit
our ability, among other things, to:
o incur or guarantee additional debt and issue certain types of
preferred stock;
o pay dividends on our capital stock or redeem, repurchase or retire our
capital stock or subordinated debt;
o make investments;
o create liens on our assets;
o enter into sale and leaseback transactions;
o sell assets;
o engage in transactions with our affiliates;
o create restrictions on the ability of our restricted subsidiaries to
pay dividends or make other payments to us;
o consolidate, merge or transfer all or substantially all of our assets
and the assets of our subsidiaries; and
-17-
o transfer or issue shares of stock of subsidiaries.
In addition, our senior secured credit facilities contain other and more
restrictive covenants. Additionally, it requires us to maintain certain
financial ratios and satisfy certain financial condition tests and requires us
to take action to reduce our debt or take some other action to comply with them.
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 the restrictive covenants under our senior
secured credit facilities and the indenture governing the Exchange Notes impose
on us.
A breach of any of these covenants would result in a default under the
applicable debt agreement. A default, if not waived, could result in
acceleration of the debt outstanding under the agreement and in a default with
respect to, and acceleration of, the debt outstanding under our other debt
agreements. The accelerated debt would become immediately due and payable. 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. See "Description of Senior
Secured Credit Facilities" and "Description of the Exchange Notes--Defaults."
Our financial failure or the financial failure of any subsidiary guarantor may
hinder the receipt of payment on the Exchange Notes, as well as your ability to
enforce remedies under the subsidiary guarantees.
An investment in the Exchange Notes, as in any type of security, involves
insolvency and bankruptcy considerations that investors should carefully
consider. If we or any of our subsidiary guarantors become debtors subject to
insolvency proceedings under any applicable bankruptcy law, the proceedings are
likely to result in delays in the payment of the Exchange Notes and in the
exercise of enforcement remedies under the Exchange Notes or the subsidiary
guarantees. Provisions under bankruptcy law or general principles of equity that
could result in the impairment of rights of the holders of the Exchange Notes
include the automatic stay, avoidance of preferential transfers by a trustee or
debtor-in-possession, substantive consolidation, limitations on collectibility
of unmatured interest or attorneys' fees and forced restructuring of the
Exchange Notes. In addition, the right of the collateral agent to repossess and
dispose of the pledged assets upon the occurrence of an event of default under
the indenture governing the Exchange Notes is likely to be significantly
impaired by applicable bankruptcy law if a bankruptcy case were to be commenced
by or against us before the collateral agent repossessed and disposed of the
pledged assets (as more fully described below).
The Corporations Act 2001 (Australia) also imposes duties on secured
creditors, and any agent or receiver that is appointed to enforce a lien, pledge
or security interest, which must be complied with in the course of the
possession and sale of any collateral. These include the duty to take all
reasonable care to sell any collateral for not less than its market value. The
discharge of such duties is subject to the supervision of the court.
Our financial failure or the financial failure of any of our subsidiaries may
result in our assets and the assets of any or all of our subsidiaries becoming
subject to the claims of our creditors and the creditors of all of our
subsidiaries.
A financial failure by us or our subsidiaries could affect payment of the
Exchange Notes if a bankruptcy court were to "substantively consolidate" us and
our subsidiaries. If a bankruptcy court substantively consolidated us and our
subsidiaries, the assets of each entity would be subject to the claims of
creditors of all entities so consolidated. This would expose holders of the
Exchange Notes not only to the usual impairments arising from bankruptcy, but
also to potential dilution of the amount ultimately recoverable because of the
larger creditor base. Furthermore, forced restructuring of the Exchange Notes
could occur through the "cram-down"
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provision of the bankruptcy code. Under this provision, the Exchange Notes could
be restructured over the objections of the holders of the Exchange Notes as to
their general terms, including interest rate and maturity.
Rights of holders of Exchange Notes in the collateral may be adversely affected
by bankruptcy proceedings.
The right of the collateral agent for the Exchange Notes to repossess and
dispose of the collateral securing the Exchange Notes upon acceleration is
likely to be significantly impaired by federal bankruptcy law if bankruptcy
proceedings are commenced by or against us prior to or possibly even after the
collateral agent has repossessed and disposed of the collateral. Under the U.S.
Bankruptcy Code, a secured creditor, such as the collateral agent, is prohibited
from repossessing its security from a debtor in a bankruptcy case, or from
disposing of security repossessed from a debtor, without bankruptcy court
approval. Moreover, bankruptcy law permits the debtor to continue to retain and
to use the collateral, even though the debtor is in default under the applicable
debt instruments, provided that the secured creditor is given "adequate
protection." The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in the collateral and may include cash payments or the
granting of additional security, if and at such time the court in its discretion
determines, for any diminution in the value of the collateral as a result of the
stay of the repossession or disposition or any use of the collateral by the
debtor during the pendency of the bankruptcy case. In view of the broad
discretionary powers of a bankruptcy court, is it impossible to predict how long
payments under the Exchange Notes could be delayed following commencement of a
bankruptcy case, whether or when the collateral agent would repossess or dispose
of the collateral, or whether or to what extent holders of the Exchange Notes
would be compensated for any delay in payment of loss of value of the collateral
through the requirements of "adequate protection." Furthermore, in the event the
bankruptcy court determines that the value of the collateral is not sufficient
to repay all amounts due on the Notes after first paying first priority lien
obligations, the holders of the Notes would have "under-secured claims" as to
the difference. Federal bankruptcy laws do not permit the payment or accrual of
interest, costs and attorneys' fees for "under-secured claims" during the
debtor's bankruptcy case.
Applicable statutes allow courts, under specific circumstances, to avoid the
subsidiary guarantees of the Exchange Notes and the related second priority
liens.
Our creditors, or the creditors of one or more subsidiary guarantors, could
challenge the subsidiary guarantees and the related second priority liens as
fraudulent transfers, conveyances or preferences or on other grounds under
applicable law. The delivery of the subsidiary guarantees and the grant of the
related second priority liens could be found to be a fraudulent transfer,
conveyance or preference or otherwise void if a court were to determine that a
subsidiary guarantor:
o delivered its subsidiary guarantee or any lien with the intent to
defeat, hinder, delay or defraud its existing or future creditors; or
o did not receive fair consideration for the delivery of the subsidiary
guarantee and either
o was insolvent at the time it delivered the subsidiary guarantee
or was rendered insolvent by incurring the indebtedness evidenced
by its guarantee; or
o was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital.
To the extent a court voids a subsidiary guarantee or any lien, pledge or
security interest as a fraudulent transfer, preference or conveyance or holds it
unenforceable for any other reason, holders of Exchange Notes would cease to
have any direct claim against the subsidiary guarantor that delivered that
subsidiary guarantee or lien. If a court were to take this action, the
subsidiary guarantor's assets would be applied first to satisfy the subsidiary
guarantor's liabilities, if any, before any portion of its assets could be
distributed to us to be applied to the payment of the Exchange Notes. We cannot
assure you that a subsidiary guarantor's remaining assets would
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be sufficient to satisfy the claims of the holders of Exchange Notes relating to
any voided portions of the subsidiary guarantees or liens.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
o the sum of its debts, including contingent liabilities, was greater
than the fair saleable value of all of its assets;
o 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
o it could not pay its debts as they became due.
In addition, various statutes have been enacted and various principles have
been developed in Australia under common law and equitable doctrines for the
benefit of creditors. Where a subsidiary guarantor is an Australian company,
such as Koppers Australia Pty Ltd, any insolvency proceedings by or against such
subsidiary guarantor would be based on Australian insolvency laws. Due to the
nature of such insolvency laws, the ability of the holders of the Exchange Notes
to protect their interests under the relevant subsidiary guarantee or any lien,
pledge or security interest may, in some circumstances, be more limited than
would be the case under U.S. bankruptcy laws. In particular, the right of the
collateral agent for the Exchange Notes to take possession of and dispose of the
collateral provided by the Australian guarantors to secure the Exchange Notes,
or to appoint an agent or receiver to undertake these steps, may be affected by
Australian insolvency laws. For example, under Australian insolvency laws, in a
winding up of a subsidiary guarantor the liabilities of such subsidiary
guarantor or the enforcement of any lien, pledge or security interest over
collateral, to the holders of the Exchange Notes may rank behind certain other
debts of that subsidiary guarantor by virtue of priority granted under
Australian law. Such prior ranking liabilities include costs and expenses of the
winding up, and certain wages and other benefits owing to employees of the
subsidiary guarantor.
Also, under Australian law, a guarantee given by a company (and any
security interest given to support that guarantee) may be set aside on a number
of grounds. For example, a guarantee may be unenforceable against a guarantor
if:
o the rules permitting a liquidator to successfully claim and void the
guarantee are applicable (as described below); or
o the guarantor itself did not receive a sufficient commercial benefit
in order to justify such guarantor providing the guarantee.
Issues as to unenforceability of a guarantee by reason of insufficient
corporate benefit may arise where a company in a corporate group, such as
Koppers Australia Pty Ltd, provides a guarantee in relation to the obligations
of another member of the corporate group. The question of what constitutes a
sufficient benefit is a fact-based qualitative inquiry, to be made for each
guarantor individually as a separate legal entity, which weighs several
considerations, including circumstances pertaining to:
o the nature of the relationship between the group companies; and
o the nature and value of the benefit and the burden of the obligations
that will flow to each party to the transaction.
-20-
Each of the guarantors represent and warrant in the indenture, for the
benefit of the holders of the Exchange Notes, that its obligations have been
undertaken in good faith and for the purpose of or in connection with the
conduct of its business and for its commercial benefit, which is commensurate
with the obligations undertaken by it. However, such representations and
warranties may not be determinative of the matter if it were to be considered by
a court. Under Australian law, it is possible that in a proceeding to enforce
the guarantees and any security interest provided by Australian guarantors each
guarantee will be analyzed differently and produce different results.
Under the Corporations Act 2001 (Australia), if a security interest is not
registered with the Australian Securities and Investments Commission within 45
days of its creation, it is void as against an administrator or liquidator of a
company. Further, in the liquidation of a company, a floating charge on property
that is created within six months of the winding up may be void as against the
liquidator except insofar as it secures an advance made to the company or the
amount of a liability under a guarantee given at that time on behalf of or for
the benefit of the company.
Under Australian law, if an order to wind up were to be made against an
Australian subsidiary guarantor and a liquidator appointed for such subsidiary
guarantor, such liquidator would have the power to investigate the validity of
past transactions and may seek various court orders, including orders to avoid
certain transactions entered into prior to the winding-up of such Australian
subsidiary guarantor and for the repayment of money. Under the Corporations Act
2001 (Australia), a transaction may be voided at the request of a liquidator if
it was entered into during various time periods prior to the filing of an
application for a winding-up of a company, ranging from six months to ten years,
depending upon the character of the transaction.
The Corporations Act 2001 (Australia) also provides for the appointment of
an "administrator" to assume control of a company's affairs during a period of
moratorium and investigation with a view to developing a "Deed of Company
Arrangement." An administrator can be appointed by the directors of a company,
certain secured creditors or a court if the company is insolvent. An
administrator regulates the relationship between the company and its creditors.
The administrator acts as agent of the company. The powers of the company's
officers are suspended for the administration period, although they are required
to assist the administrator in his or her investigation into the company's
financial situation. An administrator has a right of indemnity out of the
property of the company which takes priority over unsecured debts of the company
and any debts secured by a floating charge.
During the limited period of approximately a month over which the
administration usually occurs, the company has the benefit of a moratorium
period. In the moratorium period, subject to a few limited exceptions, creditors
are prohibited from taking any action against the company to recover debts,
enforce pledges or securities or have the company wound up without the consent
of the administrator or the court.
The main exception to the moratorium is the right of a secured creditor,
who has a registered charge over the whole or substantially the whole of the
company's property, to enforce that security interest and appoint a receiver or
otherwise assume control and take possession of the collateral. This type of
secured creditor has a decision period of ten business days from the
commencement of the administration to decide whether to enforce its security. If
the secured creditor elects not to do so, then it cannot do so at a later stage
without the leave of the court. Enforcement action by a secured creditor is also
not prohibited if it has commenced such action before the appointment of an
administrator. Participation of such a secured creditor in the administration
process can be disadvantageous in that it subjects itself to the authority of
the administrator and the jurisdiction of the court in supervising an
administration.
Under the Corporations Act 2001 (Australia), the court has the power to
order the disposal of assets that are the subject of a security or pledge or to
prevent a secured creditor from exercising its rights over collateral if that
creditor has elected to participate in the administration process or has decided
not to independently enforce its security. However, the court will only issue
such an order if the secured creditor's interests are adequately protected.
-21-
During the administration period, the administrator:
(a) takes control of the affairs and business of the company; and
(b) investigates the financial situation and affairs of the company with a
view to recommending to the company's creditors at the end of that
period that they resolve to adopt one of three courses:
(i) end the administration and hand the company back into the control
of its directors;
(ii) enter into a deed of company arrangement - under which it is
expected that the company's financial difficulties can be
overcome; or
(iii) have the company wound up.
The administration usually ends when creditors resolve that the
administration end, that a deed of company arrangement be executed or the
company be wound up, although the court can order that an administration end in
certain circumstances.
In addition, under Australian insolvency laws, any debt payable in a
currency other than Australian dollars (such as U.S. dollars in the case of the
Exchange Notes) must be converted into Australian dollars. If the creditor and
the insolvent Australian company have, in an instrument created before the
commencement of the winding up of the Australian company, agreed on the method
to be applied for the purpose of converting the company's liability into
Australian currency, the amount of the debt that is admissible to be claimed in
the winding up is the equivalent in Australian currency of the amount of foreign
currency, as determined in accordance with the agreed method, as at the date of
the commencement of the winding up. If no such agreement has been reached, the
amount of the debt that is admissible to proof is the equivalent in Australian
currency of the amount of foreign currency worked out by reference to the
opening carded on demand airmail buying rate in relation to the foreign currency
available at the Commonwealth Bank of Australia on the date of commencement of
the winding up. Accordingly, in the event of an insolvency of a subsidiary
guarantor that is an Australian company, holders of the Exchange Notes may be
subject to exchange rate risks between the date that the subsidiary guarantor
commences the liquidation process and receipt of any amount to which such
holders of the Exchange Notes may become entitled.
Because a portion of the proceeds from the Old Notes were used in part to pay a
dividend, a court could deem the obligations evidenced by the Exchange Notes a
fraudulent conveyance.
Proceeds from the Old Notes were used in part to pay a dividend. Under the
fraudulent conveyance statutes, if a court were to find that at the time the
Exchange Notes were issued:
o we issued the Old Notes with the intent to hinder, delay or defraud
any present or future creditor, or contemplated insolvency with a
design to favor one or more creditors to the exclusion of others; or
o we did not receive fair consideration or reasonably equivalent value
for issuing the Old Notes and, at the time we issued the Old Notes,
we:
o were insolvent or became insolvent as a result of issuing the Old
Notes;
o were engaged or about to engage in a business or transaction for
which our remaining assets constituted unreasonably small
capital; or
-22-
o intended to incur, or believed that we would incur, debts beyond
our ability to pay those debts as they matured (as all of the
foregoing terms are defined or interpreted under the relevant
fraudulent transfer or conveyance statutes);
the court could void or subordinate the obligations evidenced by the Notes in
favor of our other obligations.
We have substantial negative net worth.
On a pro forma basis at September 30, 2003, we had negative net worth of
approximately $55.0 million. Our negative net worth may make it difficult for us
to obtain credit from suppliers, vendors and other parties. In addition, some of
our suppliers and vendors may require us to prepay for services or products or
may impose less advantageous terms on timing of payment. Our ability to enter
into hedging transactions may also be limited by our negative net worth. As a
result, we may require additional working capital, which may negatively affect
our cash flow and liquidity.
We may not be able to repurchase the Exchange Notes or repay debt under our
credit facility upon a change of control.
Upon the occurrence of a change of control, we will be required to make an
offer to holders of the Exchange Notes to repurchase all or any part of their
Exchange Notes. We may not have sufficient funds at the time of the change of
control to make the required repurchases, or restrictions under our senior
secured credit facilities may not allow such repurchases. Additionally, an event
constituting a "change of control" (as defined in the indenture governing the
Notes) could be an event of default under our senior secured credit facilities
that would, if it should occur, permit the lenders to accelerate that debt and
that, in turn, would cause an event of default under the indenture governing the
Notes.
The source of funds for any repurchase required as a result of any change
of control will be our available cash or cash generated from our business
operations or other sources, including borrowings, sales of assets, sales of
equity or funds provided by a new controlling entity. We cannot assure you,
however, that sufficient funds would be available at the time of any change of
control to make any required repurchases of the Exchange Notes tendered and to
repay debt under our 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. Any of our future credit agreements
or other agreements relating to debt will most likely contain similar
restrictions and provisions. See "Description of the Exchange Notes--Change of
Control."
Your ability to sell the Exchange Notes may be limited by the absence of an
active trading market, and there is no assurance that an active trading market
will develop for the Exchange Notes.
The Exchange 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 Exchange Notes, as permitted by applicable laws
and regulations. However, the initial purchasers are not obligated to make a
market in the Exchange Notes, and they may discontinue their market-making
activities at any time without notice. Therefore, we cannot assure you that an
active market for the 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 Exchange Notes. We cannot assure holders of the
Exchange Notes 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 the holders of the Exchange Notes may sell their 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. The
Exchange Notes are eligible to be traded in The PortalSM Market. We do not
intend to apply for listing of the Exchange Notes on any securities exchange.
-23-
Risks Relating to the Exchange
The Old Notes will be subject to restrictions on transfer and the trading market
for the Old Notes may be limited for a holder of the Old Notes that does not
tender.
We did not register the Old Notes, nor do we intend to do so following the
exchange offer. Old Notes that are not tendered will therefore continue to be
subject to the existing transfer restrictions and may be transferred only in
limited circumstances under the securities laws. If a holder of the Old Notes
does not exchange the Old Notes, such holder will lose the right to have the Old
Notes registered under the federal securities laws. As a result, if a holder
holds Old Notes after the exchange offer, such holder may be unable to sell the
Old Notes.
If a holder of the Old Notes does not properly tender the Old Notes, we may not
accept such Old Notes and the trading market for them may be limited.
We will issue new Exchange Notes under this exchange offer only after a
timely receipt of a holder's Old Notes, a properly completed and duly executed
letter of transmittal and all other required documents. Therefore, if a holder
of the Old Notes wants to tender the Old Notes, please allow sufficient time to
ensure timely delivery. If we do not receive such Old Notes, letter of
transmittal and other required documents by the expiration date of the exchange
offer, we will not accept such Old Notes for exchange. We are under no duty to
give notification of defects or irregularities with respect to the tenders of
Old Notes for exchange. If there are defects or irregularities with respect to
the tender of Old Notes, we will not accept such Old Notes for exchange.
A holder of the Old Notes may participate in the exchange offer only if such
holder meets the following conditions.
Based on interpretations by the SEC staff, as set forth in no-action
letters the SEC issued to third parties, we believe that a holder of the Old
Notes may offer for resale, resell and otherwise transfer the Exchange Notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act, subject to certain limitations. These limitations include
the following:
o the holder of the Old Notes is not our "affiliate" within the meaning
of Rule 405 under the Securities Act;
o the holder of the Old Notes acquires the Exchange Notes in the
ordinary course of the holder's business; and
o the holder of the Old Notes has no arrangement with any person to
participate in the distribution of such Exchange Notes.
However, we have not submitted a no-action letter to the SEC regarding this
exchange offer and we cannot assure you that the SEC would make a similar
determination with respect to the exchange offer as in such other circumstances.
If a holder of the Old Notes is our affiliate, engages in or intends to engage
in or has any arrangement or understanding with respect to a distribution of the
Exchange Notes that the holder of the notes or any person will acquire pursuant
to the exchange offer, the holder of the notes may not rely on the applicable
interpretations of the staff of the SEC. A holder must also comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Resales of the Exchange Notes may be subject to further restrictions in some
jurisdictions.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus meeting the requirements under the Securities Act in connection with
any resale of such Exchange Notes. We have agreed to use our best efforts to
make this
-24-
prospectus available to any participating broker-dealer for use in connection
with any such resale. See "Plan of Distribution." However to comply with the
securities laws of certain jurisdictions, if applicable, a holder may not offer
or sell the Exchange Notes unless someone has registered or qualified them for
sale in such jurisdictions or an exemption from registration or qualification is
available.
Risks Relating to Our Business
We may not be able to compete successfully in any or all of the industry
segments in which we operate.
The markets in which we operate are highly competitive, and this
competition could harm our business, results of operations, cash flow and
financial condition. If we are unable to respond successfully to changing
competitive conditions, the demand for our products could be affected. We
believe that the most significant competitive factor for our products is selling
price. Additionally, some of the purchasers of our coke are capable of supplying
a portion of their needs from their own coke production as well as from
suppliers outside the United States who are able to import coke into the United
States and sell it at prices competitive with those of U.S. suppliers. Some of
our competitors have greater financial resources and larger capitalization than
we do.
We are subject to extensive environmental laws and regulations and may incur
costs that have a material adverse effect on our financial condition as a result
of violations of or liabilities under environmental laws and regulations.
Like other companies involved in environmentally sensitive businesses, our
operations and properties are subject to extensive federal, state, local and
foreign environmental laws and regulations, including those concerning, among
other things:
o the treatment, storage and disposal of wastes;
o the investigation and remediation of contaminated soil and
groundwater;
o the discharge of effluents into waterways;
o the emission of substances into the air; and
o other matters relating to environmental protection and various health
and safety matters.
We have incurred, and expect to continue to incur, significant costs to comply
with environmental laws and as a result of remedial obligations. We could incur
material costs, including cleanup costs, fines, civil and criminal sanctions and
claims by third parties for property damage and personal injury, as a result of
violations of or liabilities under environmental laws and regulations. For
instance, contamination has been identified and is being investigated and
remediated at many of our sites by us or other parties. Actual costs and
liabilities to us may exceed forecasted amounts. Moreover, currently unknown
environmental issues, such as the discovery of additional contamination or the
imposition of additional cleanup obligations, may result in significant
additional costs, and potentially significant expenditures could be required in
order to comply with future changes to environmental laws and regulations or the
interpretation or enforcement thereof. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Environmental and Other
Matters."
There can be no assurance that Beazer East and Beazer Limited will continue to
meet their obligations to indemnify us.
Under the terms of the asset purchase agreement between us and Koppers
Company, Inc. (now known as Beazer East, Inc.) upon the formation of our company
in 1988, subject to certain limitations, Beazer East assumed the liability for
and indemnified us against (among other things) certain cleanup liabilities for
contamination occurring prior to the purchase date at sites acquired from Beazer
East and third-party claims
-25-
arising from such contamination (the "Indemnity"). Beazer East's performance
under the Indemnity is unconditionally guaranteed by Beazer Limited.
Contamination has been identified and is being investigated and remediated under
federal and state programs at many of the sites owned or operated by us,
including most of the 18 sites acquired from Beazer East. Currently, at the
sites acquired from Beazer East, substantially all investigation and remediation
activities are being conducted and paid for by Beazer East pursuant to the terms
of the Indemnity; however, there can be no assurance that Beazer East and Beazer
Limited will continue to meet their obligations. In addition, Beazer East could
in the future choose to challenge its obligations under the Indemnity or our
satisfaction with conditions imposed on us thereunder. For example, Beazer
East's obligations under the Indemnity are subject to certain limitations
regarding the time period as to which claims for indemnification can be brought.
These limitations include certain conditions that we were required to meet by
the twelfth anniversary of the closing date, which occurred in December 2000.
Since that time, there has been an ongoing dispute between us and Beazer East
regarding the interpretation and our satisfaction of those conditions, and the
extent of Beazer East's ongoing obligations to indemnify us after that date,
with respect to certain matters. While we and Beazer East have been working
cooperatively toward an acceptable resolution to this dispute, the failure to
reach such a resolution, or a resolution under terms acceptable to us, could
have a material adverse effect on our business, financial condition, cash flow
and results of operations. In the event they do not, we may incur additional
cleanup and other costs with respect to the former Beazer East sites, which we
believe have averaged approximately $8.0 million per year over the last three
years.
In addition, the government and other third parties have the right under
applicable environmental laws to seek relief directly from us for any and all
such costs and liabilities. The requirements to pay such costs and assume such
liabilities without reimbursement under the Indemnity would have a material
adverse effect on our business, financial condition, cash flow and results of
operations. Furthermore, without reimbursement, we could be required to record a
contingent liability on our balance sheets with respect to environmental matters
covered by the Indemnity, which could result in our having significant
additional negative net worth. Finally, the Indemnity does not afford us
indemnification against environmental costs and liabilities attributable to acts
or omissions occurring after the closing of the acquisition of assets from
Beazer East under the asset purchase agreement, nor is the Indemnity applicable
to liabilities arising in connection with other acquisitions by us after that
closing. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Environmental and Other Matters."
Demand for our products is cyclical and we may experience prolonged depressed
market conditions for our products, which may adversely affect our ability to
make payments on the Exchange Notes.
Our products are sold primarily in mature markets which historically have
been cyclical. The principal consumers of our pitch are U.S. primary aluminum
smelters. Although the aluminum industry has experienced growth on a long-term
basis, it is generally cyclical in nature and experiences fluctuations in
production levels. There may be cyclical periods of weak demand which could
result in decreased primary aluminum production. Our sales have historically
been affected adversely by weakness in the global demand for aluminum.
The principal use of our phthalic anhydride is in the manufacture of
flexible vinyl, which is used mainly in the automobile industry. Therefore,
fluctuations in domestic and international automobile production could adversely
affect the demand for phthalic anhydride.
The principal customers for our coke are U.S. integrated steel producers,
whose consumption of coke has been cyclical in the past and may be so in the
future. The prices at which we will be able to sell our coke in the future will
be greatly affected by the demand for coke from the iron and steel industries
and the supply of coke from the U.S. integrated steel producers' own coke
production and from foreign sources.
Over the last several years, utility pole demand has declined as utilities
in the United States and Australia have reduced spending due to competitive
pressures arising from deregulation. Deregulation may continue to negatively
affect both new and replacement pole installation markets.
-26-
We are dependent on major customers for a significant portion of our net sales.
For the year ended December 31, 2002, our top ten customers accounted for
approximately 48% of our net sales. During this period, our two largest
customers, Alcoa Inc. and CSX Transportation, Inc., each accounted for
approximately 9% of our total net sales. Additionally, an integrated steel
company is the only customer for our furnace coke, with a contract to take 100%
of our coke production in 2004. The permanent loss of, or a significant decrease
in the level of purchases by, one or more of our major customers could have a
material adverse effect on our results of operations.
We are at risk from fluctuations in the price and availability of our primary
raw materials.
Our inability to source quality raw materials in a timely fashion and pass
through price increases to our customers could have a material adverse impact on
our financial condition and results of operations. The primary raw material used
by our Carbon Materials & Chemicals business is coal tar, a by-product of coke
production. Following the Clean Air Act Amendments of 1990 and other
environmental regulations, there have been significant reductions in U.S. coking
capacity. Due to potential additional reductions in U.S. and Australian coking
capacity, future coal tar availability is a concern for us. Koppers Australia
Pty Ltd currently sources approximately 55% of its coal tar requirements from
China Steel Corp. in Taiwan via a long term contract expiring in 2010. A
shortage in the supply of domestic coal tar could require us to increase imports
of coal tar and carbon pitch, as well as the use of petroleum substitutes to
meet future carbon pitch demand, which could have a material adverse effect on
our financial condition and results of operations.
The availability and cost of softwood and hardwood lumber are critical
elements in our production of pole products and railroad crossties,
respectively. The supply of trees of acceptable size for the production of
utility poles has decreased in recent years in relation to the demand, and we
accordingly have been required to pay a higher price for these materials.
Historically, the supply and cost of hardwood for railroad crossties have also
been subject to availability and price pressures. There can be no assurance that
we will be able to source wood raw materials at economical prices in the future.
Metallurgical coal is the primary raw material used in the production of
coke. An increase in the price of metallurgical coal, or a prolonged
interruption in supply, could have a material adverse effect on us.
Our price realizations and profit margins for phthalic anhydride have
historically fluctuated with the price of orthoxylene and its relationship to
our cost to produce naphthalene; however, due to excess supplies of phthalic
anhydride during the past several years, margins did not change proportionally
despite high levels for orthoxylene prices.
Our ability to sell carbon pitch may be adversely affected by the development of
new technology.
There are currently no known viable substitutes for carbon pitch in the
production of carbon anodes. However, in 2000 our largest carbon pitch customer
announced that it was actively pursuing alternative anode technology that would
eliminate the need for carbon pitch as an anode binder. The potential
development and implementation of this new technology could seriously impair our
ability to profitably market carbon pitch and related co-products. Over 75% of
our carbon pitch is sold to the aluminum industry under long-term contracts
typically ranging from three to four years.
We depend on our senior management team and the loss of any member could
adversely affect our operations.
Our success is dependent on the management and leadership skills of our
senior management team. The loss of any of these individuals or an inability to
attract, retain and maintain additional personnel could prevent us from
implementing our business strategy. We cannot assure you that we will be able to
retain our existing
-27-
senior management personnel or to attract additional qualified personnel when
needed. For instance, our chief financial officer resigned in June 2003, and on
September 26, 2003, we announced his replacement.
If we are unable to successfully negotiate with the labor unions representing
our employees, we may experience a material work stoppage.
As of December 31, 2002, approximately 54% of our 2,057 employees were
represented by 24 different labor unions and covered under numerous separate
labor contracts. Labor negotiations are conducted on a plant-by-plant basis and
a number of the outstanding contracts are renegotiated each year. Labor
contracts expiring in 2003 cover approximately 12% of our total employees. There
can be no assurance that new agreements will be reached without union action or
on terms satisfactory to us. A material work stoppage or union dispute could
adversely affect our results of operations.
Our plant operations may be adversely affected by weather conditions.
Our quarterly operating results fluctuate due to a variety of factors that
are outside our control, including inclement weather conditions, which in the
past have affected negatively our operating results. Operations at several of
our facilities have been halted for short periods of time during the winter
months. Moreover, demand for many of our products declines during periods of
inclement weather.
We are subject to risks associated with extended interruptions in marine
transportation services.
Our operations in Australia and Europe are highly dependent on a relatively
small number of marine transportation services. Our operating results may
decline if there are extended interruptions in freight services. Interruptions
in freight services could impair our ability to receive raw materials and ship
finished products in a timely manner.
We are subject to risks inherent in foreign operations, including changes in
social, political and economic conditions.
We, both directly and indirectly, have operations in the United States, the
South Pacific (primarily Australia and New Zealand), China, Europe and South
Africa, and sell our products in many foreign countries. In 2002 and the nine
months ended September 30, 2003, net sales from our products sold by Koppers
Europe ApS and Koppers Australia Pty Ltd accounted for approximately 30% and
32%, respectively, of our total net sales. Like other global companies, we are
exposed to market risks relating to fluctuations in interest rates and foreign
currency exchange rates. We are also exposed to risks associated with changes in
the laws and policies governing foreign investments in countries where we have
operations as well as, to a lesser extent, changes in U.S. laws and regulations
relating to foreign trade and investment. While such changes in laws,
regulations and conditions to date have not had a material adverse effect on our
business or financial condition, there can be no assurance as to the future
effect of any such changes.
Terrorist attacks may negatively affect our operations, financial condition,
results of operations and prospects.
Future terrorist attacks against U.S. targets may adversely affect our
operations, financial condition, results of operations and prospects.
Chemical-related assets may be at greater risk of future terrorist attacks than
other possible targets in the United States. A direct attack on our assets or
assets used by us could have a material adverse effect on our operations,
financial condition, results of operations and prospects. Insurance that
provides adequate coverage against terrorist attacks has become increasingly
expensive and difficult to obtain. Therefore, it is possible that we will not be
able to purchase this coverage in the future or afford it if it remains
available.
-28-
We have entered into a joint venture agreement for operations in China which may
require continued investment and which may adversely affect our ability to make
payments on the Exchange Notes.
In 1999, we entered into a joint venture agreement with Tangshan Iron &
Steel Co. to rehabilitate and operate a tar distillation facility in China. The
joint venture agreement also includes a tar supply contract with Tangshan Iron &
Steel Co. We participate in the international marketing of carbon pitch products
for the joint venture. Koppers (China) Carbon and Chemical Co., Limited is 60%
owned by us and began production of coal tar products in 2001. Contributions of
cash, engineering services and acquisition costs for the joint venture total
$10.5 million to date. Tangshan Iron & Steel Co. has guaranteed a bank loan of
Koppers (China) Carbon and Chemical Co., Limited, and we have issued a
cross-guarantee to it in the amount of approximately $1.5 million, representing
60% of the loan amount. This joint venture may require continued investment or
credit support, which may adversely affect our ability to make payments on the
Exchange Notes.
In June 2001, we entered into an agreement with Tangshan Iron & Steel Co.
whereby it assumed control of Koppers (China) Carbon and Chemical Co., Limited
through December 31, 2003. During this period Tangshan Iron & Steel Co. bore all
responsibility for the operations and management of the facility, as well as the
net income or loss, except for our pro rata share of depreciation, amortization
and income taxes of the joint venture. Accordingly, we changed our method of
accounting from consolidation to the equity method effective June 2001 to
reflect this change in our ability to control Koppers (China) Carbon and
Chemical Co., Limited. On January 1, 2004, we assumed control of Koppers (China)
Carbon and Chemical Co., Limited, which will result in a consolidation of
Koppers (China) Carbon and Chemical Co., Limited in our financial statements
beginning in the first quarter of 2004.
Our principal stockholder is in a position to affect our ongoing operations,
corporate transactions and other matters.
Under our stockholders' agreement, Saratoga Partners III, L.P. has the
right to elect a majority of our Board of Directors. Consequently, Saratoga
Partners III, L.P. will have the ability to control the election of our Board of
Directors and the outcome of some other issues submitted to the stockholders for
approval. See "Security Ownership of Certain Beneficial Owners and Management."
We cannot assure the holders of the Exchange Notes that Saratoga Partners III,
L.P.'s interests will not conflict with the interest of the holders of the
Exchange Notes. In particular, Saratoga Partners III, L.P. may cause a change of
control at a time when we do not have sufficient funds to repurchase the
Exchange Notes as described under "Description of the Exchange Notes--Change of
Control."
-29-
USE OF PROCEEDS
We will not receive any proceeds from the exchange of the Exchange Notes
for the Old Notes pursuant to the exchange offer.
We used the net cash proceeds from the offering of the Old Notes as
follows: (a) $189.4 million to redeem our existing senior subordinated notes due
2007; (b) $16.0 million to repay a portion of the outstanding balance under our
revolving credit facility; (c) $62.2 million to repay a portion of the
outstanding balance under our term loan; and (d) $40.0 million to pay a dividend
to our stockholders. In addition, simultaneously with the payment of such
dividend, we paid an additional $5.0 million dividend to our stockholders using
cash on hand.
-30-
CAPITALIZATION
The following table sets forth our cash and capitalization as of September
30, 2003, on an actual and as adjusted basis to give effect to the offering of
the Old Notes and the application of proceeds as described under "Use of
Proceeds." The adjusted information is unaudited and presented for informational
purposes only and is not necessarily indicative of what our financial position
would have been had the offering of the Old Notes actually occurred on September
30, 2003. The table below should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes included
elsewhere in this prospectus.
At September 30, 2003
As
Actual Adjusted
(dollars in millions)
Cash and cash equivalents $13.2 $12.4
======= ========
Long-term debt (including current portion):
Revolving credit facility (1) 25.0 $ --
Term loan (2) 72.2 10.0
9 7/8% senior secured notes due 2013 -- 320.0
9 7/8% senior subordinated notes due 2007 175.0 --
Other debt (3) 6.3 6.3
------ --------
Total debt including current portion 278.5 336.3
Common stock subject to redemption (4) 21.6 10.5
Minority interest 5.6 5.6
Stockholders' (deficit) (5) (13.2) (54.9)
------ --------
Total capitalization $292.5 $297.5
======= ========
- -------------------
(1) Our revolving credit facility has a maximum amount available of $100.0
million, subject to a borrowing base. As of September 30, 2003, after
giving pro forma effect to the offering of the Old Notes, we would have had
approximately $83.6 million of additional availability under our revolving
credit facility.
(2) As of November 30, 2003, $8.0 million was outstanding under our term loan
and $13.8 was outstanding under our revolving credit facility.
(3) Other debt consists of $4.1 million related to the tax credits for our
Monessen, Pennsylvania facility and $2.2 million of debt of Koppers-Arch
Investments Pty Ltd.
(4) Common stock subject to redemption has been adjusted to reflect a reduction
in current value based on the dividend amount per share paid with a portion
of the proceeds of the offering of the Old Notes and cash on hand.
(5) Stockholders' (deficit) has been adjusted to reflect (i) a $5.0 million
write-off of deferred financing fees, a $5.8 million redemption premium,
$2.0 million of additional interest expense and a related tax benefit of
$5.0 million, each associated with the early retirement of our existing 9
7/8% senior subordinated notes due 2007, (ii) a $45.0 million dividend paid
promptly after the offering of the Old Notes ($40.0 million of which was
paid with a portion of the proceeds of the offering of the Old Notes and
$5.0 million of which was paid with cash on hand), (iii) offset by an
$11.1 million increase to reflect the adjustment to common stock subject to
redemption as described in footnote (4) above. An additional dividend in
the amount of $25.0 million was declared on December 19, 2003 and paid on
January 8, 2004.
-31-
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains our summary consolidated historical financial
data for the five years ended December 31, 2002 and the nine months ended
September 30, 2002 and 2003. The selected financial data as of and for each of
the years ended December 31, 1998, 1999, 2000, 2001 and 2002 have been derived
from our audited consolidated financial statements. The selected financial data
as of and for the nine months ended September 30, 2002 and 2003 have been
derived from our unaudited consolidated condensed financial statements. In our
opinion, the information for the nine months ended September 30, 2003 and 2002
reflects all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the results of operations and financial condition
for such periods. Results for interim periods should not be considered
indicative of results for any other periods or for the year. This is only a
summary and should be read in conjunction with our historical consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
Nine Months Ended
Years Ended December 31, September 30,
1998 1999 2000 2001 2002 2002 2003
(dollars in millions) (unaudited)
Statement of Operations Data:
Net sales $ 670.6 $ 664.1 $ 723.5 $ 707.6 $ 730.3 $555.1 $590.0
Operating expenses:
Cost of sales 553.5 548.9 598.8 585.3 613.3 468.1 495.5
Depreciation and amortization (1) 30.6 27.1 30.0 30.4 28.7 21.2 25.3
Selling, general and administrative 39.9 37.4 45.4 46.3 44.0 32.0 40.5
Restructuring charges (credits)
(2) (1.0) -- -- 3.3 -- -- 1.3
--------- --------- -------- --------- ------- ------ -------
Total operating expenses 623.0 613.4 674.2 665.3 686.0 521.3 562.6
--------- --------- -------- --------- ------- ------ -------
Operating profit 47.6 50.7 49.3 42.3 44.3 33.8 27.4
Equity in earnings (losses) of
affiliates 2.4 1.7 2.2 0.3 -- 0.1 (0.2)
Other income (3) -- 0.8 8.6 8.2 9.8 7.5 0.1
Interest expense 29.7 28.1 28.0 24.5 22.9 17.4 16.0
--------- --------- -------- --------- ------- ------ -------
Income before income tax provision
(benefit) and minority interest 20.3 25.1 32.1 26.3 31.2 24.0 11.3
Income tax provision (benefit) (3) (0.3) 0.2 16.6 12.1 13.8 9.5 7.5
Minority interest 0.5 0.7 0.8 0.9 0.9 0.6 1.2
--------- --------- -------- --------- ------- ------ -------
Net income before cumulative
effect of accounting change 20.1 24.2 14.7 13.3 16.5 13.9 2.6
Cumulative effect of change in
accounting principle (4) -- -- -- -- -- -- (18.1)
--------- --------- -------- --------- ------- ------ -------
Net income (loss) 20.1 24.2 14.7 13.3 16.5 13.9 (15.5)
Preferred dividends -- -- -- 9.1 6.5 6.5 2.3
--------- --------- -------- --------- ------- ------ -------
Net income (loss) to common stock $ 20.1 $ 24.2 $ 14.7 $ 4.2 $ 10.0 $ 7.4 $ (17.8)
========= ========= ======== ========= ======= ====== =======
Other Financial Data:
Ratio of earnings to fixed charges
(5) 1.54x 1.71x 1.92x 1.79x 1.99x 2.01x 1.45x
Cash dividends per common share $ -- $ -- $ -- $ 4.00 $ 2.85 $ 2.85 $ 1.00
-32-
Twelve
Months
Nine months Ended Ended
Years Ended December 31, September 30, September
30,
1998 1999 2000 2001 2002 2002 2003 2003
(dollars in millions)
Other Data:
Adjusted EBITDA (6) $80.1 $79.6 $89.3 $80.3 $81.9 $62.0 $51.4 $71.3
At December 31, At September 30,
1998 1999 2000 2001 2002 2002 2003
(dollars in millions)
Balance Sheet Data:
Cash and cash equivalents $16.6 $18.3 $6.8 $5.2 $9.5 $9.1 $13.2
Working capital 104.9 97.3 107.4 89.2 63.5 88.4 92.6
Total assets 477.6 477.7 483.9 455.2 463.8 459.6 492.7
Total debt 332.7 309.8 291.5 269.0 261.7 269.7 278.5
Common stock subject to
redemption (7) 16.0 25.6 30.9 22.3 23.1 26.1 21.6
Total stockholders' equity
(deficit) (8) (8.6) 7.8 3.7 (1.9) (0.8) (1.7) (13.2)
- -------------------
(1) The 2002 and 2003 amounts do not include goodwill amortization as a result
of the adoption of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets. Goodwill amortization amounted to
$1.5 million, $1.3 million, $1.5 million and $1.2 million for 2001, 2000,
1999 and 1998, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) The 2003 charges were related to the closure of our facility in Logansport,
Louisiana. The 2001 charges were related to the closure of our facility in
Feather River, California. In 1998, approximately $1.0 million of plant
closing reserves were credited to income as the result of a negotiated
reduction in a contractual penalty obligation related to our Feather River,
California cogeneration facility.
(3) Other income consists of proceeds from the monetization of tax credits
relating to coke production and sales at our facility in Monessen,
Pennsylvania. In December 1999, we entered into an agreement with a third
party to transfer substantially all of the energy tax credits from our
facility in Monessen, Pennsylvania for cash. In 1998 and 1999, the tax
benefits to us from the credits amounted to $9.5 million and $10.2 million,
respectively. In 2002, 2001 and 2000, we earned $9.8 million, $8.2 million
and $8.6 million, respectively, for the transfer of tax credits. These tax
credits expired on December 31, 2002.
(4) Effective January 1, 2003, we changed our method of accounting for asset
retirement obligations in accordance with FASB Statement No. 143,
Accounting for Asset Retirement Obligations. Previously, we had not been
recognizing amounts related to asset retirement obligations. Under the new
accounting method, we now recognize asset retirement obligations in the
period in which they are incurred if a reasonable estimate of a fair value
can be made. The associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset.
(5) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include income (loss) from
continuing operations before income taxes, cumulative effect of accounting
change and fixed charges (adjusted for interest capitalized during the
period). "Fixed charges" include interest, whether expensed or capitalized,
and the portion of rental expense
-33-
(which we have calculated to be 31% of total rental expense) that is
representative of the interest factor in these rentals. The ratio of
earnings to fixed charges for the year ended December 31, 2002 after giving
pro forma effect to the offering of the Old Notes and the related
transactions, would have been 1.16x.
(6) Adjusted EBITDA is defined as net income before interest expense, income
taxes, depreciation and amortization and cumulative effect of change in
accounting principle (as described in footnote 4 above).
Adjusted EBITDA is presented because we believe it is frequently used by
securities analysts, investors and other interested parties in the evaluation of
companies in our industry. However, other companies in our industry may
calculate Adjusted EBITDA differently than we do. Adjusted EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flow from
operating activities or as a measure of liquidity or as an alternative to net
income as an indication of our operating performance derived in accordance with
generally accepted accounting principles.
We believe that Adjusted EBITDA is useful to investors because the change in
accounting principle was a cumulative charge relating to numerous prior years
and that Adjusted EBITDA provides a useful indication of our ability to service
our debt prospectively.
The following table reconciles the differences between net income, the most
comparable GAAP measure and Adjusted EBITDA:
Twelve
Nine months Months
Ended Ended
Years Ended December 31, September 30 September 30
1998 1999 2000 2001 2002 2002 2003 2003
Net income (loss) $ 20.1 $ 24.2 $ 14.7 $ 13.3 $ 16.5 $ 13.9 $ (15.5) $ (12.9)
Interest expense 29.7 28.1 28.0 24.5 22.9 17.4 16.0 21.5
Depreciation and amortization 30.6 27.1 30.0 30.4 28.7 21.2 25.3 32.8
Income tax provision (benefit) (0.3) 0.2 16.6 12.1 13.8 9.5 7.5 11.8
--------- -------- --------- --------- --------- --------- ---------- ----------
EBITDA 80.1 79.6 89.3 80.3 81.9 62.0 33.3 53.2
Cumulative effect of accounting
change -- -- -- -- -- -- 18.1 18.1
--------- -------- --------- --------- --------- --------- ---------- ----------
Adjusted EBITDA $ 80.1 $ 79.6 $ 89.3 $ 80.3 $ 81.9 $ 62.0 $ 51.4 $ 71.3
========= ========= ========= ========= ========= ========= ========== ==========
Net income includes the following items on a pre-tax basis:
(a) cash severance charges of $0.9 million and $0.4 million for the fiscal
years ended December 31, 2001 and 2002, respectively, $0.4 million and
$0.8 million for the nine months ended September 30, 2002 and 2003,
respectively, and $0.8 million for the twelve months ended September
30, 2003;
(b) non-cash bad debt write-offs for coke customers of $3.2 million and
$2.1 million for the fiscal years ended December 31, 2000 and 2001,
respectively, $1.2 million for the nine months ended September 30,
2003 and $1.2 million for the twelve months ended September 30, 2003;
(c) restructuring and dismantling charges of $2.9 million related to the
closure of our Logansport, Louisiana wood treating facility for the
nine months ended September 30, 2003 and $3.3 million of restructuring
charges related to the closure in our Feather River, California
facility
-34-
in 2001. Additionally, $1.0 million of restructuring reserves were
credited to income in 1998 as the result of a negotiated reduction in
a contractual penalty obligation related to our Feather River,
California cogeneration facility; and
(d) cash proceeds from the monetization of Section 29 tax credits of $0.8
million, $8.6 million, $8.2 million and $9.8 million for the fiscal
years ended December 31, 1999, 2000, 2001 and 2002, respectively, $7.5
million and $0.1 million for the nine months ended September 30, 2002
and 2003, respectively, and $2.4 million for the twelve months ended
September 30, 2003.
(7) Represents the amount necessary to redeem stock held by management
investors upon termination of their employment with us pursuant to our
stockholders' agreement.
(8) Total stockholders' equity (deficit) refers to total assets less total
liabilities less common stock subject to redemption less minority interest.
-35-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We are the world's largest integrated producer of carbon compounds and
treated wood products. Our chemical products are used in a wide variety of end
markets and applications in the aluminum, railroad, specialty chemical, utility,
rubber and steel industries. In 2002, we generated approximately 60% of our net
sales from products in which we believe we held the number one or two market
share position by volume. The "Koppers" brand name has been associated with the
carbon compounds and wood treating businesses for many years, and is
well-recognized as a leader in these industries. We sell our products to over
2,300 customers across 69 countries. Our reputation has enabled us to establish
strong relationships with numerous companies preeminent in their respective
markets, including Alcoa Inc., CSX Transportation, Inc., Burlington Northern and
Santa Fe Railway, Union Pacific Railroad Company, Hydro Aluminum and UCAR Carbon
Company Inc. Nine out of our top ten customers are served under long-term
contracts with an average length of five years. In addition, for the twelve
months ended June 30, 2003, we benefited from having 51% of our revenue derived
from contracts of two years or more in duration. During 2002, North America,
Australasia and Europe represented 61%, 25% and 14% of our Adjusted EBITDA,
respectively. For the twelve months ended September 30, 2003, we generated net
sales of $765.2 million and Adjusted EBITDA of $71.3 million. (See footnote 6
under "Selected Consolidated Financial Data" for a reconciliation of Adjusted
EBITDA to net income.)
We operate two principal businesses, Carbon Materials & Chemicals and
Railroad & Utility Products. During 2002, our Carbon Materials & Chemicals
business and Railroad & Utility Products business accounted for 55% and 45% of
net sales, respectively. Through our Carbon Materials & Chemicals business, we
process coal tar into a variety of products, including carbon pitch, creosote
and phthalic anhydride, which are intermediate materials necessary in the
production of aluminum, the pressure treatment of wood and the production of
plasticizers and specialty chemicals, respectively. We believe that our primary
carbon materials and chemicals products are essential components used in our
customers' production processes. For example, carbon pitch is necessary for the
production of aluminum and the electric arc furnace steel-making process.
Through our Railroad & Utility Products business, we are the largest North
American supplier of treated wood products, such as railroad crossties and
utility poles, to railroads and the electric and telephone utility industries.
In 2002, railroad crosstie and related products sales comprised 74% of the net
sales of our Railroad & Utility Products business. Treated wood creates more
durable structures that resist decay, increase safety and reduce replacement
costs.
We operate 39 facilities located in the United States, the South Pacific
(primarily Australia and New Zealand), Europe and South Africa. We also maintain
an indirect ownership interest in an additional facility in the United States
through our domestic joint venture, KSA Limited Partnership. Additionally, we
hold a 60% interest in an operation in China, which began production in 2001.
Results of Operations
The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for our businesses for the periods indicated:
Three Months Ended Nine Months
September 30, Ended September 30,
2002 2003 2002 2003
(Dollars in millions)
Net sales:
Carbon Materials & Chemicals $ 110.8 $ 109.7 $ 306.8 $ 329.9
Railroad & Utility Products 87.4 92.8 248.3 260.1
-------- -------- -------- --------
Total $ 198.2 $ 202.5 $ 555.1 $ 590.0
Percentage of net sales:
Carbon Materials & Chemicals 55.9% 54.2% 55.3% 55.9%
-36-
Railroad & Utility Products 44.1% 45.8% 44.7% 44.1%
-------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0%
Gross margin (after depreciation and amortization):
Carbon Materials & Chemicals 15.7% 15.9% 14.1 14.2%
Railroad & Utility Products 10.6% 8.6% 9.5% 9.3%
-------- -------- -------- --------
Total 13.2% 12.2% 11.9% 11.7%
Operating profit:
Carbon Materials & Chemicals 9.4 $ 8.6 $ 21.7 $ 18.8
Railroad & Utility Products 5.6 2.6 13.3 10.5
All Other (0.5) (0.6) (1.2) (1.9)
-------- -------- -------- --------
Total $ 14.5 $ 10.6 $ 33.8 $ 27.4
Comparison of Results of Operations for the Three Months Ended September 30,
2003 and 2002.
Net Sales. Net sales for the three months ended September 30, 2003 were
higher than the same period in 2002 due to higher sales for Railroad & Utility
Products. Net sales for Carbon Materials & Chemicals decreased slightly as sales
increases in Australia and Europe, due in part to currency exchange rates, were
offset by lower sales in the United States due primarily to lower coke and
creosote volumes. Net sales for Railroad & Utility Products increased due
primarily to higher sales prices for railroad crossties.
Gross Margin after Depreciation and Amortization. Gross margin after
depreciation and amortization decreased compared to the prior year quarter.
Gross margin for Carbon Materials & Chemicals increased due primarily to higher
selling prices for furnace coke. Gross margin for Railroad & Utility Products
decreased due primarily to dismantling charges related to the closure of
Logansport.
Depreciation and Amortization. Depreciation and amortization increased due
primarily to additional depreciation and accretion charges as a result of the
adoption of SFAS 143, Accounting for Asset Retirement Obligations.
Selling, General and Administrative Expense. As a percent of net sales,
selling, general and administrative expense increased primarily as a result of
higher legal, pension and consulting expenses.
Plant Closure. In September 2003, we closed our utility pole treating
facility in Logansport, Louisiana due to deteriorating market conditions. The
closure, which is expected to be completed in mid-2004, resulted in a
restructuring charge of $1.3 million, including $0.1 million of cash charges
primarily for severance costs. Severance charges relate to three salaried and
eleven hourly employees. In addition, $1.6 million of dismantling costs were
charged to cost of sales as an adjustment to asset retirement obligations
liabilities. The closure is expected to generate approximately $0.7 million of
annual savings.
Other Income. Other income for 2002 includes the monetization of energy tax
credits related to the production of coke at our facility located in Monessen,
Pennsylvania. See Note 6 of the Notes to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
Interest Expense. Interest expense decreased due primarily to lower
interest rates.
Income Tax Provision. The effective income tax rate increased as a result
of changes in the composition of earnings of between domestic and foreign
operations as compared to the prior year period.
-37-
Comparison of Results of Operations for the Nine Months Ended September 30, 2003
and 2002.
Net Sales. Net sales for the nine months ended September 30, 2003 were
higher than the same period in 2002 as both segments reported sales increases.
Net sales for Carbon Materials & Chemicals increased due primarily to higher
prices for major product lines in Australia and Europe, due in part to currency
exchange rates. Net sales for Railroad & Utility Products increased due
primarily to higher sales prices for railroad crossties.
Gross Margin after Depreciation and Amortization. Gross margin after
depreciation and amortization decreased compared to the prior year. Gross margin
for Carbon Materials & Chemicals increased slightly due to higher prices for
major product lines in Australia and Europe. Gross margin for Railroad & Utility
Products decreased slightly as dismantling charges related to our closure of
Logansport were partially offset due to a legal settlement in the prior year.
Depreciation and Amortization. Depreciation and amortization increased due
primarily to additional depreciation and accretion charges as a result of the
adoption of SFAS 143, Accounting for Asset Retirement Obligations.
Selling, General and Administrative Expense. As a percent of net sales,
selling, general and administrative expense increased due to a bad debt
write-off of $1.2 million and severance charges of $0.8 million in 2003, along
with a credit in 2002 of $1.5 million as the result of benefit settlements
related to a closed plant.
Other Income. Other income for 2002 includes the monetization of energy tax
credits related to the production of coke at our facility in Monessen,
Pennsylvania.
Interest Expense. Interest expense decreased due primarily to lower
interest rates.
Income Tax Provision. The effective income tax rate increased as a result
of changes in the composition of earnings of between domestic and foreign
operations as compared to the prior year.
The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for our businesses for the periods indicated:
Years Ended December 31,
2000 2001 2002
Net sales (in millions):
Carbon Materials & Chemicals $ 421.3 $ 419.7 $ 403.0
Railroad & Utility Products 302.2 287.9 327.3
--------- --------- ---------
Total $ 723.5 $ 707.6 $ 730.3
========= ========= =========
Business sales as percent of net sales:
Carbon Materials & Chemicals 58.2% 59.3% 55.2%
Railroad & Utility Products 41.8 40.7 44.8
--------- --------- ---------
Total 100.0% 100.0% 100.0%
========= ========= =========
Gross margin (after depreciation and amortization):
Carbon Materials & Chemicals 15.8% 15.3% 14.6%
Railroad & Utility Products 9.6 10.2 9.6
--------- --------- ---------
Total 13.1 13.0 12.1
Operating margin by business:
Carbon Materials & Chemicals 8.6% 7.7% 7.3%
Railroad & Utility Products 4.6 4.1 5.2
--------- --------- ---------
Total 6.8 6.0 6.1
Comparison of Results of Operations for the Years Ended December 31, 2002 and
2001
Net Sales. Net sales for the year ended December 31, 2002 were higher than
2001 as higher sales for Railroad & Utility Products more than offset lower
sales for Carbon Materials & Chemicals. Net sales for Carbon Materials &
Chemicals decreased due to lower volumes and pricing for phthalic anhydride and
lower volumes for carbon pitch in the United States. Net sales for Railroad &
Utility Products increased compared to the prior year due primarily to increases
in volumes for railroad crossties.
Gross Margin After Depreciation and Amortization. As a percent of net
sales, gross profit after depreciation and amortization decreased for both
businesses. Gross margin for Carbon Materials & Chemicals decreased primarily as
a result of lower volumes and pricing for phthalic anhydride and lower volumes
for carbon pitch in the United States. Gross margin for Railroad & Utility
Products decreased due primarily to the settlement of a lawsuit related to
environmental matters. See "--Environmental and Other Matters."
Depreciation and Amortization. Depreciation and amortization for 2002
decreased compared to the prior year due primarily to the non-amortization of
goodwill in 2002 pursuant to Financial Accounting Standards No. 141 and 142. See
"--Impact of Recently Issued Accounting Standards."
Selling, General and Administrative Expense. Selling, general and
administrative expense as a percent of net sales decreased as a result of lower
bad debt expense due to the bankruptcy of a significant customer in 2001 and
also as a result of improved cost control as compared to the prior year.
Equity in Earnings of Affiliates. Equity earnings for 2002 were lower than
the prior year due primarily to depreciation charges incurred for Koppers
(China) Carbon and Chemical Co., Limited.
Other Income. Other income consists of the energy tax credits as a result
of the transaction at our Monessen, Pennsylvania facility. The increase for 2002
was due to an increase in sales as a result of liquidating inventory that was
produced in 2001, resulting in a higher level of tax credits.
Income Taxes. Our effective income tax rate for the year ended December 31,
2002 decreased due primarily to an increase in domestic pre-tax earnings, which
resulted in a reduction in foreign tax expense as a percentage of total taxes.
Net Income. Net income for 2002 compared to the same period last year
increased due to a reduction in bad debt expense and an increase in other
income.
Comparison of Results of Operations for the Years Ended December 31, 2001 and
2000
Net Sales. Net sales for the year ended December 31, 2001 were lower than
2000 as $41.0 million of additional sales as a result of the consolidation of
Koppers Europe ApS were more than offset by approximately $49.0 million of
reduced sales in the United States. Eliminating the effect of Koppers Europe
ApS, net sales for Carbon Materials & Chemicals decreased approximately $42.7
million compared to the prior year period due to reductions in sales volumes for
all major product lines as a result of the recession in the United States. Net
sales for Railroad & Utility Products decreased compared to the prior year due
to reductions in sales volumes for utility poles and reductions in volumes and
pricing for railroad crossties.
Gross Margin After Depreciation and Amortization. As a percent of net
sales, gross profit after depreciation and amortization decreased slightly as
lower margins for Carbon Materials & Chemicals were substantially offset by
higher margins for Railroad & Utility Products. Gross margin for Carbon
Materials & Chemicals decreased primarily as a result of lower phthalic
anhydride and furnace coke sales volumes in the United States. Gross margin for
Railroad & Utility Products increased due primarily to the closure of our
Feather River facility in early 2001.
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Depreciation and Amortization. Depreciation and amortization for 2001
increased slightly compared to the prior year due to the consolidation of
Koppers Europe ApS.
Selling, General and Administrative Expense. Selling, general and
administrative expense as a percent of net sales increased primarily as a result
of higher legal costs.
Restructuring Charges. In February 2001, our Board of Directors approved
the closure of our wood treating facility located in Feather River, California
effective March 31, 2001. This resulted in a charge of $3.3 million in the first
quarter of 2001.
Equity in Earnings of Affiliates. Equity earnings for 2001 were lower than
the prior year due primarily to the consolidation of Koppers Europe ApS.
Income Taxes. Our effective income tax rate for the year ended December 31,
2001 decreased due primarily to the existence of non-deductible losses in 2000.
Net Income. Net income for 2001 compared to the same period last year
decreased primarily due to the recession in manufacturing in the United States.
Liquidity and Capital Resources
Our liquidity needs are primarily for debt service, capital maintenance and
acquisitions. We believe that our cash flow from operations and available
borrowings under its bank credit facilities will be sufficient to fund our
anticipated liquidity requirements for at least the next twelve months. In the
event that the foregoing sources are not sufficient to fund our expenditures and
service its indebtedness, we would be required to raise additional funds.
October 2003 Refinancing. In October 2003, we issued $320 million of 9 7/8%
Senior Secured Notes due 2013 (the "New Notes"), incurring fees and expenses of
approximately $12.2 million. We used the net cash proceeds from the offering of
the Old Notes as follows: (a) $189.4 million to redeem our existing senior
subordinated notes due 2007; (b) $16.0 million to repay a portion of the
outstanding balance under our revolving credit facility; (c) $62.2 million to
repay a portion of the outstanding balance under our term loan; and (d) $40.0
million to pay a dividend to our stockholders. In addition, simultaneously with
the payment of such dividend, we paid an additional $5.0 million dividend to our
stockholders using cash on hand. The October refinancing also included an
amendment to the existing credit agreement, providing for a reduction in the
term loan to $10.0 million, due in quarterly installments through November 2004.
As a result of the refinancing, approximately $5.0 million of deferred financing
costs associated with the Old Notes was written off when the Old Notes were
called on December 1, 2003.
May 2003 Refinancing. In May 2003, we refinanced substantially all of our
bank debt, incurring fees and expenses of approximately $3.8 million. The new
credit facilities provided for term loans of $75.0 million and a revolving
credit facility of up to $100.0 million. The credit agreement is for a period of
four years, and the loans are secured by substantially all of our assets, with
revolving credit availability based on receivables and inventory as well as the
attainment of certain ratios and covenants. As a result of the refinancing, $0.4
million of deferred financing costs associated with the previous loans were
written off.
As of September 30, 2003, we had $13.2 million of cash and cash equivalents
and $38.5 million of unused revolving credit availability for working capital
purposes after restrictions by various debt covenants and letter of credit
commitments. As of September 30, 2003, $16.4 million of commitments were
utilized by outstanding standby letters of credit.
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Net cash used by operating activities compared to net cash provided by
operating activities in the prior year was the result of lower earnings combined
with a higher level of working capital buildup as compared to the prior year.
Capital expenditures were lower than the prior year due to efforts to
conserve cash and delays in certain projects due to severe winter weather
earlier in the year.
Net cash provided by financing activities in 2003 related to increases in
term debt from the refinancing to provide for working capital requirements,
payment of deferred financing costs, purchases of stock from retirees and our
401(k) plans, and the payment of a dividend totaling $3.1 million in June ($1.00
per share to holders of common and preferred stock). Net cash used in financing
activities in the prior year related to borrowings from the revolving credit
facility to finance an increase in working capital, purchases of stock from
retirees and the payment of a dividend.
Pension Funding. Due primarily to depressed equity securities markets for
the last several years, we anticipate an increase of approximately $7.0 million
to $8.0 million in our level of required pension contributions beginning in
2004, after contributions of approximately $6.0 million in 2003. On September
15, 2003, we made an additional $1.0 million contribution to our pension.
Dividends. In 2002, we paid a dividend in the amount of $9.8 million to
common and preferred shareholders. We are limited by our current lending
covenants regarding the payment of dividends.
Operating Lease Commitments. Commitments during the next five years under
operating leases aggregate to approximately $69.7 million, ranging from $19.5
million in 2004 to $7.0 million in 2008.
Government Investigation. On December 4, 2002, European Commission
representatives visited the offices of our subsidiaries located in Nyborg,
Denmark and Scunthorpe, England and obtained documents pursuant to legal process
as part of an investigation of industry competitive practices concerning pitch,
creosote and naphthalene. The U.S. Department of Justice also served a subpoena
for similar documents at our headquarters in Pittsburgh, Pennsylvania. The
investigation is continuing and we are cooperating with both the European
Commission and the U.S. Department of Justice. We are also cooperating with the
Canadian Competition Bureau. As a result of such cooperation, (i) in February
2003, the European Commission granted our request for exemption from penalties
for any infringement the European Commission may find as a result of its
investigation concerning pitch; (ii) in April 2003, U.S. Department of Justice
granted our request for exemption from prosecution for any infringement as a
result of imports of pitch, creosote and naphthalene, or the purchase for export
of coal tar used to produce these products; and (iii) in April 2003, the
Canadian Competition Bureau granted us a provisional guarantee of immunity from
prosecution under the Canadian Competition Act with respect to the supply and
sale of tar pitch, naphthalene, creosote oil and carbon black feedstock prior to
2001. These exemptions were granted upon certain conditions, including our
continued cooperation. We are currently unable to determine the outcome of the
investigations. There can be no assurance that the outcome of these matters will
not have a material adverse effect on our business, financial condition, cash
flows and results of operations.
Stock Redemptions. In 2003, stock redemptions for retirees totaled $4.4
million.
Impact of Deferred Taxes. Based on our earnings history, along with the
implementation of various tax planning strategies, we believe the deferred tax
assets on our consolidated balance sheet at September 30, 2003 are realizable.
Foreign Operations and Foreign Currency Transactions. We are subject to
foreign currency translation fluctuations due to our foreign operations.
Exchange rate fluctuations through September 30, 2003 resulted in an increase to
comprehensive income of $13.6 million. Exchange rate fluctuations in 2002
resulted in an increase to comprehensive income of $9.7 million, while exchange
rate fluctuations in 2001 and 2000 resulted in charges to comprehensive income
of $4.2 million and $11.2 million, respectively.
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Seasonality; Effects of Weather. Our quarterly operating results fluctuate
due to a variety of factors that are outside our control, including inclement
weather conditions, which in the past have affected operating results.
Operations at several of our facilities have been halted for short periods of
time during the winter months. Moreover, demand for some of our products
declines during periods of inclement weather. As a result of the foregoing, we
anticipate that we may experience material fluctuations in quarterly operating
results.
Schedule of Certain Contractual Obligations
The following table details our pro forma future projected payments for our
significant contractual obligations as if this offering and the related
transactions had occurred on September 30, 2003. The pro forma table is based
upon available information and certain assumptions we believe are reasonable.
The following pro forma table is presented for informational purposes and does
not purport to represent what our contractual obligations actually would have
been had this offering and the related transactions occurred on September 30,
2003.
Payments Due by Period
Total Less than 1-3 After 5
1 year years 4-5 years years
(Dollars in millions)
Long Term Debt $ 336.3 $ 10.0 $ -- $ 4.1 $ 322.2
Operating Leases $ 81.1 $ 19.5 $ 30.9 $ 19.3 $ 11.4
Common Stock Subject to Redemption $ 10.5 $ -- $ -- $ -- $ 10.5
------- --------- --------- -------- --------
Total Contractual Cash Obligations $ 427.9 $ 29.5 $ 30.9 $ 23.4 $ 344.1
Schedule of Certain Other Commercial Commitments
The following table details our pro forma future projected payments for
other significant commercial commitments as if this offering and the related
transactions had occurred on September 30, 2003. The pro forma table is based
upon available information and certain assumptions we believe are reasonable.
The following pro forma table is presented for informational purposes and does
not purport to represent what our commercial commitments actually would have
been had this offering and the related transactions occurred on September 30,
2003.
Payments Due by Period
Total Less than 1-3 After 5
1 year years 4-5 years years
(Dollars in millions)
Lines of Credit (Unused) $ 87.6 $ -- $ -- $ 83.6 $ 4.0
Standby Letters of Credit $ 16.4 $ 16.4 $ -- $ -- $ --
Guarantees $ 7.2 $ -- $ 1.5 $ -- $ 5.7
-------- --------- -------- -------- -------
Total Commercial Commitments $ 111.2 $ 16.4 $ 1.5 $ 83.6 $ 9.7
Critical Accounting Policies
Revenue Recognition. We recognize revenue from product sales at the time of
shipment and when title passes to the customer. Service revenue, consisting
primarily of wood treating services, is recognized at the time the service is
provided. Shipping and handling costs are included as a component of net sales
and amounted to $50.1 million, $49.3 million and $49.1 million in 2002, 2001 and
2000, respectively.
Inventories. In the United States, Carbon Materials & Chemicals (excluding
furnace coke) and Railroad & Utility Products inventories are valued at the
lower of cost, utilizing the last-in, first-out basis, or market. Market
represents replacement cost for raw materials and net realizable value for work
in process and
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finished goods. Last-in, first-out inventories constituted approximately 59% and
55% of the first-in, first-out inventory value at December 31, 2002 and 2001,
respectively.
Accrued Insurance. We are insured for property, casualty and workers'
compensation insurance up to various stop loss amounts after meeting required
retention levels. Losses are accrued based upon our estimates of the liability
for the related retentions for claims incurred using certain actuarial
assumptions followed in the insurance industry and based on our experience.
Accounts Receivable. We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. In circumstances where we become aware of a specific customer's
inability to meet its financial obligations to us, a specific reserve for bad
debts is recorded against amounts due. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
Environmental Liabilities. We are subject to federal, state, local and
foreign laws and regulations and potential liabilities relating to the
protection of the environment and human health and safety including, among other
things, the cleanup of contaminated sites, the treatment, storage and disposal
of wastes, the discharge of effluent into waterways, the emission of substances
into the air and various health and safety matters. We expect to incur
substantial costs for ongoing compliance with such laws and regulations. We may
also face governmental or third-party claims, or otherwise incur costs, relating
to cleanup of, or for injuries resulting from, contamination at sites associated
with past and present operations. We accrue for environmental liabilities when a
determination can be made that they are probable and reasonably estimable. Total
environmental reserves at December 31, 2002 and 2001 were approximately $12.3
million and $12.6 million, respectively, which includes provisions for fines,
soil remediation and the cleaning and disposal of residues from tanks and tank
cars.
Asset Impairment. We measure asset impairment based upon the applicable
accounting guidance. The cash flows models used in our impairment analysis are
consistent with our internal projections.
Recently Issued Accounting Standards
In May 2003, the Financial Accounting Standards Board issued Statement No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity, effective for the fiscal period beginning after December
15, 2003 for non-public entities as defined by the Statement. Statement No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
adoption of Statement No. 150 will require us to classify common stock subject
to redemption as a liability as of January 1, 2004, based on the latest
revision. Prospectively, changes in the liability exclusive of redemptions will
be included in pre-tax income.
Effective January 1, 2003, we changed our method of accounting for asset
retirement obligations in accordance with FASB Statement No. 143, Accounting for
Asset Retirement Obligations. Previously, we had not been recognizing amounts
related to asset retirement obligations. Under the new accounting method, we now
recognize asset retirement obligations in the period in which they are incurred
if a reasonable estimate of a fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset.
The cumulative effect of the change on prior years resulted in a charge to
income of $18.1 million, net of income taxes of $11.7 million ($20.02 per share
for both basic and diluted for the nine months ended September 30, 2003). The
effect of the change on the three months ended September 30, 2003 was to
decrease income by $0.1 million ($0.19 per share and $0.05 per share for basic
and diluted, respectively) and the effect of the change on the nine months ended
September 30, 2003 was to increase income before the cumulative effect of the
accounting change by $0.2 million ($0.17 per share and $0.47 per share for basic
and diluted, respectively).
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 ("FIN No. 46"). FIN No. 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
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the entity to finance its activities without additional subordinated financial
support from other parties. In December 2003, FASB issued a revision to FIN 46;
for our company, the revised provisions of FIN 46 must be applied for the first
interim or annual period beginning after December 15, 2004. We do not expect
that the adoption of FIN No. 46 will have a material impact on our financial
position, cash flows or results of operations.
In December 2002, the Financial Accounting Standards Board issued Statement
No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure,
effective for fiscal years ending after December 15, 2002. Statement 148 amends
Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition to Statement 123's fair value method of
accounting for stock-based employee compensation. Statement 148 also amends the
disclosure provisions of Statement 123 and APB Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. For the nine months ended September
30, 2003, the effect of expensing stock options was not material to net income
and earnings per share.
In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN No.
45"). FIN No. 45 clarifies and expands on existing disclosure requirements for
guarantees, including loan guarantees. It also requires that, at the inception
of a guarantee, we must recognize a liability for the fair value of our
obligation under that guarantee. The initial fair value recognition and
measurement provisions will be applied on a prospective basis to certain
guarantees issued or modified after December 31, 2002. We have adopted FIN No.
45 and the effect of adoption did not have a material impact on our financial
position, cash flows or results of operations.
In July 2002, the Financial Accounting Standards Board issued Statement No.
146, Accounting for Costs Associated with Exit or Disposal Activities, to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. The standard requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operation, plant closing,
or other exit or disposal activity. Effective January 1, 2003, we adopted the
provisions of Statement No. 146, and the related provisions have been applied to
the closure of our Logansport, Louisiana wood treating facility on September 30,
2003.
In April 2002, the Financial Accounting Standards Board issued Statement
No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections, effective for fiscal years
beginning after June 15, 2002. For most companies, Statement No. 145 will
require gains and losses on extinguishments of debt to be classified as income
or loss from continuing operations rather than as extraordinary items as
previously required under Statement No. 4. Extraordinary treatment will be
required for certain extinguishments as provided in APB Opinion No. 30.
Statement No. 145 also amends Statement No. 13 to require that certain
modifications to capital leases be treated as a sale-leaseback and modifies the
accounting for sub-leases when the original lessee remains a secondary obligor
(or guarantor). In addition, the FASB rescinded Statement No. 44, which
addressed the accounting for intangible assets of motor carriers and made
numerous technical corrections. Our adoption of Statement No. 145 resulted in
charges during 2003 to incoming from continuing operations for costs related to
extinguishment of debt rather than as an extraordinary item.
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
effective for fiscal years beginning after December 15, 2001. The new rules on
asset impairment supersede FASB Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and provide a
single accounting model for long-lived assets to be disposed of. We have
performed an analysis and determined that the adoption of this Statement had no
effect on our earnings or financial position.
In June 2001, the Financial Accounting Standards Board issued Statements
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after
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December 15, 2001. Under the new rules, goodwill is no longer amortized but is
subject to annual impairment tests in accordance with the Statements. Other
intangible assets continue to be amortized over their useful lives. We have
applied the new rules on accounting for goodwill beginning in the first quarter
of 2002. Application of the nonamortization provisions of the Statement resulted
in an increase in net income of approximately $0.8 million for the year ended
December 31, 2002. If Statement No. 142 had been adopted January 1, 2000 the
increase to net income would have been $0.8 million for 2001 and $0.7 million
for 2000. During 2002, we performed the required impairment tests of goodwill as
of January 1, 2002 and October 31, 2002 and determined that there is no
impairment.
Environmental and Other Matters
We are subject to federal, state, local and foreign laws and regulations
and potential liabilities relating to the protection of the environment and
human health and safety including, among other things, the cleanup of
contaminated sites, the treatment, storage and disposal of wastes, the discharge
of effluent into waterways, the emission of substances into the air and various
health and safety matters. We expect to incur substantial costs for ongoing
compliance with such laws and regulations. We may also face governmental or
third-party claims, or otherwise incur costs, relating to cleanup of, or for
injuries resulting from, contamination at sites associated with past and present
operations. We accrue for environmental liabilities when a determination can be
made that they are probable and reasonably estimable.
Environmental and Other Liabilities Retained or Assumed by Others
We have agreements with former owners of certain of our operating locations
under which the former owners retained or assumed and agreed to indemnify us
against certain environmental and other liabilities. The most significant of
these agreements was entered into at our formation on December 28, 1988 (the
"Acquisition"). Under the related asset purchase agreement between us and Beazer
East, subject to certain limitations, Beazer East assumed the responsibility for
and agreed to indemnify us against certain liabilities, damages, losses and
costs, including, with certain limited exceptions, liabilities under and costs
to comply with environmental laws to the extent attributable to acts or
omissions occurring prior to the Acquisition (the "Indemnity"). Beazer Limited
unconditionally guaranteed Beazer East's performance of the Indemnity pursuant
to a guarantee (the "Guarantee"). Beazer Limited became a wholly owned indirect
subsidiary of Hanson PLC on December 4, 1991. In 1998, Hanson PLC purchased an
insurance policy under which the funding and risk of certain environmental
liabilities relating to the former Koppers Company, Inc. operations of Beazer
East (which includes locations purchased from Beazer East by us) are
underwritten by subsidiaries of Centre Solutions (a member of the Zurich Group)
and Swiss Re.
The Indemnity provides different mechanisms, subject to certain
limitations, by which Beazer East is obligated to indemnify us with regard to
certain environmental claims or environmental cleanup liabilities and imposes
certain conditions on us before receiving such indemnification. We believe that
we have taken appropriate steps to satisfy all of such conditions, but Beazer
East has in the past and may in the future elect to challenge our compliance
with such conditions. For example, Beazer East's obligations under the Indemnity
are subject to certain limitations regarding the time period as to which claims
for indemnification can be brought. These limitations include certain conditions
that we were required to meet by the twelfth anniversary of the closing date,
which occurred in December 2000. Since that time, there has been an ongoing
dispute between us and Beazer East regarding the interpretation and our
satisfaction of those conditions, and the extent of Beazer East's ongoing
obligations to indemnify us after that date, with respect to certain matters.
While we and Beazer East have been working cooperatively toward an acceptable
resolution to this dispute, the failure to reach such a resolution, or a
resolution under terms acceptable to us, could have a material adverse effect on
our business, financial condition, cash flow and results of operation.
Contamination has been identified at many of our sites. Four sites owned
and operated by us in the United States, as well as one former site we recently
sold, are listed on the National Priorities List promulgated under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended. The sites include our Gainesville, Florida wood treating facility;
our
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Galesburg, Illinois wood treating facility; our Florence, South Carolina
wood treating facility; our Follansbee, West Virginia carbon materials and
chemicals facility; and our former Feather River facility, which we recently
sold. Currently, at the properties acquired from Beazer East (which include all
of the National Priorities List sites and all but one of the Resource
Conservation and Recovery Act-permitted sites), substantially all investigative,
cleanup and closure activities are being conducted and paid for by Beazer East
pursuant to the terms of the Indemnity. In addition, many of our sites are or
have been operated under Resource Conservation and Recovery Act permits, and
remedial and closure activities are being conducted thereunder at several of
these sites.
To date, the parties that retained, assumed or agreed to indemnify us
against the liabilities referred to above have performed their obligations in
all material respects. However, disputes have arisen with such parties as to
their obligation to indemnify us in certain cases, such as the dispute with
Beazer East described above. We believe that for the last three years amounts
paid by Beazer East as a result of its environmental remediation obligations
under the Indemnity have averaged in total approximately $8.0 million per year.
If for any reason (including disputed coverage or financial incapability) one or
more of such parties fail to perform their obligations and we are held liable
for or otherwise required to pay all or part of such liabilities without
reimbursement, the imposition of such liabilities on us could have a material
adverse effect on our business, financial condition, cash flow and results of
operations. In addition, if we were required to record a liability with respect
to all or a portion of such matters on our balance sheet, the amount of our
total liabilities could exceed the book value of our assets by an additional
amount that could be significant.
Also, contamination has been detected at certain of our Australian
facilities. These sites include our wood preservation chemicals facility in
Trentham, Victoria, Australia, which has been listed on the Victorian register
of contaminated sites.
Green Spring. We were named as a defendant in a toxic tort action, along
with Beazer East and CSX Transportation, Inc. ("CSX"), arising from the
operation of our wood treating facility in Green Spring, West Virginia ("Green
Spring"). A trial of the claims of eight "test" plaintiffs began on March 11,
2002. As a result of our motion for summary judgment filed before the
commencement of the trial and our motion for a directed verdict filed during the
trial, the court dismissed the claims by the eight "test" plaintiffs against us
and entered final judgment for us on June 25, 2002. The court ruled, among other
things, that we were not the successor company to Beazer East for the purposes
of claims arising from events that occurred before the creation of Koppers Inc.
on December 29, 1988. The final judgment in our favor was not appealed by the
eight "test" plaintiffs. Although the claims of the eight "test" plaintiffs
against us were dismissed, the trial continued with respect to the claims
against Beazer East and CSX. In April 2002, the jury found in favor of Beazer
East and CSX with respect to the claims of four of the eight "test" plaintiffs
which related to medical monitoring. With regard to the remaining four "test"
plaintiffs, the jury awarded damages against Beazer East and CSX totaling
$825,000. Plaintiffs, Beazer East and CSX, filed various post-trial motions in
connection with the trial, all but one of which was denied.
In June 2003, the court approved an amendment to plaintiffs' complaint to
add approximately 20 plaintiffs. The claims of the remaining plaintiffs
(approximately 105) against us, Beazer East and CSX were stayed by the judge
during the pendency of the trial of the claims of the eight "test" plaintiffs.
In January 2003, the court ordered a trial of the claims of the remaining
plaintiffs on certain liability issues. The trial was initially scheduled for
July 2003, but was postponed to July 2004. The remaining plaintiffs were former
employees of Green Spring, family members of such employees and residents of the
communities surrounding Green Spring. Plaintiffs' allegations against the
defendants included personal injuries and property damage related to the
operation of Green Spring over a lengthy period of time, including a period of
time after the Acquisition. Defendants negotiated a settlement with the
plaintiffs that has resulted in the dismissal with prejudice of all claims
against Beazer, CSX and us. The settlement agreement required no contribution
from us. However, there can be no assurance that a contribution will not be
demanded by Beazer East or CSX or, if such contribution is demanded and paid by
us, that it would not have a material adverse effect on our business, financial
condition, cash flow and results of operations.
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Grenada. We, along with Beazer East, Illinois Central Railroad and
Heatcraft, Inc., have been named in four toxic tort lawsuits involving numerous
plaintiffs in the state of Mississippi and one such case in federal court
arising from the operation of our wood treating facility in Grenada, Mississippi
("Grenada") and an adjacent manufacturing facility operated by Heatcraft. The
complaints allege that plaintiffs were exposed to harmful levels of various
toxic chemicals, including creosote and pentachlorophenol, as a result of soil,
surface water and groundwater contamination and air emissions from Grenada and
the Heatcraft facility. Plaintiffs seek compensatory and punitive damages for,
among other things, personal injuries. Discovery is continuing in both the
federal and state cases. In addition, we are seeking to transfer venue of the
state court cases to Grenada County, Mississippi. Although we intend to
vigorously defend these cases, there can be no assurance that an unfavorable
resolution of this matter will not have a material adverse effect on our
business, financial condition, cash flow and results of operations.
Somerville. We, along with Burlington Northern and Santa Fe Rail Way
Company and Solvents and Chemicals, Inc., have been named in a total of nine
toxic tort lawsuits that were filed in December 2003 and early January 2004 in
state courts in Texas by individuals claiming to be residents of Somerville,
Texas. The complaints allege that plaintiffs have suffered personal injuries
resulting from exposure to chemicals used at the Somerville, Texas wood treating
plant, which plant is currently owned by us. Each case is in its early stage. We
intend to vigorously defend these cases.
Other Environmental Matters
In October 1996, we received a Clean Water Act information request from the
U.S. Environmental Protection Agency ("EPA"). This information request asked for
comprehensive information on discharge permits, applications for discharge
permits, discharge monitoring reports and the analytical data in support of the
reports and applications. EPA subsequently alleged that we violated various
provisions of the Clean Water Act. In July 2000, we received a settlement demand
from EPA requesting $4.5 million in settlement of alleged civil violations of
the Clean Water Act. EPA and we subsequently agreed, among other things, to a
$2.9 million settlement, payable over two years. If the terms of the civil
settlement agreement change, there can be no assurance that this would not have
a material adverse effect on our business, financial condition, cash flows and
results of operations. The first payment, totaling $1.0 million, was made in
April 2003.
Additionally, during an investigation initiated by us at our Woodward Coke
facility prior to its closure in January 1998, it was discovered that certain
environmental records and reports related to the discharge of treated process
water contained incomplete and inaccurate information. Corrected reports were
submitted to the State of Alabama and EPA, which resulted in a complaint against
us by EPA alleging certain civil and criminal violations of applicable
environmental laws. We subsequently entered into a plea agreement which
provides, among other things, for the payment by us of a $2.1 million fine
payable to the government over two years and $0.9 million in restitution payable
to the Black Warrior-Cahaba Rivers Land Trust over two years and two years' of
probation. Our plea was entered in August 2002 and the sentencing of our company
occurred in December 2002. At the sentencing, the court, among other things,
approved the terms of the plea agreement previously negotiated between us and
EPA. The payments were made in December 2002 and December 2003. A failure on our
part to comply with the terms of the compliance agreement, plea agreement and
probation could lead to significant additional costs and sanctions, including
the potential for our suspension or debarment from governmental contracts.
Other Matters
There are currently no known viable substitutes for carbon pitch in the
production of carbon anodes. However, in 2000, our largest carbon pitch customer
announced that it was actively pursuing alternative anode technology that would
eliminate the need for carbon pitch as an anode binder. Although management does
not believe that this alternative technology will be developed and used widely
within the next five years, the potential development and implementation of this
new technology could seriously impair our ability to profitably market carbon
pitch and related co-products. Over 75% of our carbon pitch is sold to the
aluminum industry under long-term contracts typically ranging from three to four
years.
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Global restructuring in the electrode and aluminum markets during the past
several years has resulted in reduced volumes of carbon pitch in domestic
markets. Because of the Clean Air Act Amendments of 1990 and other environmental
laws, future coal tar availability from domestic coke production is expected to
decline. Management believes that our ability to source coal tar and carbon
pitch from overseas markets through our foreign operations, as well as our
research of petroleum feedstocks, will assist in securing an uninterrupted
supply of carbon pitch feedstocks.
Our price realizations and profit margins for phthalic anhydride have
historically fluctuated with the price of orthoxylene and its relationship to
our cost to produce naphthalene; however, due to excess supplies of phthalic
anhydride during the past several years, margins did not change proportionally
despite high levels for orthoxylene prices. Management does not expect market
conditions for phthalic anhydride to improve significantly in 2003 or 2004.
In 1999, we entered into a joint venture agreement with Tangshan Iron &
Steel Co. to rehabilitate and operate a tar distillation facility in China. The
joint venture agreement also includes a tar supply contract with Tangshan Iron &
Steel Co., which will serve to ensure the long-term supply of coal tar products
in our Australasian markets. We will participate in the international marketing
of carbon pitch products for the joint venture. Koppers (China) Carbon and
Chemical Co., Limited is 60% owned by us and began production of coal tar
products in 2001. Contributions of cash, engineering services and acquisition
costs for the joint venture total $10.5 million to date.
In June 2001, we entered into an agreement with Tangshan Iron & Steel Co.
whereby it assumed control of Koppers (China) Carbon and Chemical Co., Limited
through December 31, 2003. During this period, Tangshan Iron & Steel Co. bore
all responsibility for the operations and management of the facility, as well as
the net income or loss, except for our pro rata share of depreciation,
amortization and income taxes of the joint venture. Accordingly, we changed our
method of accounting from consolidation to the equity method effective June 2001
to reflect this change in our ability to control Koppers (China) Carbon and
Chemical Co., Limited. Tangshan Iron & Steel Co. has guaranteed a bank loan of
Koppers (China) Carbon and Chemical Co., Limited, and we have issued a
cross-guarantee to Tangshan Iron & Steel Co. in the amount of approximately $1.5
million, representing 60% of the loan amount. On January 1, 2004, we assumed
control of Koppers (China) Carbon and Chemical Co., Limited, which will result
in a consolidation of Koppers (China) Carbon and Chemical Co., Limited in our
financial statements beginning in the first quarter of 2004.
Over the last several years, utility pole demand has dropped as utilities
in the United States and Australia have reduced spending due to competitive
pressures arising from deregulation. It is expected that deregulation will
continue to negatively affect both new and replacement pole installation
markets.
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BUSINESS
General
We are the world's largest integrated producer of carbon compounds and
treated wood products. Our chemical products are used in a wide variety of end
markets and applications in the aluminum, railroad, specialty chemical, utility,
rubber and steel industries. In 2002, we generated approximately 60% of our net
sales from products in which we believe we held the number one or two market
share position by volume. The "Koppers" brand name has been associated with the
carbon compounds and wood treating businesses for many years, and is
well-recognized as a leader in these industries. We sell our products to over
2,300 customers across 69 countries. Our reputation has enabled us to establish
strong relationships with numerous companies preeminent in their respective
markets, including Alcoa Inc., CSX Transportation, Inc., Burlington Northern and
Santa Fe Railway, Union Pacific Railroad Company, Hydro Aluminum and UCAR Carbon
Company Inc. Nine out of our top ten customers are served under long-term
contracts with an average length of five years. In addition, for the twelve
months ended June 30, 2003, we benefited from having 51% of our revenue derived
from contracts of two years or more in duration. During 2002, North America,
Australasia and Europe represented 61%, 25% and 14% of our Adjusted EBITDA,
respectively. For the twelve months ended September 30, 2003, we generated net
sales of $765.2 million and Adjusted EBITDA of $71.3 million. (See footnote 6
under "Selected Consolidated Financial Data" for a reconciliation of Adjusted
EBITDA to net income.)
We operate two principal businesses, Carbon Materials & Chemicals and
Railroad & Utility Products. During 2002, our Carbon Materials & Chemicals
business and Railroad & Utility Products business accounted for 55% and 45% of
net sales, respectively. Through our Carbon Materials & Chemicals business, we
process coal tar into a variety of products, including carbon pitch, creosote
and phthalic anhydride, which are intermediate materials necessary in the
production of aluminum, the pressure treatment of wood and the production of
plasticizers and specialty chemicals, respectively. We believe that our primary
carbon materials and chemicals products are essential components used in our
customers' production processes. For example, carbon pitch is necessary for the
production of aluminum and the electric arc furnace steel-making process.
Through our Railroad & Utility Products business, we are the largest North
American supplier of treated wood products, such as railroad crossties and
utility poles, to railroads and the electric and telephone utility industries.
In 2002, railroad crosstie and related products sales comprised 74% of the net
sales of our Railroad & Utility Products business. Treated wood creates more
durable structures that resist decay, increase safety and reduce replacement
costs.
Our operations are, to a substantial extent, vertically integrated and
employ a variety of processes, as illustrated in the following flow diagram:
We operate 39 facilities located in the United States, the South Pacific
(primarily Australia and New Zealand), Europe and South Africa. We also maintain
an indirect ownership interest in an additional facility in the United States
through our domestic joint venture, KSA Limited Partnership. Additionally, we
hold a 60% interest in an operation in China, which began production in 2001.
Industry Overview
Coal tar is a by-product generated through the processing of coal into coke
for use in steel and iron manufacturing. We produce and distribute a variety of
intermediate chemical products derived from the coal tar distillation process,
including the co-products of the distillation process. During the distillation
process, heat and vacuum are utilized to separate coal tar into three primary
components: carbon pitch (approximately 50%), creosote oils (approximately 30%)
and chemical oils (approximately 20%). Because all coal tar products are
produced in relatively fixed proportion to carbon pitch, the level of carbon
pitch consumption generally determines the level of production of other coal tar
products. Three major markets served by our Carbon Materials & Chemicals
business are the aluminum, wood preservation and chemical industries.
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We believe that our two principal businesses are substantially affected by
demand for aluminum and railroad track maintenance. Worldwide aluminum
production is estimated to increase 7.1% to 27.6 million metric tons in 2003
from 25.4 million metric tons in 2002, and is estimated to continue to grow to
28.3 million metric tons in 2005, for a compound annual growth rate of 3.7%
since 2002. Carbon pitch requirements for the aluminum industry are expected to
be approximately 2.8 million metric tons in 2003, up from 2.6 million metric
tons in 2002.
Approximately 75% of our U.S. creosote production is supplied to our
Railroad & Utility Products business. We estimate the North American market for
creosote to be 551 million pounds, with our share at 58%. Growth in this market
is directly linked to the track maintenance programs of the Class 1 railroads.
In 2004, the total market for creosote is expected to remain consistent with
2003 levels. The North American phthalic anhydride industry has production
capacity of approximately 1.2 billion pounds and is a feedstock for
plasticizers, unsaturated polyester resins, alkyd resins and other miscellaneous
chemicals. Demand in the United States for phthalic anhydride is projected to
grow at approximately 2% per year.
The North American railroad crosstie market is a mature market with
approximately 17.0 million replacement crossties purchased during 2002,
representing an estimated $440.0 million in sales. Historically, investment
trends in track maintenance by domestic railroads have been linked to general
economic conditions in the railroad industry. During the past several years,
domestic railroads have underinvested in track maintenance due to the recession
and a focus on capital equipment programs, such as investments in locomotives.
Recently, the Class 1 railroads have increased their spending on track
maintenance, which has caused an increase in demand for railroad crossties. We
believe this increase in demand will continue for the near term.
The U.S. market for treated wood utility pole products is characterized by
a large number of small producers selling into a price-sensitive industry. The
utility pole market is highly fragmented domestically with over 200
investor-owned electric and telephone utilities and 2,800 smaller municipal
utilities and rural electric associations. Approximately 2.6 million utility
poles are purchased annually in the United States, representing an estimated
$500.0 million in sales, with a smaller market in Australia.
Key Competitive Strengths
Leading Market Positions Across Business Segments. We are the world's
leading integrated distiller of coal tar and supplier of treated wood products
with operations strategically located around the world. We believe that our coal
tar distillation capacity accounts for over 66% of North American coal tar
distillation capacity. In 2002, we generated approximately 60% of our net sales
from products in which we held the number one or two market share position by
volume. We believe our leading market positions and strong reputation provide us
with improved opportunities to gain new business, source appropriate quantities
of raw materials and reliably provide products to our customers.
Strong Customer Relationships Under Contract Arrangements. The "Koppers"
name has been associated with quality and reliability for over 70 years. We sell
our products to over 2,300 customers across 69 countries. Our reputation has
enabled us to establish strong relationships with numerous companies preeminent
in their respective markets, including Alcoa Inc., CSX Transportation, Inc.,
Burlington Northern and Santa Fe Railway, Union Pacific Railroad Company, Hydro
Aluminum and UCAR Carbon Company Inc. Nine out of our top ten customers are
served under long-term contracts with an average length of five years. For the
twelve months ended June 30, 2003, 51% of our net sales were made under contract
arrangements of two or more years. Based on our existing contract arrangements,
we estimate that 2003 net sales from these contracts will total approximately
$400.0 million. Our global presence and strategically located facilities make us
a preferred provider of our customers' requirements. For example, for our top
ten customers with whom we have long-term contract arrangements we have provided
an average of 64% of their carbon materials and treated wood product
requirements during 2003.
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Vertical Integration. Our ability to utilize products produced in our
Carbon Materials & Chemicals business in our manufacturing processes provides us
with significant cost savings. We use approximately 50% of our creosote, a major
co-product of the coal tar distillation process, as a raw material in the
treatment of wood by our Railroad & Utility Products business. We also believe
that we have a significant cost advantage over our competitors as a result of
our ability to use internally generated naphthalene as a primary feedstock in
the production of phthalic anhydride. All of our domestic competitors currently
use orthoxylene, which is generally a higher-cost feedstock than naphthalene, in
the production of phthalic anhydride.
Diversified Supply Base. Our leading position in coal tar distillation
capacity enhance our ability to source high-quality coal tar from multiple
suppliers. In turn, this provides us with a significant competitive advantage in
meeting customer requirements in a timely and economically advantageous manner.
In addition, we believe our ability to source coal tar globally is critical to
obtaining the quality of coal tar needed to satisfy our global customers' needs.
Global and Diverse Product Markets. We sell our carbon materials and
treated wood products to diverse markets across all major regions of the world.
During 2002, North America, Australasia and Europe represented 61%, 25% and 14%
of our Adjusted EBITDA (defined under "Adjusted EBITDA"), respectively. Our more
than 2,300 customers operate in diverse end markets such as aluminum, railroads,
specialty chemicals, including polyester resins, paints, coatings and
plasticizers, steel, utilities, rubber tires, wood preservation, roofing and
pavement sealers. We believe that our broad product line and end markets allow
us to reduce our exposure to any one market segment.
Experienced and Incentivized Management Team. Our senior management team
has an average of 27 years of industry experience. Our president and chief
executive officer, Walter W. Turner, has been in the business since our
formation and was named chief executive officer in 1998. Our other ten executive
officers have an average of more than 25 years of industry experience. Our
directors, management team and employees own approximately 27% of our fully
diluted common equity (collectively referred to herein as our "management
investors").
Our Business Strategy
Increase Market Penetration. We believe we have opportunities to increase
sales of our products to our existing customers. For example, in 2003, our
largest competitor in the railroad wood treating industry announced its
intention to exit the business by the end of the year. As a result of this exit,
we have entered into new long-term contracts with the Burlington Northern and
Santa Fe Railway and Union Pacific Railroad Company, both existing customers. We
believe these contracts will produce approximately $30.0 million of aggregate
incremental sales with minimal capital investment. In addition to strong market
positions in North America and Australia, we believe we have opportunities to
further penetrate the Asian and European markets. Due to increased exports of
Radiata Pine from New Zealand, increased harvesting of renewable plantation
forests throughout Australasia and increased demand for wood treatment
capabilities, we expect to capitalize on our established geographic presence in
Australasia to grow our Railroad & Utility Products business. With our extensive
production capabilities, product breadth, reputation in the industries we serve
and global distribution capabilities, we are well positioned to take advantage
of market opportunities as they arise.
Expand Our Product Portfolio and Customer Base. We expect to expand many of
our product lines through the development of related products to meet new
end-use applications. For instance, we have introduced a coal tar and petroleum
pitch blend that results in up to a 60% reduction in the regulated constituents
in air emissions from aluminum smelters utilizing the Soderberg process.
Additionally, we have patents pending for, and we are in the developmental stage
of, new pitch products to be used in friction materials (brakes),
carbon/graphite and rubber products. A number of trials are in progress with
aircraft and automotive brake manufacturers to replace higher-cost, less
effective additives currently in use with our coal tar products.
Continue to Enhance Productivity and Implement Cost Reduction Initiatives.
We continue to focus on productivity and cost reduction initiatives to improve
our profitability. During 2002, we completed cost-saving
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programs that resulted in annual cost savings of $2.5 million, before giving
effect to severance and other costs, as a result of rationalizing tar
distillation capacity by 19% and eliminating the need for offsite disposal costs
of a phthalic anhydride waste stream. We also implemented energy saving
initiatives and sludge reduction and capacity utilization measures to improve
our productivity. As a result of these and other initiatives, we increased our
revenue per employee 7.6% to $353,000 in 2002 from $328,000 in 2001. We
continually evaluate our operations for potential improvements in productivity
and cost reduction initiatives.
Carbon Materials & Chemicals
Our Carbon Materials & Chemicals business manufactures five principal
products: (a) carbon pitch, used in the production of aluminum and steel; (b)
phthalic anhydride, used in the production of plasticizers and polyester resins;
(c) creosote, used in the treatment of wood; (d) carbon black (and carbon black
feedstock), used in the manufacture of rubber tires; and (e) furnace coke, used
in steel production. Carbon pitch, phthalic anhydride, creosote and carbon black
are produced through the distillation of coal tar, a by-product of the
transformation of coal into coke. The Carbon Materials & Chemicals business's
profitability is impacted by its cost to purchase coal tar in relation to its
prices realized for carbon pitch, phthalic anhydride, creosote and carbon black.
We have four tar distillation facilities in the United States, one in Australia,
one in Denmark and two in the United Kingdom, strategically located to provide
access to coal tar and to facilitate better service to our customers with a
consistent supply of high-quality products. For 2002, 2001 and 2000,
respectively, principal products comprised the following percentages of net
sales for Carbon Materials & Chemicals: (i) carbon pitch, 39%, 37% and 37%; (ii)
phthalic anhydride, 12%, 12% and 14%; (iii) creosote, 11%, 9% and 9%; (iv)
carbon black (and carbon black feedstock), 10%, 10% and 9%; and (v) furnace
coke, 10%, 8% and 9%.
We believe we have a strategic advantage over our competitors based on our
ability to access coal tar from many global suppliers and subsequently blend
such coal tars to produce carbon pitch with the consistent quality important in
the manufacturing of quality anodes for the aluminum industry. Our eight coal
tar distillation facilities, three of which have port access, and two carbon
pitch terminals give us the ability to offer customers multiple sourcing and a
consistent supply of high quality products. In anticipation of potential
reductions of U.S. coke capacity, we have secured coal tar supply through
long-term contracts and acquisitions.
Coal tar distillation involves the conversion of coal tar into a variety of
intermediate chemical products in processes beginning with distillation. During
the distillation process, heat and vacuum are utilized to separate coal tar into
three primary components: carbon pitch (approximately 50%), creosote oils
(approximately 30%) and chemical oils (approximately 20%).
Over 75% of our carbon pitch is sold to the aluminum industry under
long-term contracts typically ranging from three to four years, many with
provisions for periodic pricing reviews. Demand for carbon pitch generally has
fluctuated with production of primary aluminum. However, global restructuring in
the electrode and aluminum markets during the past several years has resulted in
reduced volumes in domestic markets. Because all coal tar products are produced
in relatively fixed proportion to carbon pitch, the level of carbon pitch
consumption generally determines the level of production of other coal tar
products. The commercial carbon industry, the second largest user of carbon
pitch, uses carbon pitch to produce electrodes and other specialty carbon
products for the steel industry. There are currently no known viable substitutes
for carbon pitch in the production of carbon anodes used in the aluminum
production process.
Creosote is used in the wood preservation industry as a preservative for
railroad crossties and lumber, utility poles and pilings. To the extent that
creosote cannot be sold for use in treating wood products, distillate oils are
sold into the carbon black market rather than being blended to creosote
specifications.
Approximately 50% of our total creosote production was sold to our Railroad
& Utility Products business in 2002. Railroad & Utility Products purchases
substantially all of its creosote from the Carbon Materials & Chemicals
business. We are the only competitor in this market that is integrated in this
fashion.
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The remainder of our creosote is sold to railroads or to other wood treaters. We
have one principal competitor in the creosote market.
We are also a 51% owner of a timber preservation chemicals business that
operates throughout Australia, New Zealand, Southeast Asia, Japan and South
Africa. Timber preservation chemicals are used to impart durability to timber
products used in building/construction, agricultural and heavy-duty industrial
markets. The most commonly used chemicals are creosote, copper chrome arsenates,
copper co-biocides, sapstain control products and light organic solvent
preservatives.
Roofing pitch and refined tars are also produced in smaller quantities and
are sold into the commercial roofing and pavement sealer markets, respectively.
Carbon black is manufactured in Australia at a carbon black facility using
both petroleum oil and coal tar based feedstocks, which are subjected to heat
and rapid cooling within a reactor. Additionally, tar-based carbon black
feedstock is manufactured as a co-product of the tar distillation process and
can be produced at our four domestic, one Australian and three European tar
distillation facilities. The tar distillation plant in Australia provides our
carbon black business with approximately 40% of its coal tar based feedstock
needs.
Chemical oils resulting from the distillation of coal tars are further
refined by us into naphthalene, which is the primary feedstock used by us for
the production of phthalic anhydride. The primary markets for phthalic anhydride
are in the production of plasticizers, unsaturated polyester resins and alkyd
resins.
On a worldwide basis, naphthalene and orthoxylene, a refined petroleum
derivative, are both used in the manufacturing of phthalic anhydride. In the
United States, however, we are the only phthalic anhydride producer capable of
utilizing both orthoxylene and naphthalene in its manufacturing process. The
other four principal phthalic anhydride competitors can use only orthoxylene in
the production of phthalic anhydride. Our price realizations and profit margins
for phthalic anhydride have historically fluctuated with the price of
orthoxylene and its relationship to our cost to produce naphthalene; however,
due to difficult market conditions and excess supplies of phthalic anhydride
during the past several years, margins did not change proportionally to
orthoxylene prices. Management does not expect market conditions for phthalic
anhydride to improve significantly in 2003. Our cost to produce naphthalene and
phthalic anhydride is primarily driven by our cost to procure and distill coal
tar. Naphthalene is also sold into the industrial sulfonate market for use as
dispersants in the concrete additive and gypsum board markets. Additional end
uses include oil field additives, agricultural emulsifiers, synthetic tanning
agents and dyestuffs.
Furnace coke is a carbon and fuel source required in the manufacturing of
steel. Coal, the primary raw material, is carbonized in oxygen-free ovens to
obtain the finished product. Coke manufacturers are either an integrated part of
a steel company or, as in our case, operate independently and are known as
"merchant producers."
Our coke business consists of one production facility located in Monessen,
Pennsylvania, which produces furnace coke. The plant consists of two batteries
with a total of 56 ovens and has a total capacity of approximately 350,000 tons
of furnace coke per year. All of the ovens were rebuilt in 1980 and 1981, which,
together with recent improvements, make our Monessen facility one of the most
modern coking facilities in the United States.
Before the expiration of the related tax law at December 31, 2002, our
Monessen facility qualified for a tax credit based on its production of coke as
a non-conventional fuel and the sale thereof to unrelated third parties. The tax
credit generated per ton of coke was tied to a per-barrel of oil equivalent
determined on a British Thermal Unit basis and adjusted annually for inflation.
The value of this tax credit per ton of coke was approximately $28. In December
1999 we entered into an agreement with a third party which resulted in
substantially all tax credits generated as a result of the production and sale
of coke at our Monessen facility being transferred to the third party. In 2002,
2001 and 2000, we earned $9.8 million, $8.2 million and $8.6 million,
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respectively, for the transfer of tax credits. The tax credits expired at the
end of 2002. Prior to the Monessen transaction, we earned these credits.
The Carbon Materials & Chemicals business's ten largest customers
represented approximately 47%, 44% and 44% of the business's net sales for 2002,
2001 and 2000, respectively. We have one primary global competitor in the carbon
pitch market.
Coal tar is purchased from a number of outside sources as well as from our
Monessen facility. Primary suppliers are United States Steel Corporation,
International Steel Group, China Steel Chemical Corporation, Bluescope Steel
(AIS) Pty. Limited, OneSteel Manufacturing Pty. Ltd., Corus Group PLC and
Wheeling-Pittsburgh Steel Corporation.
Because of the Clean Air Act Amendments of 1990 and other environmental
laws, future coal tar availability from domestic coke production is expected to
decline. Management believes that our ability to source coal tar and carbon
pitch from overseas markets through our foreign operations, as well as our
research of petroleum feedstocks, will assist in securing an uninterrupted
supply of carbon pitch feedstocks.
In 1999, we entered into a joint venture agreement with Tangshan Iron &
Steel Co. to rehabilitate and operate a tar distillation facility in China. The
joint venture, Koppers (China) Carbon and Chemical Co., Limited, is 60% owned by
us and began production of coal tar products in 2001. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Other
Matters."
Restructuring Activities. In December 2003, we ceased production at our
carbon materials facility in Woodward, Alabama, resulting in a charge to fourth
quarter pre-tax income of $5.0 million to $5.5 million. We also concluded that
our carbon materials port operation in Portland, Oregon is an impaired facility
based on its current and long-term economic prospects as a result of recent
negotiations with a significant customer. The impairment charge and other costs
for this facility are expected to result in a charge to fourth quarter pre-tax
income of $3.0 million to $4.0 million. The negative business outlook for this
facility has also resulted in a tentative agreement for the settlement of a
freight contract in the amount of $1.4 million. The total anticipated charge to
fourth quarter pre-tax income for these items is expected to be approximately
$9.5 million to $11.0 million.
Railroad & Utility Products
We market treated wood products primarily to the railroad and public
utility markets, primarily in the United States and Australia. The Railroad &
Utility Products business's profitability is influenced by the demand for
railroad products and services by Class 1 railroads, demand for transmission and
distribution poles by electric and telephone utilities and its cost to procure
wood. In 2002, sales of railroad products and services represented approximately
74% of the Railroad & Utility Products business's net sales. Railroad products
include items such as crossties, switch ties and various types of lumber used
for railroad bridges and crossings. Utility products include transmission and
distribution poles for electric and telephone utilities and pilings used in
industrial foundations, beach housing, docks and piers. The Railroad & Utility
Products business operates 20 wood treating plants, one specialty trackwork
facility, one co-generation facility and pole distribution yards located
throughout the United States and Australia. Our network of plants is
strategically located near timber supplies to enable us to access raw materials
and service customers effectively. In addition, our crosstie treating plants
typically abut railroad customers' track lines, and our pole distribution yards
are typically located near our utility customers.
The Railroad & Utility Products business's largest customer base is the
Class 1 railroad market, which buys 73% of all crossties produced in the United
States. We have also been expanding key relationships with the approximately 550
short-line and regional rail lines. The railroad crosstie market is a mature
market with approximately 17 million replacement crossties purchased during
2002. We currently have contracts with six of the seven North American Class 1
railroads and have enjoyed long-standing relationships with this important
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customer base. These relationships, coupled with a growing interest on the part
of railroads to outsource non-core activities and consolidate their supplier
base, have enabled us to position our company for growth by offering certain
products and services to railroads at a cost lower than the railroads' internal
cost. Such new services include assembling track sections and affixing fastening
devices at the treating plant rather than field locations; fabricating specialty
track items such as turnouts; and disposing of discarded ties in an
environmentally safe manner in high temperature boiler. From 2000 to 2002, 10%
of Railroad & Utility Products' net sales were derived from these types of
services to railroads. We intend to capitalize on our relationships with
railroads by expanding our current service offerings, including track panels,
specialty track components and railroad tie disposal.
Historically, investment trends in track maintenance by domestic railroads
have been linked to general economic conditions in the country. During
recessions, the railroads have typically deferred track maintenance until
economic conditions improve. Recently, however, the Class 1 railroads have
increased their spending on track maintenance, which has caused an increase in
demand for railroad crossties. The increased maintenance during a recessionary
cycle can be partially attributed to merger activities that resulted in
deferrals of track maintenance over the past few years. Management believes this
increase in demand will continue for the near term.
Hardwoods, such as oak and other species, are the major raw materials in
wood crossties. Hardwood prices, which account for approximately 62% of a
finished crosstie's cost, fluctuate with the demand from competing hardwood
lumber markets, such as oak flooring, pallets and other specialty lumber
products. Normally, raw material price fluctuations are passed through to the
customer according to the terms of the applicable contract. Weather conditions
can be a factor in the supply of raw material, as unusually wet conditions may
make it difficult to harvest timber.
In the United States, hardwood lumber is procured by us from hundreds of
small sawmills throughout the northeastern, midwestern, and southern areas of
the country. The crossties are shipped via rail car or trucked directly to one
of our twelve crosstie treating plants, all of which are on line with a major
railroad. The crossties are either air-stacked for a period of six to twelve
months or artificially dried by a process called boultonizing. Once dried, the
crossties are pressure treated with creosote, a product of our Carbon Materials
& Chemicals business.
Our top ten Railroad & Utility Products accounts comprised approximately
66%, 61% and 59% of Railroad & Utility Products' net sales for 2002, 2001 and
2000, respectively, and are serviced through long-term contracts ranging from
one to seven years on a requirements basis. Our sales to the railroad industry
are coordinated through our office in Pittsburgh, Pennsylvania. We have one
principal national competitor in the railroad products market; this competitor
is exiting the wood treating business. There are also several principal regional
competitors in this market.
We believe that the threat of substitution for the wood crosstie is low due
to the higher cost of alternative materials. Concrete crossties, however, have
been identified by the railroads as a feasible alternative to wood crossties in
limited circumstances. In 1991, we acquired a 50% partnership interest in KSA
Limited Partnership, a concrete crosstie manufacturing facility in Portsmouth,
Ohio, in order to take advantage of this growth opportunity. In 2002, an
estimated 1.2 million concrete crossties, or 7.5% of total tie insertions, were
installed by Class 1 railroads. We believe that concrete crossties will continue
to command approximately this level of market share. KSA produced approximately
70,000 concrete crossties in 2002, or 12% of the Class 1 estimated concrete tie
market. While the cost of material and installation of a concrete crosstie is
much higher than that of a wood tie, the average life of wood and concrete
crossties are similar, although concrete generally performs better in high
weight bearing, high traffic areas and is attractive to railroads for these
purposes.
Utility poles are produced mainly from softwoods such as pine and fir in
the United States and from hardwoods of the eucalyptus species in Australia.
Most of these poles are purchased from large timber owners and individual
landowners and shipped to one of our pole-peeling facilities. While crossties
are treated
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exclusively with creosote, we treat poles with a variety of preservatives
including pentachlorophenol, copper chrome arsenates, creosote and
antisapstains.
In the United States the market for utility pole products is characterized
by a large number of small, highly competitive producers selling into a
price-sensitive industry. The utility pole market is highly fragmented
domestically with over 200 investor-owned electric and telephone utilities and
2,800 smaller municipal utilities and rural electric associations. Approximately
2.6 million poles are purchased annually in the United States, with a smaller
market in Australia. In recent years we have seen our utility pole volumes
decrease due to industry deregulation and its impact on maintenance programs. We
expect demand for utility poles to remain at low levels. In Australia, in
addition to utility poles, we market smaller poles to agricultural, landscape
and vineyard markets.
During the period from 2000 to 2002, sales of pole products have accounted
for approximately 20% of Railroad & Utility Products' net sales. We have nine
principal competitors in the utility products market. There are few barriers to
entry in the utility products market, which consists of regional wood treating
companies operating small to medium size plants and serving local markets.
Plant Closure. In September 2003, we closed our Logansport, Louisiana wood
treating plant due to deteriorating local market conditions and their impact on
volumes and profitability. The closure resulted in a $2.9 million restructuring
charge in the third quarter, of which $1.2 million is non-cash. The closure is
expected to generate $0.7 million of annual savings. We believe the U.S. market
for wood treated utility poles suffers from over-capacity, and we will continue
to evaluate future productivity and cost reduction initiatives in this business.
Due to deteriorating market conditions resulting in increasing operating
losses over the past several years, in February 2001 our Board of Directors
approved the closure of our utility pole facility and adjacent cogeneration
facility located in Feather River, California effective March 31, 2001. This
closure resulted in total charges to earnings in 2001 of $4.6 million, which
included $1.3 million of operating expenses. At December 31, 2002, closure of
the facility has been completed, the land has been sold, and there are no
remaining reserves.
Equity Investments and Related Parties
Domestic Joint Venture: KSA Limited Partnership
KSA Limited Partnership, located in Portsmouth, Ohio, produces concrete
crossties, a complementary product to our treated wood crosstie business. Other
interests are held by Sherman International Corp. (24%), Abetong America, Inc.
(24%) and Sherman Abetong, Inc. (2%). KSA Limited Partnership entered into a
contract with its major customer in 2000 to supply a minimum of 450,000 concrete
ties over a period of five years. KSA Limited Partnership also provides concrete
turnouts, used in rail traffic switching, and used crosstie rehabilitation.
Foreign Joint Venture: Koppers (China) Carbon and Chemical Co., Limited
In 1999, we entered into a joint venture agreement with Tangshan Iron &
Steel Co. to rehabilitate and operate a tar distillation facility in China.
Koppers (China) Carbon and Chemical Co., Limited is 60% owned by us and began
production of coal tar products in 2001. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other Matters."
Research and Development
As of December 31, 2002, we had 11 full-time employees engaged in research
and development and technical service activities. Our research efforts are
directed toward new product development regarding alternate uses for coal tar
and technical service efforts to promote the use of creosote. We believe the
research
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and technical efforts provided in these areas are adequate to maintain a
leadership position in the technology related to these products. Expenditures
for research and development for 2002, 2001 and 2000 were $2.9 million, $2.7
million and $2.5 million, respectively.
Technology and Licensing
In 1988, we acquired certain assets from Koppers Company, Inc. including
the patents, patent applications, trademarks, copyrights, transferable licenses,
inventories, trade secrets and proprietary processes used in the businesses
acquired. The most important trademark acquired was the name "Koppers." The
association of the name with the chemical, building, wood preservation and coke
industries is beneficial to our company, as it represents longstanding,
high-quality products.
Environmental Matters
Our operations and properties are subject to extensive federal, state,
local and foreign environmental laws and regulations relating to protection of
the environment and human health and safety including those concerning the
treatment, storage and disposal of wastes, the investigation and remediation of
contaminated soil and groundwater, the discharge of effluents into waterways,
the emission of substances into the air, as well as various health and safety
matters. Environmental laws and regulations are subject to frequent amendment
and have historically become more stringent. We have incurred and could incur in
the future significant costs as the result of our failure to comply with, and
liabilities under, environmental laws and regulations, including cleanup costs,
civil and criminal penalties, injunctive relief and denial or loss of, or
imposition of significant restrictions on, environmental permits. In addition,
we have and could in the future be subject to suit by private parties in
connection with alleged violations of or liabilities under environmental laws
and regulations.
For the last three years, our annual capital expenditures in connection
with environmental control facilities averaged approximately $6.0 million, and
annual operating expenses for environmental matters, excluding depreciation,
averaged approximately $9.0 million. We currently estimate that capital
expenditures in connection with matters relating to environmental control
facilities will be approximately $10.0 million for 2003, of which $2.5 million
has been spent as of June 30, 2003. We believe that we will have continuing
significant expenditures associated with compliance with environmental laws and
regulations and, to the extent not covered by insurance or available recoveries
under third-party indemnification arrangements, for present and future
remediation efforts at plant sites and third-party waste sites and other
liabilities associated with environmental matters. There can be no assurance
that these expenditures will not exceed current estimates and will not have a
material adverse effect on our business, financial condition, cash flow and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Environmental and Other Matters."
Employees and Employee Relations
As of December 31, 2002, we employed 700 salaried employees and 1,357
non-salaried employees. Listed below is a breakdown of employees by our
businesses, including administration.
Non-
Business Salaried Salaried Total
-------- -------- -----
Carbon Materials & Chemicals 362 620 982
Railroad & Utility Products 248 737 985
Administration 90 0 90
------ ----- -----
Total Employees 700 1,357 2,057
Of our employees, approximately 54% are represented by 24 different unions
and covered under numerous labor contracts. The United Steelworkers of America,
covering workers at six facilities, accounts for
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the largest membership with more than 300 employees. Another significant
affiliation is the Paper, Allied-Industrial, Chemical & Energy Workers'
International Union, with more than 170 employees at four facilities. Labor
contracts expiring in 2003 cover approximately 12% of total employees. Our
relationships with our employees and the labor unions that represent them are
satisfactory.
Properties
Our principal fixed assets consist of our production, treatment, and
storage facilities and our transportation and plant vehicles. Our production
facilities consist of 18 Carbon Materials & Chemicals facilities and 21 Railroad
& Utility Products facilities. As of December 31, 2002, the net book value of
vehicles, machinery and equipment represented approximately 32% of our total
assets, as reflected in our consolidated balance sheet. The following chart sets
forth information regarding our facilities:
Description of
Primary Product Line Location Acreage Property Interest
Carbon Materials & Chemicals
Wood Preservation Chemicals Auckland, New Zealand 1 Leased
Carbon Pitch Clairton, Pennsylvania 17 Owned
Carbon Pitch, Creosote, Naphthalene Pt. Clarence, England 120 Owned
Wood Preservation Chemicals Lautoka, Fiji 1 Owned
Carbon Pitch Follansbee, West Virginia 32 Owned
Carbon Black Kurnell, New South Wales, Australia 20 Leased
Carbon Pitch Mayfield, New South Wales, Australia 26 Owned
Carbon Pitch Mayfield, New South Wales, Australia 1 Leased
Furnace Coke Monessen, Pennsylvania 45 Owned
Carbon Pitch Nyborg, Denmark 36 26 Owned,
10 Leased
Wood Preservation Chemicals Penang, Malaysia 3 Leased
Carbon Pitch Portland, Oregon 6 Leased
Carbon Pitch Portland, Victoria, Australia 1 Leased
Carbon Pitch Scunthorpe, England 27 Owned
Wood Preservation Chemicals Port Shepstone, South Africa 1 Leased
Carbon Pitch, PAA Stickney, Illinois 38 Owned
PAA Totton, England 1 Owned
Wood Preservation Chemicals Trentham, Victoria, Australia 24 Owned
Carbon Pitch Woodward, Alabama 23 Owned
Railroad & Utility Products
Specialty Trackwork Alorton, Illinois 12 6 Owned,
6 Leased
Utility Poles, Railroad Crossties Bunbury, Western Australia 26 Owned
Utility Poles, Railroad Crossties Bunbury, Western Australia 15 Leased
Utility Poles, Railroad Crossties Denver, Colorado 64 Owned
Utility Poles, Railroad Crossties Florence, South Carolina 200 Owned
Utility Poles Gainesville, Florida 86 Owned
Railroad Crossties Galesburg, Illinois 125 Leased
Utility Poles Grafton, New South Wales, Australia 100 Owned
Railroad Crossties Green Spring, West Virginia 98 Owned
Utility Poles, Railroad Crossties Grenada, Mississippi 154 Owned
Railroad Crossties Guthrie, Kentucky 122 Owned
Pine Products Hume, Australia Capital Territory 5 99 Year Lease
Utility Poles Logansport, Louisiana 30 Owned
Utility Poles Longford, Tasmania 17 Owned
Railroad Crossties Montgomery, Alabama 84 Owned
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Railroad Crossties N. Little Rock, Arkansas 148 Owned
Railroad Crossties Roanoke, Virginia 91 Owned
Railroad Crossties Somerville, Texas 244 Owned
Railroad Crossties Superior, Wisconsin 120 Owned
Railroad Crossties Susquehanna, Pennsylvania 109 Owned
Pine Products Takura, Queensland, Australia 75 Leased
Pine Products Takura, Queensland, Australia 2 Leased
Utility Poles Thornton, New South Wales, Australia 15 Owned
Our corporate offices are located in approximately 60,000 square feet of
leased office space in the Koppers Building, Pittsburgh, Pennsylvania. The
office space is leased from Axiom Real Estate Management, Inc. with the lease
term expiring on December 31, 2010.
Legal Proceedings
We are involved in litigation and various proceedings relating to
environmental laws and regulations and toxic tort matters. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Environmental and Other Matters."
Government Investigation
On December 4, 2002, European Commission representatives visited the
offices of our subsidiaries located in Nyborg, Denmark and Scunthorpe, England
and obtained documents pursuant to legal process as part of an investigation of
industry competitive practices concerning pitch, creosote and naphthalene. The
U.S. Department of Justice also served a subpoena for similar documents at our
headquarters in Pittsburgh, Pennsylvania. The investigation is continuing and we
are cooperating with both the European Commission and the U.S. Department of
Justice. We are also cooperating with the Canadian Competition Bureau. As a
result of such cooperation, (i) in February 2003, the European Commission
granted our request for exemption from penalties for any infringement the
European Commission may find as a result of its investigation concerning pitch;
(ii) in April 2003, U.S. Department of Justice granted our request for exemption
from prosecution for any infringement as a result of imports of pitch, creosote
and naphthalene, or the purchase for export of coal tar used to product these
products; and (iii) in April 2003, the Canadian Competition Bureau granted us a
provisional guarantee of immunity from prosecution under the Canadian
Competition Act with respect to the supply and sale of tar pitch, naphthalene,
creosote oil and carbon black feed-stock prior to 2001. These exemptions were
granted upon certain conditions, including our continued cooperation. We are
currently unable to determine the outcome of the investigations. There can be no
assurance that the outcome of these matters will not have a material adverse
effect on our business, financial condition, cash flows and results of
operations.
We are involved in various other proceedings incidental to the ordinary
conduct of our business. We believe that none of these other proceedings will
have a material adverse effect on our business, financial condition, cash flows
and results of operations.
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THE EXCHANGE OFFER
As of the date of this prospectus, $320.0 million in principal amount of
the Old Notes is outstanding. This prospectus, together with the letter of
transmittal, is first being sent to holders on , 2004.
Purpose of the Exchange Offer
We issued the Old Notes on October 15, 2003 in a transaction exempt from
the registration requirements of the Securities Act. Accordingly, the Old Notes
may not be reoffered, resold, or otherwise transferred unless so registered or
unless an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.
In connection with the sale of the Old Notes, we entered into a
registration rights agreement, which requires us to:
o file a registration statement with the Securities and Exchange
Commission (the "SEC") relating to the exchange offer on or prior to
90 days after the date of issuance of the Old Notes;
o use our commercially reasonable efforts to cause the registration
statement relating to the exchange offer to become effective under the
Securities Act within 180 days after the date of issuance of the Old
Notes; and
o complete the exchange offer no later than 40 days after the exchange
offer registration statement becomes effective.
We are making the exchange offer to satisfy our obligations under the
registration rights agreement dated as of September 30, 2003. Other than
pursuant to the registration rights agreement, we are not required to file any
registration statement to register any outstanding Old Notes. Holders of Old
Notes who do not tender their Old Notes or whose Old Notes are tendered but not
accepted in the exchange offer must generally rely on an exemption from the
registration requirements under the securities laws, including the Securities
Act, if they wish to sell their Old Notes.
We are making the exchange offer in reliance on the position of the staff
of the SEC as set forth in interpretive letters addressed to third parties in
other transactions. However, we have not sought our own interpretive letter and
we can provide no assurance that the staff would make a similar determination
with respect to the exchange offer as it has in interpretive letters to third
parties. Based on these interpretations by the staff, we believe that the
Exchange Notes issued in the exchange offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by a holder other than any
holder who is a broker-dealer or an "affiliate" of ours within the meaning of
Rule 405 of the Securities Act, without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that:
o the Exchange Notes are acquired in the ordinary course of the holder's
business;
o the holder has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes; and
o the holder is not engaged in, and does not intend to engage in a
distribution of the Exchange Notes.
For additional information, see "--Resale of Exchange Notes."
If you tender in the exchange offer for the purpose of participating in a
distribution of the Exchange Notes, of if you are a broker-dealer who purchased
the Old Notes from us for resale pursuant to Rule 144A or
-60-
any other available exemption under the Securities Act, you cannot rely on the
interpretations by the staff of the SEC stated in these no-action letters.
Instead, you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer,
unless an exemption from these requirements is otherwise available.
Further, each broker-dealer that receives the Exchange Notes for its own
account in exchange for the Old Notes, where the broker-dealer acquired the Old
Notes as a result of market-making or other trading activities, must acknowledge
in a letter of transmittal that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of those
Exchange Notes. The letter of transmittal states that by making this
acknowledgment and delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
We have agreed that this prospectus may be used by a broker-dealer for any
resale of Exchange Notes issued to it in the exchange offer for a period of 180
days after the expiration date of the exchange offer. See "Plan of
Distribution."
Terms of the Exchange
We are offering to exchange, subject to the conditions described in this
prospectus and in the letter of transmittal accompanying this prospectus, $320.0
million in aggregate principal amount of our 9 7/8% senior secured notes due
2013 that have been registered under the Securities Act for a like principal
amount of our outstanding unregistered 9 7/8% senior secured notes due 2013. The
terms of the Exchange Notes are identical in all material respects to the terms
of the Old Notes, except that:
o the Exchange Notes will have been registered under the Securities Act,
will not contain transfer restrictions, and will not bear legends
restricting their transfer;
o the Exchange Notes will not contain terms providing for the payment of
additional interest under circumstances relating to our obligation to
file and cause to be effective a registration statement;
o the Exchange Notes will be represented by one or more global notes in
book entry form unless exchanged for Notes in definitive certificated
form under the limited circumstances described under "Description of
the Exchange Notes -- Global Notes and Book-Entry System"; and
o the Exchange Notes will be issuable in denominations of $1,000 and
integral multiples thereof.
The Exchange Notes generally will be freely transferable by holders of the
Exchange Notes and will not be subject to the terms of the registration rights
agreement. The Exchange Notes will evidence the same indebtedness as the Old
Notes exchanged therefor and will be entitled to the benefits of the indenture.
For additional information, see "Description of the Exchange Notes."
The exchange offer is not conditioned upon the tender of any minimum
principal amount of Old Notes.
The Exchange Notes will accrue interest from the last interest payment date
on which interest was paid on the Old Notes or, if no interest was paid on the
Old Notes, from the date of issuance of the Old Notes, which was on October 15,
2003. Holders whose Old Notes are accepted for exchange will be deemed to have
waived the right to receive any interest accrued on the Old Notes.
Tendering holders of the Old Notes will not be required to pay brokerage
commissions or fees or transfer taxes, except as specified in the instructions
in the letter of transmittal, with respect to the exchange of the Old Notes in
the exchange offer.
-61-
Expiration Date; Extension; Termination; Amendment
The exchange offer will expire at 5:00 p.m., New York City time, on , 2004,
unless we, in our sole discretion, have extended the period of time for which
the exchange offer is open. The time and date, as it may be extended, is
referred to herein as the "expiration date." The expiration date will be at
least 20 business days after the commencement of the exchange offer in
accordance with Rule 14e-1(a) under the Exchange Act. We expressly reserve the
right, at any time or from time to time, to extend the period of time during
which the exchange offer is open, and thereby delay acceptance for exchange of
any Old Notes. We may extend the expiration date by giving oral or written
notice of the extension to the exchange agent and by timely public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. During the extension, all Old Notes
previously tendered will remain subject to the exchange offer unless properly
withdrawn.
We expressly reserve the right to:
o terminate or amend the exchange offer and not to accept for exchange
any Old Notes not previously accepted for exchange upon the occurrence
of any of the events specified in "--Certain Conditions to the
Exchange Offer" which have not been waived by us; and
o amend the terms of the exchange offer in any manner which, in our good
faith judgment, is advantageous to the holders of the Old Notes,
whether before or after any tender of the Old Notes.
If any termination or amendment occurs, we will notify the exchange agent
and will either issue a press release or give oral or written notice to the
holders of the Old Notes as promptly as practicable.
For purposes of the exchange offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless we terminate
the exchange offer prior to 5:00 p.m., New York City time, on the expiration
date, we will exchange the Exchange Notes for the Old Notes promptly following
the expiration date.
Procedures for Tendering Old Notes
Our acceptance of Old Notes tendered by a holder will constitute a binding
agreement between the tendering holder and us upon the terms and subject to the
conditions described in this prospectus and in the accompanying letter of
transmittal. All references in this prospectus to the letter of transmittal are
deemed to include a facsimile of the letter of transmittal.
A holder of Old Notes may tender the Old Notes by:
o properly completing and signing the letter of transmittal;
o properly completing any required signature guarantees;
o properly completing any other documents required by the letter of
transmittal; and
o delivering all of the above, together with the certificate or
certificates representing the Old Notes being tendered, to the
exchange agent at its address set forth below at or prior to 5:00
p.m., New York City time, on the expiration date; or
o complying with the procedure for book-entry transfer described below;
or
o complying with the guaranteed delivery procedures described below.
-62-
The method of delivery of Old Notes, letters of transmittal and all other
required documents is at the election and risk of the holders. If the delivery
is by mail, it is recommended that registered mail properly insured, with return
receipt requested, be used. In all cases, sufficient time should be allowed to
ensure timely delivery. Holders should not send Old Notes or letters of
transmittal to us.
The signature on the letter of transmittal need not be guaranteed if:
o tendered Old Notes are registered in the name of the signer of the
letter of transmittal; and
o the Exchange Notes to be issued in exchange for the Old Notes are to
be issued in the name of the holder; and
o any untendered Old Notes are to be reissued in the name of the holder.
In any other case, the tendered Old Notes must be:
o endorsed or accompanied by written instruments of transfer in form
satisfactory to us;
o duly executed by the holder; and
o the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution, each an "eligible
institution" that is a member of a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act.
If the Exchange Notes and/or Old Notes not exchanged are to be delivered to
an address other than that of the registered holder appearing on the note
register for the Old Notes, the signature in the letter of transmittal must be
guaranteed by an eligible institution.
The exchange agent will make a request within two business days after the
date of receipt of this prospectus to establish accounts with respect to the Old
Notes at The Depository Trust Company ("DTC"), the "book-entry transfer
facility," for the purpose of facilitating the exchange offer. Subject to
establishing the accounts, any financial institution that is a participant in
the book-entry transfer facility's system may make book-entry delivery of Old
Notes by causing the book-entry transfer facility to transfer the Old Notes into
the exchange agent's account with respect to the Old Notes in accordance with
the book-entry transfer facility's procedures for the transfer. Although
delivery of Old Notes may be effected through book-entry transfer into the
exchange agent's account at the book-entry transfer facility, an appropriate
letter of transmittal with any required signature guarantee and all other
required documents, or an agent's message, must in each case be properly
transmitted to and received or confirmed by the exchange agent at its address
set forth below under "--Exchange Agent" prior to the expiration date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures.
The exchange agent and DTC have confirmed that the exchange offer is
eligible for the DTC Automated Tender Offer Program. We refer to the Automated
Tender Offer Program in this prospectus as "ATOP." Accordingly, DTC participants
may, in lieu of physically completing and signing the letter of transmittal and
delivering it to the exchange agent, electronically transmit their acceptance of
the exchange offer by causing DTC to transfer Old Notes to the exchange agent in
accordance with DTC's ATOP procedures for transfer. DTC will then send an
agent's message.
The term "agent's message" means a message which:
o is transmitted by DTC;
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o received by the exchange agent and forming part of the book-entry
transfer;
o states that DTC has received an express acknowledgment from a
participant in DTC that is tendering Old Notes which are the subject
of the book-entry transfer;
o states that the participant has received and agrees to be bound by all
of the terms of the letter of transmittal; and
o states that we may enforce the agreement against the participant.
If a holder desires to accept the exchange offer and time will not permit a
letter of transmittal or Old Notes to reach the exchange agent before the
expiration date or the procedure for book-entry transfer cannot be completed on
a timely basis, the holder may effect a tender if the exchange agent has
received at its address set forth below on or prior to the expiration date, a
letter, telegram or facsimile transmission, and an original delivered by
guaranteed overnight courier, from an eligible institution setting forth:
o the name and address of the tendering holder;
o the names in which the Old Notes are registered and, if possible, the
certificate numbers of the Old Notes to be tendered; and
o a statement that the tender is being made thereby and guaranteeing
that within three business days after the expiration date, the Old
Notes in proper form for transfer, or a confirmation of book-entry
transfer of such Old Notes into the exchange agent's account at the
book-entry transfer facility and an agent's message, will be delivered
by the eligible institution together with a properly completed and
duly executed letter of transmittal and any other required documents.
Unless Old Notes being tendered by the above-described method are deposited
with the exchange agent, a tender will be deemed to have been received as of the
date when:
o the tendering holder's properly completed and duly signed letter of
transmittal, or a properly transmitted agent's message, accompanied by
the Old Notes or a confirmation of book-entry transfer of the Old
Notes into the exchange agent's account at the book-entry transfer
facility is received by the exchange agent; or
o a notice of guaranteed delivery or letter, telex or facsimile
transmission to similar effect from an eligible institution is
received by the exchange agent.
Issuances of Exchange Notes in exchange for Old Notes tendered pursuant to
a notice of guaranteed delivery or letter, telex or facsimile transmission to
similar effect by an eligible institution will be made only against deposit of
the letter of transmittal and any other required documents and the tendered Old
Notes or a confirmation of book-entry and an agent's message.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of Old Notes tendered for exchange will be determined by
us in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all tenders of any Old Notes not
properly tendered or not to accept any Old Notes which acceptance might, in our
judgment or the judgment of our counsel, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any Old Notes either before or after the expiration date,
including the right to waive the ineligibility of any holder who seeks to tender
Old Notes in the exchange offer. The interpretation of the terms and conditions
of the exchange offer, including the letter of transmittal and the instructions
contained in the letter of transmittal, by us will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within such reasonable period of time as
we determine.
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Neither we, the exchange agent nor any other person has any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor will any of us incur any liability for failure to give
such notification.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, the Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.
If the letter of transmittal or any Old Notes or powers of attorney 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, and, unless waived by
us, such persons must submit proper evidence satisfactory to us of their
authority to so act.
By tendering, each holder represents to us that, among other things:
o the Exchange Notes acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the holder;
o the holder is not participating, does not intend to participate, and
has no arrangement or understanding with any person to participate, in
the distribution of the Exchange Notes; and
o the holder is not an "affiliate" of ours within the meaning of Rule
405 of the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where the broker-dealer acquired the Old Notes 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. See "Plan of Distribution."
Terms and Conditions of the Letter of Transmittal
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
The party tendering Old Notes for Exchange Notes exchanges, assigns and
transfers the Old Notes to us and irrevocably constitutes and appoints the
exchange agent as the party's agent and attorney-in-fact to cause the Old Notes
to be assigned, transferred and exchanged. We refer to the party tendering Old
Notes herein as the "transferor." The transferor represents and warrants that
the transferor has full power and authority to tender, exchange, assign and
transfer the Old Notes and to acquire Exchange Notes issuable upon the exchange
of the tendered Old Notes, and that, when the same are accepted for exchange, we
will acquire good and unencumbered title to the tendered Old Notes, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The transferor also warrants that the transferor will, upon
request, execute and deliver any additional documents deemed by the exchange
agent or us to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Old Notes or transfer ownership of the Old Notes on the
account books maintained by a book-entry transfer facility. The transferor
further agrees that the acceptance of any tendered Old Notes by us and the
issuance of Exchange Notes in exchange for Old Notes will constitute performance
in full by us of various of our obligations under the registration rights
agreement. All authority conferred by the transferor will survive the death or
incapacity of the transferor and every obligation of the transferor will be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of the transferor.
The transferor certifies that the transferor: is not an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act; is acquiring the
Exchange Notes offered hereby in the ordinary course of the transferor's
business; and has no arrangement with any person to participate in the
distribution of the Exchange Notes.
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Each holder, other than a broker-dealer, must acknowledge that the holder
is not engaged in, and does not intend to engage in, a distribution of the
Exchange Notes. Each transferor which is a broker-dealer receiving the Exchange
Notes for its own account must acknowledge that it will deliver a prospectus in
connection with any resale of the Exchange Notes. By so acknowledging 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.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time before 5:00 p.m. New York
City time, on the expiration date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telex, facsimile transmission, or letter must be received by the exchange agent
at the address set forth in this prospectus before 5:00 p.m. New York City time,
on the expiration date. Any notice of withdrawal must:
o specify the name of the person having tendered the Old Notes to be
withdrawn;
o identify the Old Notes to be withdrawn, including the certificate
number or numbers and principal amount of such Old Notes;
o include a statement that the holder is withdrawing the holder's
election to have the Old Notes exchanged;
o be signed by the holder in the same manner as the original signature
on the letter of transmittal by which the Old Notes were tendered or
as otherwise described above, including any required signature
guarantees, or be accompanied by documents of transfer sufficient to
have the trustee under the indenture register the transfer of the Old
Notes into the name of the person withdrawing the tender; and
o specify the name in which any such Old Notes are to be registered, if
different from that of the person who tendered the Old Notes.
The exchange agent will return the properly withdrawn Old Notes promptly
following receipt of the notice of withdrawal. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at the book-entry transfer facility
to be credited with the withdrawn Old Notes or otherwise comply with the
book-entry transfer facility procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by us and
our determination will be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder without cost to the holder. In the case of Old Notes
tendered by book-entry transfer into the exchange agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, the Old Notes will be credited to an account with the
book-entry transfer facility specified by the holder. In either case, the Old
Notes will be returned promptly after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn Old Notes may be
re-tendered by following one of the procedures described in "--Procedures for
Tendering Old Notes" at any time before the expiration date.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept, on the expiration date, all Old Notes properly tendered and not
validly withdrawn and will issue or cause to be issued the
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Exchange Notes promptly after such acceptance. See the discussion under
"--Certain Conditions to the Exchange Offer" for more detailed information. For
purposes of the exchange offer, we will be deemed to have accepted properly
tendered Old Notes for exchange when, and if, we have given oral or written
notice of our acceptance to the exchange agent.
For each old note accepted for exchange, the holder of the old note will
receive an exchange note having a principal amount equal to that of the
surrendered old note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the exchange offer will be made only after:
o timely receipt by the exchange agent of certificates for the Old Notes
or a timely book-entry confirmation of the Old Notes into the exchange
agent's account at the book-entry transfer facility;
o a properly completed and duly executed letter of transmittal, or a
properly transmitted agent's message; and
o timely receipt by the exchange agent of all other required documents.
If any tendered Old Notes are not accepted for any reason described in the
terms and conditions of the 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
of the Old Notes. In the case of Old Notes tendered by book-entry transfer into
the exchange agent's account at the book-entry transfer facility pursuant to the
book-entry transfer procedures described above, the non-exchanged Old Notes will
be credited to an account maintained with the book-entry transfer facility. In
either case, the Old Notes will be returned as promptly as practicable after the
expiration of the exchange offer.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, or any extension
of the exchange offer, we will not be required to accept for exchange, or to
issue Exchange Notes in exchange for, any Old Notes and may terminate or amend
the exchange offer, by oral or written notice to the exchange agent or by a
timely press release, if, at any time before the acceptance of the Old Notes for
exchange or the exchange of the Exchange Notes for such Old Notes, in our
reasonable judgment any of the following conditions exists:
o any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange
offer which, in our judgment would reasonably be expected to impair
our ability to proceed with the exchange offer; or
o the exchange offer, or the making of any exchange by a holder,
violates applicable law or any applicable interpretation of the staff
of the SEC.
Regardless of whether any of the conditions has occurred, we may amend the
exchange offer in any manner which, in our good faith judgment, is advantageous
to holders of the Old Notes.
The conditions described above are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to the condition or we may
waive any condition in whole or in part at any time and from time to time in our
sole discretion. Our failure at any time to exercise any of the rights described
above will not be deemed a waiver of the right and each right will be deemed an
ongoing right which we may assert at any time and from time to time.
If we waive or amend the conditions above, we will, if required by law,
extend the exchange offer for a minimum of five business days from the date that
we first give notice, by public announcement or otherwise, of
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the waiver or amendment, if the exchange offer would otherwise expire within the
five business-day period. Any determination by us concerning the events
described above will be final and binding upon all parties.
The exchange offer is not conditioned upon any minimum principal amount of
Old Notes being tendered.
Exchange Agent
JPMorgan Chase Bank has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at one of the addresses set forth below:
Facsimile Transactions:
By Registered or Certified Mail (Eligible Institutions Only) By Hand:
JPMorgan Chase Bank JPMorgan Chase Bank JPMorgan Chase Bank
Institutional Trust Services Attn: Frank Ivins Institutional Trust Services Window
P.O. Box 2320 (214) 468-6494 4 New York Plaza, 1st Floor
Dallas, TX 75221-2320 New York, NY 10004-2413
Attn: Frank Ivins
To Confirm by Telephone
By Courier or for Information Call:
JPMorgan Chase Bank (214) 468-6464
Institutional Trust Services
2001 Bryan Street, 9th Floor
Dallas, TX 75201
Attn: Frank Ivins
You should direct questions, requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for notices of guaranteed delivery to the exchange agent at the address
and telephone number set forth in the letter of transmittal.
Delivery to an address other than as set forth on the letter of
transmittal, or transmission of instructions via a facsimile number other than
the one set forth on the letter of transmittal, will not constitute a valid
delivery.
Solicitation of Tenders; Fees and Expenses
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. We will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this and other
related documents to the beneficial owners of the Old Notes and in handling or
forwarding tenders for their customers.
The principal solicitation is being made by mail; however, additional
solicitations may be made in person or by telephone by our officers and
employees.
We will pay the expenses incurred in connection with the exchange offer.
Such expenses include, among others, the fees and expenses of the exchange agent
and trustee, registration fees, and accounting, legal, printing and related fees
and expenses.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those contained
in this prospectus. If given or made, such information or
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representations should not be relied upon as having been authorized by us.
Neither the delivery of this prospectus nor any exchange made pursuant to this
prospectus, under any circumstances, creates any implication that there has been
no change in our affairs since the respective dates as of which information is
given in this prospectus. The exchange offer is not being made to, and tenders
will not be accepted from or on behalf of, holders of Old Notes in any
jurisdiction in which the making of the exchange offer or the acceptance of the
exchange offer would not be in compliance with the laws of the jurisdiction.
However, we may, at our discretion, take such action as we may deem necessary to
make the exchange offer in the jurisdiction and extend the exchange offer to
holders of Old Notes in the jurisdiction. In any jurisdiction the securities
laws or blue sky laws of which require the exchange offer to be made by a
licensed broker or dealer, the exchange offer is being made on our behalf by one
or more registered brokers or dealers which are licensed under the laws of the
jurisdiction.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of Old
Notes pursuant to the exchange offer. However, the transfer taxes will be
payable by the tendering holder if:
o certificates representing Exchange Notes or 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 the Old Notes tendered; or
o tendered Old Notes are registered in the name of any person other than
the person signing the letter of transmittal; or
o a transfer tax is imposed for any reason other than the exchange of
Old Notes pursuant to the exchange offer.
We will bill the amount of the transfer taxes directly to the tendering
holder if satisfactory evidence of payment of the taxes or exemption therefrom
is not submitted with the letter of transmittal.
Accounting Treatment
For accounting purposes, we will not recognize gain or loss upon the
exchange of the Exchange Notes for Old Notes. We will amortize costs incurred in
connection with the issuance of the Exchange Notes over the term of the Exchange
Notes.
Consequences of Failure To Exchange
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the exchange offer will continue to be subject to the restrictions
on transfer of the Old Notes as described in the legend on the Old Notes. Old
Notes not exchanged pursuant to the exchange offer will continue to remain
outstanding in accordance with their terms. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. We do not currently anticipate that we will
register the Old Notes under the Securities Act.
Participation in the exchange offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of Old Notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this exchange offer, we
will have fulfilled a covenant contained in the registration rights agreement.
Holders of Old Notes who do not tender their Old Notes in the exchange offer
will continue to hold
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the Old Notes and will be entitled to all the rights and subject to the
limitations applicable to the Old Notes under the indenture, except for any
rights under the registration rights agreement that by their terms terminate or
cease to have further effectiveness as a result of the making of this exchange
offer. All untendered Old Notes will continue to be subject to the restrictions
on transfer described in the indenture. To the extent that Old Notes are
tendered and accepted in the exchange offer, the trading market for untendered
Old Notes could be adversely affected.
We may in the future seek to acquire, subject to the terms of the
indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. We have no
present plan to acquire any Old Notes which are not tendered in the exchange
offer.
Resale of Exchange Notes
We are making the exchange offer in reliance on the position of the staff
of the SEC as set forth in interpretive letters addressed to third parties in
other transactions. However, we have not sought our own interpretive letter and
we can provide no assurance that the staff would make a similar determination
with respect to the exchange offer as it has in such interpretive letters to
third parties. Based on these interpretations by the staff, we believe that the
Exchange Notes issued pursuant to the exchange offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by a holder, other
than any holder who is a broker-dealer or an "affiliate" of ours within the
meaning of Rule 405 of the Securities Act, without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that:
o the Exchange Notes are acquired in the ordinary course of the holder's
business; and
o the holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution of the
Exchange Notes.
However, any holder who:
o is an "affiliate" of ours;
o has an arrangement or understanding with respect to the distribution
of the Exchange Notes to be acquired pursuant to the exchange offer;
or
o is a broker-dealer who purchased Old Notes from us to resell pursuant
to Rule 144A or any other available exemption under the Securities
Act,
cannot rely on the applicable interpretations of the staff and must comply with
the registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes. Each such broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where the
broker-dealer acquired the Old Notes as a result of market-making activities or
other trading activities, must acknowledge, as provided in the letter of
transmittal, that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For more detailed information, see "Plan of Distribution."
Shelf Registration Statement
If:
(1) applicable interpretations of the staff of the SEC do not permit us to
effect the exchange offer;
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(2) for any other reason we do not consummate the exchange offer within
220 days after the original issuance of the Old Notes;
(3) an initial purchaser notifies us following consummation of the
exchange offer that Old Notes held by it are not eligible to be
exchanged for Exchange Notes in the exchange offer; or
(4) any holder, other than a participating broker-dealer, is not eligible
to participate in the exchange offer or, in the case of any holder,
other than a participating broker-dealer, that participates in the
exchange offer, such holder does not receive freely tradeable Exchange
Notes on the date of the exchange and such holder so requests,
then, we will, subject to certain exceptions:
(1) promptly file a shelf registration statement covering resales of the
Old Notes or the Exchange Notes, as the case may be;
(2) (A) in the case of clause (1) above, use our commercially reasonable
efforts to cause the shelf registration statement to be declared
effective under the Securities Act on or prior to the 180th day
following the original issuance of the Old Notes and (B) in the case
of clause (2), (3) or (4) above, use our commercially reasonable
efforts to cause the shelf registration statement to be declared
effective under the Securities Act on or prior to the 75th day after
the date on which the shelf registration statement is required to be
filed; and
(3) keep the shelf registration statement effective until the earliest of
(A) the time when the senior Notes covered by the shelf registration
statement can be sold under Rule 144 without any limitations under
clauses (c), (e), (f) and (h) of Rule 144, (B) two years from the
effective date of the shelf registration statement and (C) the date on
which all senior Notes registered thereunder are disposed of in
accordance therewith.
We will, in the event that a shelf registration statement is filed, among
other things, provide to each holder for whom such shelf registration statement
was filed copies of the prospectus which is a part of the shelf registration
statement, notify each such holder when the shelf registration statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Old Notes or the Exchange Notes, as the case may be.
A holder selling such Old Notes or Exchange Notes under the shelf registration
statement generally would 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 such sales and will be bound by the provisions of the
registration rights agreement that are applicable to such holder (including
certain indemnification obligations).
Additional Interest
The registration rights agreement states that if a Registration Default (as
defined below) occurs, then we will be required to pay additional interest to
each holder of the Notes. During the first 90-day period that a Registration
Default occurs and is continuing, we will pay additional interest on the Notes
at a rate of 0.50% per annum. The additional interest rate shall increase by an
additional 0.25% per annum with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum additional interest
rate of 1.5% per annum. Such additional interest will accrue only for those days
that a Registration Default occurs and is continuing. All accrued additional
interest will be paid to the holders of the Notes on the regular interest
payment dates. Following the cure of all Registration Defaults, no more
additional interest will accrue unless a subsequent Registration Default occurs.
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A "Registration Default" shall occur if:
o we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for such
filing; or
o any of such registration statements is not declared effective by the
SEC on or before the date specified for such effectiveness; or
o we fail to complete the exchange offer on or before the date specified
for such completion; or
o any of such registration statements is declared effective but
thereafter ceases to be effective or usable in connection with resales
of the Old Notes during the period specified in the registration
rights agreement.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the names and ages of our executive officers
and directors as of the date of this offering circular and the positions that
they hold. Directors hold their positions until the annual meeting of the
stockholders at which their term expires or until their respective successors
are elected and qualified. Executive officers hold their positions until the
annual meeting of the Board of Directors or until their respective successors
are elected and qualified.
Name Age Position with Koppers Inc.
Robert Cizik............................. 72 Non-Executive Chairman and Director
Walter W. Turner......................... 56 President and Chief Executive Officer and Director
Clayton A. Sweeney....................... 72 Director
Christian L. Oberbeck.................... 43 Director
David M. Hillenbrand..................... 56 Director
Brian H. McCurrie........................ 43 Vice President and Chief Financial Officer
Steven R. Lacy........................... 47 Vice President, Law and Human Resources and Secretary
Thomas D. Loadman........................ 49 Vice President and General Manager, Railroad Products &
Services
Kevin J. Fitzgerald...................... 50 Vice President and General Manager, Carbon Materials &
Chemicals
Ernest S. Bryon.......................... 58 Vice President, Australasian Operations
David Whittle............................ 61 Vice President, European Operations
David T. Bryce........................... 56 Vice President and General Manager, Utility Poles & Piling
Products
Mark R. McCormack........................ 44 Vice President and General Manager, Global Marketing,
Sales and Development Group for Carbon Materials &
Chemicals
Randall D. Collins....................... 51 Vice President, Safety, Health & Environmental Affairs and
Risk Management and Assistant Secretary
Robert H. Wombles........................ 51 Vice President, Technology
M. Claire Schaming....................... 50 Treasurer and Assistant Secretary
Mr. Cizik was elected Non-Executive Chairman in July 1999. He has been a
director of Koppers since January 1999. Mr. Cizik retired from Cooper
Industries, Inc. where he served as President, Chief Executive Officer and
Chairman of the Board from 1973 to 1996. He currently serves as a director of
Temple-Inland Inc. and Advisory Director of Wingate Partners. He previously
served as a director of Harris Corporation from 1988 until November 1999 and Air
Products and Chemicals, Inc. from 1992 until January 2002.
Mr. Turner was elected President and Chief Executive Officer and
director in February 1998. Mr. Turner was appointed Vice President and General
Manager, Carbon Materials & Chemicals business in early 1995. Mr. Turner was
elected Vice President and Manager, Marketing & Development, Industrial Pitches
and Related Products in February 1992. Mr. Turner was Marketing Manager,
Industrial Pitches and Creosote Oils prior to that time.
Mr. Sweeney has been a director of Koppers since January 1989. Mr.
Sweeney has been counsel to Schnader Harrison Segal & Lewis LLP since 2000. Mr.
Sweeney was the President and a member of Sweeney Metz Fox McGrann & Schermer
L.L.C. from 1998 to 2000. Mr. Sweeney was a shareholder and Director of Dickie,
McCamey & Chilcote, P.C. from 1987 to 1988 and served as Managing Director from
1988 to September 1993. Mr. Sweeney previously served as Executive Vice
President, Chief Administrative Officer, Vice Chairman and a director of
Allegheny International, Inc., as Senior Vice President and a director of
Allegheny Ludlum Industries and as a director of Wilkinson Sword Group, Ltd.
U.K., Landmark Savings and
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Loan Association, Halbouty Energy Company and Liquid Air Corporation. Mr.
Sweeney also served as a director of Schaefer Manufacturing Inc. and Schaefer
Equipment, Inc., and as Chairman of the Boards of St. Francis Health System and
St. Francis Medical Center.
Mr. Oberbeck has been a director of Koppers since October 1997. Mr.
Oberbeck is one of the founders of Saratoga Partners where he has been Managing
Director since its formation as an independent entity in September 1998. Prior
to that time Mr. Oberbeck was a Managing Director of Warburg Dillon Read Inc.
and its predecessor entity Dillon, Read & Co. Inc. where he was responsible for
the management of the Saratoga funds. Mr. Oberbeck is also a director of Data
Return, LLC, EUR Systems, Inc., NAT, Inc., Scovill Fasteners Inc. and Wireless
Services Holding Corporation.
Dr. Hillenbrand was elected as a director of Koppers in February 1999. Dr.
Hillenbrand retired from Bayer AG in August 2003, where he was Executive Vice
President, Bayer Polymers, since July 2002. Dr. Hillenbrand previously had been
President and Chief Executive Officer of Bayer, Inc. for eight years. Prior to
1994, Dr. Hillenbrand was Senior Vice President and Elkhart General Site
Manager, Miles Inc. (now Bayer Corporation).
Mr. McCurrie was elected Vice President and Chief Financial Officer in
October 2003. Mr. McCurrie, a Certified Public Accountant, was the Chief
Financial Officer of Pittsburgh-based Union Switch & Signal, Inc. from 1996 to
October 2003. Mr. McCurrie was employed by Union Switch & Signal, Inc. from 1992
to October 2003.
Mr. Lacy was elected Vice President, Law and Human Resources and Secretary
in July 2002. Mr. Lacy was elected Vice President, General Counsel and Corporate
Secretary in July 2001. Mr. Lacy is also a director of several of our European
subsidiaries. Mr. Lacy worked in the corporate legal department for
Wheeling-Pittsburgh Steel Corporation from July 1998 through November 2000, most
recently as Vice President, General Counsel and Secretary. Prior to that time,
he was employed by the Bethlehem Lukens Plate Division of Bethlehem Steel
Corporation as Division Counsel.
Mr. Loadman was elected Vice President and General Manager, Railroad
Products & Services in November 1994. After serving as plant manager of the
Susquehanna, Pennsylvania treating and cogeneration plants from 1985 to 1988,
Mr. Loadman was appointed Railroad Plants Operations Manager of the Railroad &
Utility Products business in January 1989. Mr. Loadman is a member of the
Railway Tie Association and American Wood Preservers Association.
Mr. Fitzgerald was elected Vice President and General Manager, Carbon
Materials & Chemicals in March 1998. After serving as plant manager of the
Stickney, Illinois Carbon Materials & Chemicals plant in 1996 and 1997, Mr.
Fitzgerald was appointed Vice President and Manager, Carbon Materials &
Chemicals in January 1998. He was Product Manager, Industrial Pitches from 1991
to 1995. Mr. Fitzgerald is a director of the American Coke & Coal Chemicals
Institute.
Mr. Bryon was elected Vice President, Australasian Operations in October
1998. Mr. Bryon served as General Manager of Koppers Carbon & Chemicals Pty Ltd
(a subsidiary of Koppers Australia Pty Ltd and previously known as Koppers Coal
Tar Products Pty Ltd) since 1993.
Dr. Whittle was elected Vice President, European Operations in May 2000.
Prior to May 2000, Dr. Whittle served as Managing Director of the United Kingdom
operations of Tarconord since the acquisition of Bitmac, Ltd. by Tarconord in
1996. From 1986 until 1996, Dr. Whittle was Managing Director and Chief
Executive Officer of Bitmac Ltd. Dr. Whittle is active in industry associations
and has served as president of the International Tar Association and
Lincolnshire Iron & Steel Institute and was until recently president of the Coke
Oven Managers' Association.
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Mr. Bryce was elected Vice President and General Manager, Utility Poles &
Piling Products, in February 2002. Prior to joining Koppers, Mr. Bryce was
president of Atlantic Wood Industries, Inc. from 1994 until 2000. Mr. Bryce is a
member of the American Wood Preserves Association.
Mr. McCormack was elected Vice President and General Manager, Global
Marketing, Sales and Development Group, Carbon Materials & Chemicals, in
February 2002. Mr. McCormack had been Vice President, Marketing and Corporate
Development for Koppers Europe ApS since January 2001 and General Manager of
Carbon Materials & Chemicals for Koppers Australia Pty Ltd since 1998.
Mr. Collins was elected Vice President, Safety, Health and Environmental
Affairs and Risk Management in November 1994, and had been Corporate Secretary
from January 1989 until July 2001, at which time he was appointed Assistant
Secretary.
Mr. Wombles joined Koppers in June 1997, at which time he was elected Vice
President, Technology. Prior to joining Koppers, Mr. Wombles was Vice President,
Research, Applications and Development for Ashland Petroleum Company. Mr.
Wombles' area of expertise is the chemistry and processing of high molecular
weight hydrocarbons. Mr. Wombles is the author of several technical publications
in this area and has been granted ten U.S. patents in the area of hydrocarbon
processing.
Ms. Schaming was elected Treasurer and Assistant Secretary in May 1992. Ms.
Schaming's previous position was Assistant Treasurer and Manager of Cash
Operations. Ms. Schaming is a certified cash manager.
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EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth information concerning the compensation for
services in all capacities to us, including options and stock appreciation
rights ("SARS"), for the years ended December 31, 2002, 2001 and 2000, of those
persons who were at December 31, 2002 the current Chief Executive Officer and
each of our other four most highly compensated executive officers who earned
more than $100,000 in salary and bonus in 2002 (collectively, the "Named
Executive Officers").
Summary Compensation Table
Annual Compensation (1) Long-Term
Compensation
Awards (4)
(a) (b) (c) (d) (g) (i)
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary Bonus Options/SARS (#) (5)
Walter W. Turner......................... 2002 $ 381,250 $175,000 15,000 $133,259
President and Chief ..................... 2001 363,720 50,000 -- 165,143
Executive Officer........................ 2000 352,440 199,000 6,000 49,647
Steven R. Lacy........................... 2002 237,315 82,500 10,000 73,600
Vice President, Law and Human Resources 2001 88,523 30,000 -- 84,048
And Corporate Secretary (2)..............
Donald E. Davis.......................... 2002 234,975 82,500 3,000 85,002
Vice President and Chief................. 2001 226,200 25,000 -- 104,475
Financial Officer........................ 2000 216,600 102,000 3,000 32,542
David Whittle............................ 2002 209,880 145,890 -- 22,264
Vice President, European Operations,..... 2001 192,240 147,000 -- 16,458
Koppers Europe ApS (3)................... 2000 107,400 56,592 3,000 8,862
Thomas D. Loadman........................ 2002 196,140 72,809 3,000 71,849
Vice President and General............... 2001 189,420 45,252 -- 87,939
Manager, Railroad Products & Services.... 2000 181,200 52,258 2,000 28,266
______________________
(1) Column (e) "Other Annual Compensation" has been omitted because there
are no amounts to report. The aggregate amount of perquisites and other
personal benefits for any Named Executive Officer does not exceed
$50,000 or 10% of the total of annual salary and bonus for any such
Named Executive Officer.
(2) Consists of six months of salary for 2001.
(3) Consists of seven months of salary for 2000.
(4) Columns (f) "Restricted Stock Awards" and (h) "LTIP Payouts" have been
omitted because there are no amounts to report.
(5) With the exception of Dr. Whittle, all other compensation consists of
regular and supplemental matches to our 401(k) plan and earned credit
for our Supplemental Executive Retirement Plan ("SERP"). For Mr.
Turner, 401(k) matches for 2002, 2001 and 2000 were $6,000, $5,154 and
$4,654, respectively, and SERP credits for 2002, 2001 and 2000 were
$127,259, $159,989 and $44,993, respectively. For Mr. Lacy, 401(k)
matches for 2002 and 2001 were $6,000 and $2,987, respectively, and
SERP credits for
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2002 and 2001 were $67,600 and $81,061, respectively. For Mr. Davis,
401(k) matches for 2002, 2001 and 2000 were $6,000, $5,154 and $4,654,
respectively, and SERP credits for 2002, 2001 and 2000 were $79,002,
$99,321 and $27,888, respectively. For Mr. Loadman, 401(k) matches for
2002, 2001 and 2000 were $6,000, $5,154 and $4,654, respectively, and
SERP credits for 2002, 2001 and 2000 were $65,849, $82,785 and
$23,612, respectively. All other compensation for Dr. Whittle consists
of automobile allowances.
Stock Options
The following table sets forth information regarding the grant of stock
options during 2002.
Option/SAR Grants in Last Fiscal Year
Individual Grants (1)
---------------------------------------------------------------------
% of Total
Number of Options
Securities Granted to Exercise or
Underlying Employees Base Price Grant Date
Options in Fiscal ($/Share) Expiration Present Value
Name Granted (#) Year Date (2)
Walter W. Turner..................... 15,000 22.4% $25.15 7/31/12 $54,300
Steven R. Lacy....................... 10,000 14.9% $25.15 7/31/12 36,200
Donald E. Davis...................... 3,000 4.5% $25.15 7/31/12 10,860
David Whittle........................ --- --- --- --- ---
Thomas D. Loadman.................... 3,000 4.5% $25.15 7/31/12 10,860
______________________
(1) Options become exercisable over a five-year period. Any unexercised
options expire after ten years. The stock option price is equal to the
fair value of a share of common stock at the grant date.
(2) Option values reflect Black-Scholes model output for options. The
assumptions used in the model were risk-free interest rate of 5%,
dividend yield of 5%, volatility factor of .22, and an expected option
life of five years.
Option Exercises and Fiscal Year-End Values
Shown below is information with respect to stock options exercised during
2002 and unexercised options at the end of the fiscal year under our stock
option plans. There were no exercises of stock options by any of the Named
Executive Officers during 2002. No SARS were granted to any of the Named
Executive Officers and none of the Named Executive Officers held any unexercised
SARS at the end of the fiscal year.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Number of Number of Securities
Securities Underlying Unexercised Value of Unexercised
Underlying Options/SARS at In-the-money Options/
Options/SARS Value FY-End (#) SARS at FY-End ($) (1)
Name Exercised Realized Exercisable Unexercisable Exercisable Unexercisable
($)
Walter W. Turner...... -- $ -- 7,200 21,600 $ 79,200 $115,350
Steven R. Lacy........ -- -- -- 10,000 -- 38,500
Donald E. Davis....... -- -- 6,600 7,800 75,600 58,350
David Whittle......... -- -- 1,200 1,800 7,200 10,800
Thomas D. Loadman..... -- -- 22,900 7,200 340,067 54,750
______________________
(1) The value of unexercised in-the-money options was calculated by
subtracting the exercise price from the fair value as of December 31,
2002 as determined by the Board of Directors pursuant to the provisions
of the Stockholders' Agreement.
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Benefit Plans
Pension Plan. All of our executive officers are covered by the Retirement
Plan of Koppers Inc. and Subsidiaries for Salaried Employees (the "Salaried
Plan"). The following table contains approximate retirement benefits payable
under the Salaried Plan, assuming retirement at age 65, payments made on the
straight-life annuity basis and no election of a co- annuitant option. Annual
retirement benefits are computed at the rate of 1.2% of Terminal Salary (as
defined below) not in excess of $16,000, plus 1.6% of Terminal Salary in excess
of $16,000, all multiplied by years of Credited Service (as defined below).
Terminal Salary is determined based on the average annual salary (defined as
salary plus one half of any incentive payments) for the five highest consecutive
years of the last ten years of credited service, or during all years of such
credited service if less than five. Credited Service includes all accumulated
service as a salaried employee except for any period of layoff or leave of
absence. In 1998, we amended the Salaried Plan to provide a minimum pension
equal to 1.2% of Terminal Salary multiplied by years of Credited Service up to
35 years reduced by any pension benefit paid by the pension plan of Old Koppers.
Estimated Annual Retirement Benefit Under the Salaried Retirement Plan
Terminal Years of Credited Service at Retirement
Salary 5 10 15 20 25 30
$100,000 $ 7,680 $ 15,360 $ 23,040 $ 30,720 $ 38,400 $ 46,080
150,000 11,680 23,360 35,040 46,720 58,400 70,080
200,000 15,680 31,360 47,040 62,720 78,400 94,080
250,000 19,680 39,360 59,040 78,720 98,400 118,080
300,000 23,680 47,360 71,040 94,720 118,400 142,080
350,000 27,680 55,360 83,040 110,720 138,400 166,080
400,000 31,680 63,360 95,040 126,720 158,400 190,080
450,000 35,680 71,360 107,040 142,720 178,400 214,080
500,000 39,680 79,360 119,040 158,720 198,400 238,080
The following describes the Terminal Salary and Years of Service,
respectively, accrued as of December 31, 2002 for each participating Named
Executive Officer: Walter W. Turner, $352,985 and 14 years of service; Steven R.
Lacy, $209,200 and two years of service; Donald E. Davis, $230,954 and 14 years
of service; and Thomas D. Loadman, $198,894 and 14 years of service.
Effective December 1, 1997, our Board of Directors established a
Supplemental Executive Retirement Plan for each of our participating Named
Executive Officer and all of our other participating elected officers. The SERP
will pay an annual benefit equal to 2% of final pay multiplied by years of
service up to 35 years, reduced by the sum of: i) pension benefits received from
us; ii) pension benefits received from Old Koppers; iii) one half of any Social
Security benefits; and iv) the value of our paid common stock in the
individual's Employee Savings Plan account.
Employment Agreements
Employment Agreement with Steven R. Lacy. We entered into an employment
agreement with Mr. Lacy in April 2002 that contains the terms of Mr. Lacy's
employment with us. The employment agreement provides that Mr. Lacy will serve
as Vice President, General Counsel and Corporate Secretary. The term of the
agreement commences on April 5, 2002 and continues until April 4, 2004;
thereafter, on April 4 of each year the term is automatically extended for one
additional year unless notice is given 180 days in advance by us or Mr. Lacy
that such party does not wish to extend the term. The employment agreement
provides that Mr. Lacy will receive a base salary at an annual rate of no less
than $250,000, and that such base salary will be subject to periodic review by
the Chief Executive Officer. The employment agreement provides for participation
in our corporate senior management incentive pool with an annual incentive
target of 40% of base salary, and provides for a stock option grant to purchase
a total of 7,500 shares of our common stock. The employment agreement also
provides for participation in all our benefits plans. In the event of
termination by us other than for cause, Mr. Lacy is
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entitled to receive the following payments: i) 104 weeks of salary and benefits
continuation; ii) an additional number of weeks of salary and benefits
continuation equal to the number of full years of service with us; iii) a lump
sum severance payment equal to one-half of the sum of the amounts awarded to him
under the applicable incentive plan and bonus plans in respect of each of the
two calendar years preceding that in which occurs the date of termination; and
iv) a lump sum severance payment equal to the value of certain payments he is
entitled to receive in the event of a change of control, whether or not a change
of control occurs.
Employment Agreement with David Whittle. We entered into an employment
agreement with Dr. Whittle in August 2000 that contains the terms of Dr.
Whittle's employment with us. The employment agreement provides that Dr. Whittle
will serve as Vice President and General Manager of Koppers Europe ApS at a
beginning annual salary of 131,000 pounds sterling, subject to annual
adjustments. The agreement also provides for participation in our incentive plan
based on the attainment of certain operating results for Koppers Europe ApS. The
agreement provides that in the event of termination for any reason other than
gross misconduct, Dr. Whittle shall be given twelve months notice of termination
or, at our option, pay in lieu of notice. The agreement provides that in
exchange for the terms of the employment agreement, Dr. Whittle agrees to an
immediate termination of the service agreement entered into with Bitmac Limited
(predecessor company to the United Kingdom operations of Koppers Europe ApS).
Director Compensation
We do not pay compensation to Directors who are also employees. Each
Director who is not an employee is paid a fee of $35,000 per year plus $5,000
for each Board Committee chaired, except the Saratoga Partners III, L.P.
Director is paid under the advisory services agreement between us and Saratoga
Partners III, L.P. in lieu of Director fees. See "Certain Relationships and
Related Transactions."
Compensation Committee Interlocks and Insider Participation
Mr. Oberbeck, a principal for Saratoga Partners III, L.P., serves on and is
chairman of the Human Resources and Compensation Committee of our Board of
Directors, which establishes compensation levels for our five most highly paid
executive officers. We also have an advisory services agreement with Saratoga
Partners III, L.P. pursuant to which we pay a management fee of $150,000 per
quarter to Saratoga in lieu of Director's fees to Mr. Oberbeck. In addition,
Saratoga Partners III, L.P. may provide us with advisory services in connection
with significant business transactions, such as acquisitions, for which we will
pay Saratoga Partners III, L.P. a compensation comparable to compensation paid
for such services by similarly situated companies. During 2003 we paid Saratoga
a total of $1.6 million for such services, comprised of $0.8 million each for
the refinancings in May and October, respectively.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock and preferred stock as of December 15, 2003 by (i)
each person known to us to beneficially own more than 5% of the outstanding
shares of either common stock or preferred stock; (ii) each of our directors;
(iii) each named executive officer; and (iv) all of our officers and directors
as a group.
Senior Convertible
Voting Common Stock Preferred Stock (2)
Shares Percentage Shares Percentage
Beneficially Beneficially Beneficially Beneficially
Name of Beneficial Owner Owned (1) Owned (1) Owned Owned
Saratoga Partners III, L.P. (3)....................... 2,288,481 100.0%
Walter W. Turner (4).................................. 864,428 100.0%
Clayton A. Sweeney (5)................................ 23,334 2.7%
Christian L. Oberbeck (3)............................. -- * 2,288,481 100.0%
Robert Cizik (6)...................................... 55,294 6.4%
David M. Hillenbrand (7).............................. 13,000 1.5%
Steven R. Lacy (8).................................... 2,000 *
Donald E. Davis (9)................................... 46,735 5.4%
Joseph E. Boan (10)................................... 43,577 5.0%
David Whittle (11).................................... 1,800 *
Thomas D. Loadman (12)................................ 26,760 3.1%
All directors and officers as a group (15 persons) (4) 864,428 100.0%
Total shares outstanding, including vested options.... 864,428 100.0% 2,288,481 100.0%
_________________________
* 1% or less.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting and/or investment power with respect to the
shares shown as beneficially owned.
(2) On December 1, 1997, 2,117,952 shares of voting common stock and 27,672
shares of non-voting common stock held by Saratoga Partners III, L.P.
were converted into 2,145,624 shares of preferred stock, entitling
Saratoga Partners III, L.P. to elect a majority of our Board of
Directors and to exercise a majority of the voting power over all of
our outstanding stock with respect to all matters subject to a
stockholder vote. The preferred stock has voting (except as described
below) and dividend rights equal to voting common stock and has a
liquidation preference equal to par value. The preferred stock is
convertible into common stock at any time on a one-for-one basis. The
holders of the preferred stock vote as a separate series from all other
classes of stock and are entitled to elect a majority of our Board of
Directors.
(3) With respect to 142,857 of these shares, Saratoga Partners III, L.P.
has voting power with respect to such shares and we have been informed
that Brown University Third Century Fund has dispositive directive
power with respect to such shares subject to the terms of the
stockholders' agreement. Saratoga Partners III, L.P. is a private
investment fund. The address for Saratoga Partners III, L.P. is 535
Madison Avenue, New York, NY 10022. Saratoga Partners III, L.P. has
generally authorized Mr. Oberbeck, a director, to vote the shares of
Koppers Inc. held by Saratoga Partners III, L.P. Mr. Oberbeck disclaims
beneficial ownership of the preferred stock owned by Saratoga Partners
III, L.P. Saratoga Partners III, L.P. is entitled to elect a majority
of the Board of Directors and to exercise a majority of the voting
power of all of our outstanding stock.
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(4) Pursuant to the stockholders' agreement, Mr. Turner was appointed as
representative of the approximately 150 management investors and
granted irrevocable proxies to vote the 819,777 shares of common stock
owned by the management investors, including 51,996 shares directly
owned by Mr. Turner, for the term of the stockholders' agreement. The
address for Mr. Turner is Koppers Inc., 436 Seventh Avenue, Pittsburgh,
PA 15219. This includes vested options held by the management investors
to acquire 49,651 shares of common stock, which are exercisable at any
time.
(5) Pursuant to the stockholders' agreement, Mr. Sweeney has granted an
irrevocable proxy to the representative of the management investors to
vote the shares owned by him. In 2003, 2002 and 2001 we purchased a
total of 74,945 shares owned by Mr. Sweeney for a total of $2.1
million. The purchases represented 75% of Mr. Sweeney's shares; the
remaining shares held by Mr. Sweeney will be purchased in 2003 at the
fair value at the purchase date.
(6) Mr. Cizik financed the purchase of 35,294 of his shares in 1999 through
a loan from us. The financed shares vest at a rate of 20% per year
according to Mr. Cizik's compensation arrangement, and are 100% vested.
See "Certain Relationships and Related Transactions--Consulting
Agreements."
(7) Includes vested options to purchase 12,000 shares. Pursuant to the
stockholders' agreement, Dr. Hillenbrand has granted an irrevocable
proxy to the representative of the management investors to vote the
shares owned by him.
(8) Pursuant to the stockholders' agreement, Mr. Lacy has granted an
irrevocable proxy to the representative of the management investors to
vote the shares owned by him.
(9) Pursuant to the stockholders' agreement, Mr. Davis has granted an
irrevocable proxy to the representative of the management investors to
vote the shares owned by him. Mr. Davis left our company in May 2003.
(10) Pursuant to the stockholders' agreement, Mr. Boan has granted an
irrevocable proxy to the representatives of the management investors to
vote the shares owned by him. Mr. Boan left our company in 2002.
(11) Includes vested options to purchase 1,800 shares. Pursuant to the
stockholders' agreement, Dr. Whittle has granted an irrevocable proxy
to the representative of the management investors to vote the shares
owned by him.
(12) Pursuant to the stockholders' agreement, Mr. Loadman has granted an
irrevocable proxy to the representative of the management investors to
vote the shares owned by him.
Equity Compensation Plan Information
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of outstanding exercise price of plans (excluding
options, warrants and outstanding options, securities reflected in
Plan Category rights warrants and rights the first column)
Equity compensation plans approved by security
holders (1) 223,742 $20.20 589,260
Equity compensation plans not approved by
security holders (2) 34,120 $14.00 None
--------
Total 257,862
========
_____________________
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(1) Includes our Amended and Restated Stock Option Plan, 1998 Stock Option Plan
and Employee Stock Purchase Plan.
(2) Includes our 1997 Stock Option Plan effective on August 18, 1997 (the "1997
Plan"). The 1997 Plan was not approved by stockholders. The purposes of the
1997 Plan are to advance our interests by achieving a commonality of
interests between stockholders and key employees and by permitting us to
retain and attract key employees. The 1997 Plan provides for the grant of
both incentive stock options and non-qualified stock options. Because no
stockholder approval was obtained, no incentive stock options were granted
under the 1997 Plan. The 1997 Plan is administered by the Human Resources
and Compensation Committee of our Board of Directors.
The terms and conditions of the options granted under the 1997 Plan,
including the option price, are determined from time to time by our Board
of Directors. The exercise price with respect to each option is payable at
the time the option is exercised, in cash, or by delivering other shares of
our common stock owned by the optionee. The term of any option may not
extend beyond ten years of the date of grant. The options are not
transferable except by will or the laws of descent or distribution and are
only exercisable during the lifetime of the optionee by the optionee. The
1997 Plan also contains rules about the exercisability of options after the
death, termination of employment or disability of optionees.
In the event our Board of Directors requires participants to hold options
for a specified period of time prior to exercise and we experience a change
of control, optionees have the right to exercise outstanding options
immediately prior to such event. In general, a change in control is deemed
to have occurred when there is a change in ownership of over 30% of our
outstanding shares of voting stock, a liquidation or dissolution of our
company, a sale of substantially all of our company or a merger,
consolidation or combination in which we are not the survivor.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Relationship with Legal Counsel
Schnader Harrison Segal & Lewis LLP provided counsel to us during 2002.
Clayton A. Sweeney, a shareholder and director, is also counsel to Schnader
Harrison Segal & Lewis LLP. During 2002, we paid a total of $0.5 million in
legal fees to this firm. Additionally, in 2002 and 2001, we purchased a total of
50% of Mr. Sweeney's common stock for $1.4 million.
Consulting Agreements
We entered into a consulting agreement with Robert Cizik, the chairman of
our Board of Directors, in 1999 in which we pay a fee of $12,500 per month to
Mr. Cizik for consulting services. The agreement also includes a provision which
allowed Mr. Cizik to purchase 20,000 shares of common stock for $17.00 per
share, which he did in October 1999 when the fair value per share was $17.25.
Additionally, the agreement provides for a $0.6 million interest free loan from
us for the purchase of 35,294 shares of restricted common stock at a price of
$17.00 per share. Mr. Cizik purchased these shares in October 1999 by signing a
promissory note to us for $0.6 million. The note, which is 70% collateralized by
the value of the related shares and 30% by Mr. Cizik's personal assets, is due
in 2009, or immediately in the event Mr. Cizik is no longer Non-Executive
Chairman of our Board of Directors. The shares are subject to vesting, with a
vesting period of five years; at September 15, 2003, 7,059 of the shares were
unvested. In the event Mr. Cizik is no longer Non-Executive Chairman of our
Board of Directors, we will redeem any non-vested shares at cost and all other
shares at fair value.
We have an advisory and consulting agreement with Saratoga Management
Company LLC pursuant to which we pay a management fee of $150,000 per quarter to
Saratoga Management Company LLC in lieu of director's fees to Mr. Oberbeck. In
addition, Saratoga Management Company LLC may provide us with advisory services
in connection with significant business transactions, such as acquisitions, for
which we will pay Saratoga Management Company LLC compensation comparable to
compensation paid for such services by similarly situated companies.
Stockholders' Agreement
We are a party to a stockholders' agreement. The management investors are a
group of approximately 150 individual stockholders with various ownership
interests in the common stock and collectively comprising approximately 100% of
the total outstanding shares of our common stock. Each management investor is an
officer, director, or current or former employee of ours or one of our
subsidiaries. Pursuant to the stockholders' agreement, each of the management
investors has appointed Walter W. Turner as the representative of the management
investors and granted to him an irrevocable proxy for the term of the
stockholders' agreement to vote all such management investor's shares. During
2002, we redeemed all terminated employee shares held by the 401(k) plan and
established a policy of redeeming all such shares when an employee leaves our
employment. In May 2003, we redeemed all active employee shares held by the
401(k) plan and eliminated our stock as an available investment option under the
401(k) plan. Therefore, as of September 2003, no shares of our stock were held
in our 401(k) plan. The stockholders' agreement requires us to redeem shares
upon a management investor's ceasing for any reason to be employed by us. Based
on currently available information, as of December 31, 2003, 0.8 million shares
of common stock owned by management investors were subject to such redemption
obligation in the stockholders' agreement, giving rise to a $13.2 million
obligation.
The stockholders' agreement sets forth supermajority voting requirements
for our Board of Directors for certain matters, including the issuance of
additional stock, mergers, consolidations, acquisitions, significant asset
sales, and the incurrence of material indebtedness. Pursuant to the
stockholders' agreement, Saratoga Partners III, L.P. is entitled to nominate a
majority of the Board of Directors.
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DESCRIPTION OF SENIOR SECURED CREDIT FACILITIES
In connection with the offering of the Old Notes and the related
transactions, we have amended our senior secured credit facilities, including,
among other things:
o to allow issuance of up to $320.0 million of senior secured notes in a
public offering or Rule 144A or other private placement;
o to allow us to use a portion of the proceeds of the offering of the
Old Notes to redeem in full our 9 7/8% senior subordinated notes;
o to allow us to use a portion of the proceeds of the offering of the
Old Notes to prepay a portion of our term loan;
o to allow us to use a portion of the proceeds of the offering of the
Old Notes to pay up to $80.0 million in dividends, subject to certain
conditions;
o to revise some of our financial covenants;
o to change the definition of Consolidated EBITDA to add back certain
nonrecurring cash and non-cash charges incurred in 2003; and
o to allow the Old Notes to be secured on a second priority basis by
substantially all of our existing and future assets and those of our
subsidiary guarantors that secure obligations under our credit
agreement, subject to certain exceptions.
The following sets forth a description of some of the terms of our senior
secured credit facilities:
o provide for a term loan of $75.0 million, of which $72.2 was
outstanding on September 30, 2003 and $8.0 million of which is
outstanding as of the date of this prospectus;
o provide for a revolving credit facility of $100.0 million, of which
$25.0 million was outstanding on September 30, 2003;
o provide for a borrowing base for loans under the revolving credit
facility limited to the sum of 85% of qualified accounts plus 60% of
qualified inventory, provided that the portion of the borrowing base
supported by qualified Australian accounts and qualified Australian
inventory is limited to 35% of the aggregate borrowing base;
o bear interest, in the case of the term loan, on the outstanding unpaid
principal amount, at our option, at either the base rate, plus an
applicable margin of 1.00% to 1.75%, or the Eurorate, plus an
applicable margin of 2.50% to 3.25%;
o bear interest, in the case of the revolving credit facility, on the
outstanding unpaid principal amount, at our option, at either the base
rate, plus an applicable margin of 0.50% to 1.25%, or the Eurorate,
plus an applicable margin of 2.00% to 2.75% determined, in each case,
pursuant to a performance-based pricing grid;
o be secured by substantially all of our assets;
o require term loan repayments, after giving effect to the offering of
the Old Notes and the related transactions, of $2.0 million in 2003
and $8.0 million in 2004;
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o allow prepayment in whole or in part without premium or penalty; and
o mature on May 12, 2007, in the case of the revolving credit facility,
and on November 1, 2004, in the case of the term loan.
Our senior secured credit facilities contain representations and
affirmative covenants customary for financings of this type. Our senior secured
credit facilities also contain negative covenants that limit our ability and the
ability of our subsidiaries to, among other things:
o incur additional indebtedness or issue guarantees;
o grant liens;
o make fundamental changes in our business, corporate structure or
capital structure, including, among other things, entering into any
merger, consolidation or amalgamation or liquidating, winding up or
dissolving;
o sell assets or subsidiaries;
o make capital expenditures;
o make investments, including the advancing of loans or extensions of
credit, enter into joint ventures or make acquisitions of assets
constituting a business unit or the capital stock of another entity;
o prepay, redeem or repurchase subordinated indebtedness, including the
Notes, or amend documents relating to other existing indebtedness,
including the Notes, or amend documents relating to other existing
indebtedness or other material documents; and
o enter into transactions with affiliates.
The negative covenants also include financial covenants that require us to
maintain certain financial ratios.
Our senior secured credit facilities also contain events of default that
are customary for financings of this type, including, without limitation, and
subject to certain exceptions, those related to:
o default in payment of principal and interest;
o materially incorrect representations or warranties;
o default in observance or performance of any of the affirmative or
negative covenants included in our credit agreement or related
security documents;
o cross-default in the payment of other indebtedness of more than $5.0
million in the aggregate;
o specified events of bankruptcy;
o specified ERISA events;
o specified judgments or decrees involving more than $5.0 million in the
aggregate;
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o failure of the applicable senior secured credit facilities documents
or any material provisions thereof, the guarantees, security documents
or any related documents to be enforceable and in full force and
effect;
o certain change of control events; and
o certain failures by Beazer East to comply with its indemnity
obligations under the terms of the asset purchase agreement between us
and Koppers Company, Inc. (now known as Beazer East, Inc.).
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DESCRIPTION OF THE EXCHANGE NOTES
Koppers Inc. will issue the Exchange Notes under an indenture among itself,
certain of its subsidiaries and JPMorgan Chase Bank, as Trustee (the
"Indenture"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Security Documents referred to below under the caption
"--Security" describe the terms of the security interests that will secure the
Exchange Notes.
Certain terms used in this description are defined under the subheading
"--Certain Definitions." In this description, the word "Company" refers only to
Koppers Inc. and not to any of its subsidiaries.
The following description is only a summary of the material provisions of
the Indenture, the Intercreditor Agreement and the Security Documents. We urge
you to read the indenture, the intercreditor agreement and the Security
Documents because they, not this description, define your rights as holders of
these Exchange Notes. You may request copies of these agreements at our address
set forth under the heading "Where You Can Find More Information."
Brief Description of the Exchange Notes
These Exchange Notes:
o are senior obligations of the Company secured by the Collateral on a
second-priority basis behind the first-priority interest securing
Obligations under the Credit Agreement;
o are senior in right of payment to all existing and any future
Subordinated Obligations of the Company;
o are guaranteed on a senior basis by each Subsidiary Guarantor, which
Guarantees are secured by the Collateral on a second-priority basis
behind the first-priority interest securing the guarantees of the
Subsidiary Guarantors under the Credit Agreement; and
o are subject to the provisions of the Registration Rights Agreement.
Principal, Maturity and Interest
The Company will issue the Exchange Notes initially with a maximum
aggregate principal amount of $320.0 million. The Company will issue the
Exchange Notes in denominations of $1,000 and any integral multiple of $1,000.
The Exchange Notes will mature on October 15, 2013. Subject to our compliance
with the covenant described under the subheading "--Certain
Covenants--Limitation on Indebtedness," we are entitled, without the consent of
the holders, to issue more Exchange Notes under the Indenture up to an aggregate
principal amount of $75.0 million. The Exchange Notes and the additional
Exchange Notes, if any, will be treated as a single class for all purposes of
the Indenture, including waivers, amendments, redemptions and offers to
purchase. Unless the context otherwise requires, for all purposes of the
Indenture and this "Description of the Exchange Notes," references to the
Exchange Notes include any additional Exchange Notes actually issued.
Interest on these Exchange Notes will accrue at the rate of 9 7/8% per
annum and will be payable semiannually in arrears on April 15 and October 15,
commencing on April 15, 2004. We will make each interest payment to the holders
of record of these Exchange Notes on the immediately preceding April 1 and
October 1, respectively. We will pay interest on overdue principal at 1.0% per
annum in excess of the above rate and will pay interest on overdue installments
of interest at such higher rate to the extent lawful.
Interest on these Exchange Notes will accrue from the date of original
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
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Additional interest may accrue on the Exchange Notes in certain
circumstances pursuant to the registration rights agreement.
Optional Redemption
Except as set forth below, we will not be entitled to redeem the Exchange
Notes at our option prior to October 15, 2008.
On and after October 15, 2008, we will be entitled at our option to redeem
all or a portion of these Exchange Notes upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed in percentages of principal
amount on the redemption date), plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing on October 15 of the years set forth below:
Period Redemption Price
2008................................ 104.938%
2009................................ 103.292
2010................................ 101.646
2011 and thereafter................. 100.000
Prior to October 15, 2006, we may at our option on one or more occasions
redeem the Notes (which includes Additional Notes, if any) in an aggregate
principal amount of not to exceed 35% of the aggregate principal amount of the
Notes (which includes Additional Exchange Notes, if any) originally issued at a
redemption price (expressed as a percentage of principal amount) of 109.875%,
plus accrued and unpaid interest to the redemption date, with the net cash
proceeds from one or more Equity Offerings; provided, however, that
(1) least 65% of such aggregate principal amount of the Notes (which
includes Additional Notes, if any) remains outstanding immediately
after the occurrence of each such redemption (other than the Notes
held, directly or indirectly, by the Company or its Affiliates); and
(2) each such redemption occurs within 60 days after the date of the
related Equity Offering.
Selection and Notice of Redemption
If we are redeeming less than all the Exchange Notes at any time, the
Trustee will select Exchange Notes on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate.
We will redeem Exchange Notes of $1,000 or less in whole and not in part.
We will cause notices of redemption to be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each holder of Exchange
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 that Note will state the portion of the principal amount thereof to
be redeemed. We will issue a new Note in a principal amount equal to the
unredeemed portion of the original Note in the name of the holder upon
cancellation of the original Note. Exchange Notes called for redemption become
due on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Exchange Notes or portions of them called for redemption.
Mandatory Redemption; Offers to Purchase; Open Market Purchases
We are not required to make any mandatory redemption or sinking fund
payments with respect to the Exchange Notes. However, under certain
circumstances, we may be required to offer to purchase Exchange Notes as
described under the captions "--Change of Control" and "--Certain
Covenants--Limitation on Sales
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of Assets and Subsidiary Stock." We may at any time and from time to time
purchase Exchange Notes in the open market or otherwise.
Security
The Exchange Notes and the Subsidiary Guarantees will be secured by a
second-priority security interest (subject to Specified Permitted Liens) on the
Collateral. The Collateral consists of (i) 100% of the Capital Stock of all
existing and future Domestic Subsidiaries of the Company that are owned directly
by the Company or any Subsidiary Guarantor (subject to the limitation described
in the next two sentences), (ii) a portion of the Capital Stock of the
Australian Grantors (subject to the limitation described in the next two
sentences), (iii) 65% of the Capital Stock of all existing and future Foreign
Subsidiaries of the Company, other than the Australian Grantors, that are owned
directly by the Company or any Subsidiary Guarantor (subject to the limitation
described in the next two sentences) and (iv) substantially all of the other
assets, in each case, that are held by the Company or any of the Subsidiary
Guarantors (but only to secure $75.0 million aggregate principal amount of the
Exchange Notes, in the case of the Capital Stock of the Australian Grantors and
the assets owned by the Australian Grantors) to the extent that such assets
secure the First Lien Obligations and to the extent that a second-priority
security interest is able to be granted or perfected therein. Notwithstanding
the foregoing, in the event that at any time Rule 3-16 of Regulation S-X under
the Securities Act requires (or is replaced with another rule or regulation or
any other law, rule or regulation is adopted, which would require) the filing
with the SEC (or any other governmental agency) of separate financial statements
of any Subsidiary of the Company due to the fact that such Subsidiary's Capital
Stock secures the Exchange Notes, then the Capital Stock of such Subsidiary
shall at such time automatically be deemed not to be part of the Collateral, but
only to the extent necessary to not be subject to such requirement. In such
event, the Security Documents may be amended or modified, without the consent of
any Holder of Exchange Notes, to the extent necessary to release the
second-priority security interests on the shares of Capital Stock that are so
deemed to no longer constitute part of the Collateral. The Collateral comprises
substantially all of the material collateral securing the Obligations under the
Credit Agreement. No real property collateral is being granted pursuant to
mortgages, either domestically or with respect to foreign assets.
From and after the date of the Indenture, if the Company or any Subsidiary
Guarantor creates any additional security interest upon any property to secure
any First Lien Obligations (which include Obligations in respect of the Credit
Agreement), it must concurrently grant a second-priority security interest
(subject to Specified Permitted Liens) upon such property as security for the
Exchange Notes. Also, if granting a security interest in such property requires
the consent of a third party, the Company will use commercially reasonable
efforts to obtain such consent with respect to the second-priority security
interest for the benefit of the Trustee on behalf of the Holders of the Exchange
Notes. If such third party does not consent to the granting of the
second-priority security interest after the use of commercially reasonable
efforts, the Company will not be required to provide such security interest.
The Company, the Subsidiary Guarantors and the Trustee will enter into one
or more security agreements, pledge agreements and collateral assignments
(collectively, the "Security Documents") defining the terms of the security
interests that secure the Exchange Notes and the Subsidiary Guarantees. These
security interests will secure the payment and performance when due of all of
the Obligations of the Company and the Subsidiary Guarantors under the Exchange
Notes, the Indenture, the Subsidiary Guarantees and the Security Documents, as
provided in the Security Documents. The Company and the Subsidiary Guarantors
will use their commercially reasonable efforts to complete on or about the Issue
Date all filings and other similar actions required by the Indenture and the
Security Documents in connection with the perfection of such security interests.
If the Company is not able to complete such actions on or prior to the Issue
Date, the Company will use its commercially reasonable efforts to complete such
actions as soon as reasonably practicable after such date.
The security interests securing the Exchange Notes will be second in
priority (subject to Specified Permitted Liens) to any and all security
interests at any time granted to secure the First Lien Obligations. The First
Lien Obligations include Obligations under the Credit Agreement and Obligations
under any future Indebtedness that is Incurred pursuant to the covenant
described below under the caption
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"--Certain Covenants--Limitation on Indebtedness," up to a maximum aggregate
principal amount equal to the greater of (A) $130.0 million and (B) the sum of
(i) 60% of the book value of the inventory of the Company and its Restricted
Subsidiaries and (ii) 80% of the book value of the accounts receivable of the
Company and its Restricted Subsidiaries, plus, in the case of clauses (A) and
(B) $20.0 million (provided, however, that such $20.0 million of Indebtedness or
any portion thereof is issued to and held by the same lender or group of lenders
providing the balance of the then outstanding Indebtedness under the Credit
Agreement), that is secured by a Permitted Lien described in clause (7) of the
definition thereof, as well as certain Hedging Obligations.
On the Issue Date, the Trustee and the Credit Agent (as defined in the
Intercreditor Agreement) entered into the Intercreditor Agreement. The Credit
Agent will initially be the administrative agent under the Credit Agreement.
Pursuant to the terms of the Intercreditor Agreement, prior to the discharge in
full of the First Lien Obligations, the Credit Agent will determine the time and
method by which the security interests in the Collateral will be enforced.
Neither the Trustee nor the Holders will be permitted to enforce the security
interests, or receive proceeds of Collateral following a default under the
Credit Agreement, even if an Event of Default has occurred and the maturity of
the Exchange Notes has been accelerated except (a) in any insolvency or
liquidation proceeding, as necessary to file a claim or statement of interest
with respect to the Exchange Notes or (b) as necessary to take any action not
adverse to the first-priority Liens in order to preserve or protect its or their
rights in the second-priority Liens. In the event of the enforcement of the
security interests following an Event of Default, then after the discharge in
full of the First Lien Obligations, the Trustee in accordance with the
provisions of the Indenture and the Security Documents will distribute all cash
proceeds (after payment of the costs of enforcement and collateral
administration) of the Collateral received by it under the Security Documents
for the ratable benefit of the Holders of the Exchange Notes.
Whether prior to or after the discharge of the First Lien Obligations, the
Company will be entitled to releases of assets included in the Collateral from
the Liens securing the Exchange Notes and the Subsidiary Guarantees under any
one or more of the following circumstances:
(1) if all other Liens on that asset securing First Lien Obligations
(including all commitments thereunder) are released; provided that
after giving effect to the release, First Lien Obligations (including
commitments in respect thereof to the extent that such commitments are
subject only to reasonable and customary funding conditions and are
then available to be funded at the election of the Company) of no less
than $30.0 million secured by the first-priority Liens on the
remaining Collateral remain outstanding;
(2) to enable the Company to consummate asset dispositions permitted or
not prohibited under the covenant described below under the caption
"--Limitation on Sales of Assets and Subsidiary Stock";
(3) if the Company provides substitute collateral with at least an
equivalent fair value, as determined in good faith by the Board of
Directors;
(4) if any Subsidiary that is a Subsidiary Guarantor is released from its
Subsidiary Guarantee, that Subsidiary's assets will also be released;
or
(5) as described under "--Amendments and Waivers" below.
The second-priority security interests on all Collateral also will be
released upon (i) payment in full of the principal of, accrued and unpaid
interest (including additional interest, if any) on the Exchange Notes and all
other Obligations under the Indenture, the Subsidiary Guarantees and the
Security Documents that are due and payable at or prior to the time such
principal, accrued and unpaid interest (including additional interest, if any)
are paid or (ii) the satisfaction and discharge of the Indenture or a legal
defeasance or covenant defeasance as described below under the captions
"--Satisfaction and Discharge" or "--Defeasance."
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Guarantees
The Subsidiary Guarantors will jointly and severally guarantee, on a senior
basis, our obligations under these Exchange Notes. Each Subsidiary Guarantor's
guarantee of the Exchange Notes will be secured by the portion (if any) of the
Collateral owned by such Subsidiary Guarantor. The obligations of each
Subsidiary Guarantor under its Subsidiary Guaranty will be limited as necessary
to prevent that Subsidiary Guaranty from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--Risks Relating to the Exchange
Notes--Applicable statutes allow courts, under specific circumstances, to avoid
the subsidiary guarantees of the Notes and the related second-priority liens."
Each Subsidiary Guarantor that makes a payment under its Subsidiary
Guaranty will be entitled upon payment in full of all guarantied obligations
under the Indenture to a contribution from each other Subsidiary Guarantor in an
amount equal to such other Subsidiary Guarantor's pro rata portion of such
payment based on the respective net assets of all the Subsidiary Guarantors at
the time of such payment determined in accordance with GAAP.
If a Subsidiary Guaranty were rendered voidable, it and the related Lien on
the Collateral owned by such Subsidiary Guarantor could be subordinated by a
court to all other indebtedness (including guarantees and other contingent
liabilities) of such Subsidiary Guarantor, and, depending on the amount of such
indebtedness, a Subsidiary Guarantor's liability on its Subsidiary Guaranty and
with respect to the related Collateral could be reduced to zero. See "Risk
Factors--Risks Relating to the Exchange Notes--Applicable statutes allow courts,
under specific circumstances, to avoid the subsidiary guarantees of the Notes
and the related second-priority liens."
Pursuant to the Indenture, (A) a Subsidiary Guarantor may consolidate with,
merge with or into, or transfer all or substantially all its assets to any other
Person to the extent described below under "--Certain Covenants--Merger and
Consolidation" and (B) the Capital Stock of a Subsidiary Guarantor may be sold
or otherwise disposed of to another Person to the extent described below under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock";
provided, however, that in the case of the consolidation, merger or transfer of
all or substantially all the assets of such Subsidiary Guarantor, if such other
Person is not the Company or a Subsidiary Guarantor, such Subsidiary Guarantor's
obligations under its Subsidiary Guaranty must be expressly assumed by such
other Person, except that such assumption will not be required in the case of:
(1) the sale or other disposition (including by way of consolidation or
merger) of a Subsidiary Guarantor, including the sale or disposition
of Capital Stock of a Subsidiary Guarantor following which such
Subsidiary Guarantor is no longer a Subsidiary; or
(2) the sale or disposition of all or substantially all the assets of a
Subsidiary Guarantor;
in each case other than to the Company or a Restricted Subsidiary and as
permitted by the Indenture and if in connection therewith the Company provides
an Officers' Certificate to the Trustee to the effect that the Company will
comply with its obligations under the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock" in respect of such disposition. Upon any
sale or disposition described in clause (1) or (2) above, the obligor on the
related Subsidiary Guaranty will be released from its obligations thereunder.
The Subsidiary Guaranty of a Subsidiary Guarantor also will be released:
(1) upon the designation of such Subsidiary Guarantor as an Unrestricted
Subsidiary; provided, however, that such Subsidiary Guarantor is also
released from all Guarantees of First Lien Indebtedness and other
Permitted Collateral Debt;
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(2) at such time as such Subsidiary Guarantor does not have any
Indebtedness outstanding that would have required such Subsidiary
Guarantor to enter into a Guaranty Agreement pursuant to the covenant
described under "--Certain Covenants--Future Guarantors," or
(3) if we exercise our legal defeasance option or our covenant defeasance
option as described under "--Defeasance" or if our obligations under
the Indenture are discharged in accordance with the terms of the
Indenture.
Ranking
Senior Indebtedness Versus Exchange Notes
The indebtedness evidenced by these Exchange Notes and the Subsidiary
Guarantees will be senior secured indebtedness and will rank pari passu in right
of payment to the Senior Indebtedness of the Company and the Subsidiary
Guarantors, as the case may be, will have the benefit of the second-priority
security interest on the Collateral as described under the heading "--Security"
and will rank senior in right of payment to all existing and future Subordinated
Obligations of the Company and the Subsidiary Guarantors, as the case may be.
Pursuant to the Security Documents and the Intercreditor Agreement, the security
interests securing the Exchange Notes and the Subsidiary Guarantees are second
in priority (subject to Specified Permitted Liens and to certain exceptions
described under the heading "--Security") to all security interests at any time
granted to secure First Lien Obligations. The Exchange Notes will be guaranteed
by the Subsidiary Guarantors.
As of September 30, 2003, on an as adjusted basis to reflect the offering
of the Old Notes and the application of the net proceeds from the offering of
the Old Notes:
o we, excluding our subsidiaries, would have had approximately $330.0
million of senior indebtedness, including $320.0 million of
indebtedness represented by the Notes, of which $10.0 million would
have been secured by first priority liens on the collateral securing
the Notes;
o our subsidiary guarantors would have had approximately $342.7 million
of senior indebtedness, including $320.0 million of indebtedness
represented by our subsidiary guarantors' guarantees of the Notes and
$10.0 million of indebtedness represented by our subsidiary
guarantors' guarantees of loans under our senior secured credit
facilities, all of which would have been secured by first priority
liens on the collateral securing the Notes; and
o our subsidiaries not guaranteeing the Notes would have had
approximately $59.3 million of indebtedness and other liabilities
outstanding, including trade payables but excluding intercompany
indebtedness.
Liabilities of Subsidiaries Versus Exchange Notes
A substantial portion of our operations are conducted through our
subsidiaries. Some of our subsidiaries are not Guaranteeing the Exchange Notes,
and, as described above under "--Guarantees," Subsidiary Guarantees may be
released under certain circumstances. In addition, our future subsidiaries may
not be required to Guarantee the Exchange Notes. Claims of creditors of such
non-guarantor subsidiaries, including trade creditors and creditors holding
indebtedness or Guarantees issued by such non-guarantor subsidiaries, and claims
of preferred stockholders of such non-guarantor subsidiaries generally will have
priority with respect to the assets and earnings of such non-guarantor
subsidiaries over the claims of our creditors, including holders of the Exchange
Notes. Accordingly, the Exchange Notes will be effectively subordinated to
creditors (including trade creditors) and preferred stockholders, if any, of our
non-guarantor subsidiaries.
At September 30, 2003, the total liabilities of our subsidiaries recorded
on their balance sheets (other than the Subsidiary Guarantors) were
approximately $59.3 million, including trade payables but excluding
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intercompany indebtedness. The Exchange Notes are guaranteed by substantially
the same entities that guarantee our 9 7/8% senior subordinated Notes. Although
the Indenture limits the incurrence of Indebtedness and preferred stock of
certain of our subsidiaries, such limitation is subject to a number of
significant qualifications. Moreover, the Indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities that are not
considered Indebtedness under the Indenture. See "--Certain
Covenants--Limitation on Indebtedness."
As of the Issue Date, the Company has designated Koppers Mauritius and
Koppers (China) Carbon & Chemical Co. Ltd as Unrestricted Subsidiaries.
Substantially all of the assets of Koppers Mauritius consists of a 60% joint
venture interest in Koppers (China) Carbon & Chemical Co. Ltd. At September 30,
2003, the total assets of our Unrestricted Subsidiaries recorded on their
balance sheets were approximately $17.6 million and the total liabilities
recorded on their balance sheets were approximately $5.3 million, including
trade payables. In 2002, our Unrestricted Subsidiaries generated approximately
$10.0 million of revenue.
Global Notes and Book-Entry System
The Global Securities
The Exchange Notes will be issued in the form of one or more registered
notes in global form, without interest coupons. Such global notes will be
deposited on the issue date with DTC and registered in the name of Cede & Co.,
as nominee of DTC, or will remain in the custody of the Trustee under the
Indenture pursuant to the FAST Balance Certificate Agreement between DTC and the
Trustee. Beneficial interests in the global notes may not be exchanged for
certificated notes except in the circumstances described below. All interests in
global notes may be subject to the procedures and requirements of DTC.
Exchanges of beneficial interests in one global security for interests in
another global security will be subject to the applicable rules and procedures
of DTC and its direct and indirect participants. Any beneficial interest in one
of the global notes that is transferred to a person who takes delivery in the
form of an interest in another global security will, upon transfer, cease to be
an interest in that global security and become an interest in the global
security to which the beneficial interest is transferred and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in the global security to which the
beneficial interest is transferred for as long as it remains an interest in that
global security.
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC as set forth below
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of the respective settlement systems and are
subject to change by them from time to time. We do not take any responsibility
for these operations or procedures, and investors are urged to contact the
relevant system or its participants directly to discuss these matters.
DTC has advised us that it is a limited purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC holds securities for its participants and
facilitates the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, which eliminates the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a direct or indirect custodial
relationship with a participant ("indirect participants"). The rules applicable
to DTC and its participants are on file with the Commission.
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Upon the issuance of the global note representing the Exchange Notes, DTC
or its custodian will credit, on its internal system, the respective principal
amount of the individual beneficial interests represented by the global note to
the accounts of the persons who have accounts with DTC. Ownership of beneficial
interests in the global note will be limited to persons who have accounts with
DTC ("participants") or persons who hold interests through participants.
Ownership of beneficial interests in the global note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants and indirect participants (with respect to interests of persons
other than participants).
So long as DTC or its nominee is the registered owner or holder of the
global note, DTC or such nominee, as the case may be, will be considered the
sole record owner or holder of the Exchange Notes represented by the global note
for all purposes under the Indenture and the Exchange Notes. Except as set forth
herein, owners of beneficial interests in the global note will not be entitled
to have Exchange Notes represented by the global note registered in their names,
will not receive or be entitled to receive physical delivery of Exchange Notes
in definitive certificated form, and will not be considered holders of the
Exchange Notes for any purposes under the Indenture. Accordingly, each person
owning a beneficial interest in the global note must rely on the procedures of
DTC and, if such person is not a participant, on the procedures of the
participant through which such person directly or indirectly owns its interest,
to exercise any rights of a holder under the Indenture. We understand that under
existing industry practices, if we request any action of holders or any owner of
a beneficial interest in the global note desires to give any notice or take any
action that a holder is entitled to give or take under the indenture, DTC would
authorize the participants holding the relevant beneficial interests to give
such notice to take such action, and such participants would authorize
beneficial owners owning through such participants to give such notice or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
Payments of the principal of, premium, if any, and interest on the global
note will be made to DTC or its nominee, as the case may be, as the registered
owner. Neither we, the trustee nor any paying agent will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the global note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest in respect of the global note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial ownership interests in the principal amount of the global
note, as shown on the records of DTC or its nominee. We also expect that
payments by participants to owners of beneficial interests in the global note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. The
participants will be responsible for such payments.
A global note is exchangeable for certificated Notes if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the global Notes and DTC fails to appoint a successor
depositary within 90 days of such notice or (b) at any time has ceased
to be a clearing agency registered under the Exchange Act;
(2) we, at our option, notify the Trustee in writing that we elect to
cause the issuance of the certificated Notes; or
(3) there has occurred and is continuing an Event of Default with respect
to the Exchange Notes.
In addition, beneficial interests in a global note may be exchanged for
certificated Notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, certificated Notes
delivered in exchange for any global note or beneficial interests in global
Notes will be
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registered in the names, and issued in any approved denominations, requested by
or on behalf of the depositary in accordance with its customary procedures.
Although DTC has agreed to the procedures described above in order to
facilitate transfers of interests in the global note among participants of DTC,
it is under no obligation to perform such procedures and such procedures may be
discontinued at any time. Neither we nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
According to DTC, the foregoing information with respect to DTC has been
provided by it for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind. The information
contained herein concerning DTC and its book-entry system has been obtained from
sources that we believe are reliable, although DTC has declined to pass upon the
accuracy of the statements contained herein.
Same-Day Funds
We will make all payments of principal, premium, if any, and interest on
the global Notes in immediately available funds to DTC.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Exchange Notes at a purchase price in cash equal to
101% of the principal amount thereof on the date of purchase plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
(1) prior to the first public offering of common stock of the Company, the
Permitted Holders cease to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly,
of a majority in the aggregate of the total voting power of the Voting
Stock of the Company, whether as a result of issuance of securities of
the Company, any merger, consolidation, liquidation or dissolution of
the Company, or any direct or indirect transfer of securities (for
purposes of this clause (1) and clause (2) below, the Permitted
Holders shall be deemed to beneficially own any Voting Stock of the
Company (the "specified person") held by any other Person (the "parent
entity") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the
voting power of the Voting Stock of the parent entity);
(2) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (1) above, except that for
purposes of this clause (2), (x) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time and (y) such person shall not be deemed
to have "beneficial ownership" of any shares solely as a result of a
voting or similar agreement entered into in connection with a merger
agreement or asset sale agreement), directly or indirectly, of more
than 35% of the total voting power of the Voting Stock of the Company;
provided, however, that the Permitted Holders beneficially own (as
defined in clause (1) above), directly or indirectly, in the aggregate
a lesser percentage of the total voting power of the Voting Stock of
the Company than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate
for election a majority of the Board of Directors (for the purposes of
this clause (2), such other person shall be deemed to beneficially own
any Voting Stock of a specified person held by a parent entity, if
such
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other person is the beneficial owner (as defined in this clause (2)),
directly or indirectly, of more than 35% of the voting power of the
Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in clause (1) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power
of the Voting Stock of such parent entity and do not have the right or
ability by voting power, contract or otherwise to elect or designate
for election a majority of the board of directors of such parent
entity);
(3) individuals who on the Issue Date constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors on the Issue
Date 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;
(4) the adoption by the Company of a plan relating to the liquidation or
dissolution of the Company; or
(5) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale
of all or substantially all the assets of the Company (determined on a
consolidated basis) to another Person other than a transaction in
which holders of securities that represented 100% of the Voting Stock
of the Company immediately prior to such transaction (or other
securities into which such securities are converted as part of such
merger or consolidation transaction) own directly or indirectly at
least a majority of the voting power of the Voting Stock of the
transferee Person or surviving Person in such merger or consolidation
transaction immediately after such transaction.
Within 30 days following any Change of Control, we will mail a notice to
each Holder with a copy to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require us to purchase such Holder's Exchange Notes at a
purchase price in cash equal to 101% of the principal amount thereof
on the date of purchase, plus accrued and unpaid interest, if any, to
the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest on the relevant interest
payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including, to the extent reasonably available, information with
respect to pro forma historical income, cash flow and capitalization,
in each case after giving effect to such Change of Control);
(3) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the covenant
described hereunder, that a Holder must follow in order to have its
Exchange Notes purchased.
We will not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by us and
purchases all Exchange Notes validly tendered and not withdrawn under such
Change of Control Offer.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Exchange Notes as a result of a Change of
Control. To the extent that the provisions of any securities laws or regulations
conflict with the
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provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the covenant described hereunder by virtue of our
compliance with such securities laws or regulations.
The Change of Control purchase feature of the Exchange Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature is a result of negotiations between the Company and the Initial
Purchasers. We have no present intention to engage in a transaction involving a
Change of Control, although it is possible that we could decide to do so in the
future. Subject to the limitations discussed below, we could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect our capital structure or credit ratings.
Restrictions on our ability to Incur additional Indebtedness are contained in
the covenants described under "--Certain Covenants--Limitation on Indebtedness,"
"--Limitation on Liens" and "--Limitation on Sale/Leaseback Transactions." Such
restrictions can only be waived with the consent of the holders of a majority in
principal amount of the Exchange Notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture will not contain
any covenants or provisions that may afford holders of the Exchange Notes
protection in the event of a highly leveraged transaction.
The Credit Agreement provides that the occurrence of certain change of
control events with respect to the Company would constitute a default
thereunder.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the holders of their right to require us to repurchase their
Exchange Notes could cause a default under such indebtedness, even if the Change
of Control itself does not, due to the financial effect of such repurchase on
us. Finally, our ability to pay cash to the holders of Exchange Notes following
the occurrence of a Change of Control may be limited by our then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
The definition of "Change of Control" includes a disposition of all or
substantially all of the assets of the Company to any Person. Although there is
a limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.
Accordingly, in certain circumstances there may be a degree of uncertainty as to
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of the Company. As a result, it may be unclear
as to whether a Change of Control has occurred and whether a holder of Exchange
Notes may require the Company to make an offer to repurchase the Exchange Notes
as described above.
The provisions under the Indenture relative to our obligation to make an
offer to repurchase the Exchange Notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the Exchange Notes.
Certain Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the
Company and the Subsidiary Guarantors will be entitled to Incur Indebtedness if,
on the date of such Incurrence and after giving effect thereto on a pro forma
basis, the Consolidated Coverage Ratio exceeds 2 to 1.
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(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries will be entitled to Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred by the Company or any Subsidiary Guarantor
pursuant to any Revolving Credit Facility; provided, however,
that, immediately after giving effect to any such Incurrence, the
aggregate principal amount of all Indebtedness Incurred under
this clause (1) and clause (12) of this covenant and then
outstanding does not exceed the greater of (A) $100.0 million
less the sum of all principal payments with respect to such
Indebtedness pursuant to paragraph (a)(3)(A) of the covenant
described under "--Limitation on Sales of Assets and Subsidiary
Stock" and (B) the sum of (i) 60% of the book value of the
inventory of the Company and its Restricted Subsidiaries and (ii)
80% of the book value of the accounts receivable of the Company
and its Restricted Subsidiaries;
(2) Indebtedness Incurred by the Company or any Subsidiary Guarantor
pursuant to any Term Loan Facility; provided, however, that,
after giving effect to any such Incurrence, the aggregate
principal amount of all Indebtedness Incurred under this clause
(2) and then outstanding does not exceed $30.0 million;
(3) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that (A) any subsequent issuance
or transfer of any Capital Stock which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other than to the
Company or a Restricted Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the
obligor thereon, (B) if the Company is the obligor on such
Indebtedness, such Indebtedness (other than Indebtedness owed to
a Subsidiary Guarantor) is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the
Exchange Notes, and (C) if a Subsidiary Guarantor is the obligor
on such Indebtedness, such Indebtedness (other than Indebtedness
owed to a Subsidiary Guarantor) is expressly subordinated to the
prior payment in full in cash of all obligations of such obligor
with respect to its Subsidiary Guaranty;
(4) the Notes and the Exchange Notes (other than any Additional
Notes);
(5) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3) or (4) of this
covenant);
(6) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Subsidiary was acquired by
the Company (other than Indebtedness Incurred in connection with,
or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company); provided, however,
that on the date of such acquisition and after giving pro forma
effect thereto, the Company would have been able to Incur at
least $1.00 of additional Indebtedness pursuant to paragraph (a)
of this covenant;
(7) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (4), (5) or (6)
or this clause (7); provided, however, that to the extent such
Refinancing Indebtedness directly or indirectly Refinances
Indebtedness of a Subsidiary Incurred pursuant to clause (6),
such Refinancing Indebtedness shall be Incurred only by such
Subsidiary;
(8) Hedging Obligations consisting of (A) Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the
Company and its Restricted Subsidiaries pursuant to the Indenture
or (B) Currency Agreements entered into in the ordinary course of
business;
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(9) Indebtedness consisting of the Subsidiary Guaranty of a
Subsidiary Guarantor and any Guarantee by a Subsidiary Guarantor
of Indebtedness Incurred pursuant to paragraph (a) or pursuant to
clause (1), (2) or (5) or pursuant to clause (7) to the extent
the Refinancing Indebtedness Incurred thereunder directly or
indirectly Refinances Indebtedness Incurred pursuant to paragraph
(a) or pursuant to clause (5);
(10) Indebtedness (including Capital Lease Obligations) Incurred by
the Company or any of its Restricted Subsidiaries to finance the
purchase, lease or improvement of property (real or personal) or
equipment (whether through the direct purchase of assets or the
Capital Stock of any Person owning such assets) within 180 days
of such purchase, lease or improvement, and any Refinancing
Indebtedness Incurred to Refinance such Indebtedness, in an
aggregate principal amount which, when taken together with the
amount of Indebtedness Incurred pursuant to this clause (10) and
then outstanding, does not exceed $5.0 million;
(11) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount which, when taken together with all other Indebtedness of
Foreign Subsidiaries Incurred pursuant to this clause (11) and
then outstanding, does not exceed the greater of (A) $15.0
million and (B) the sum of 60% of the book value of the inventory
of the Foreign Subsidiaries and (ii) 80% of the book value of the
accounts receivable of the Foreign Subsidiaries;
(12) Non-Recourse Securitization Entity Indebtedness Incurred by a
Securitization Entity in connection with a Qualified
Securitization Transaction; provided, however, that at the time
of such Incurrence, the Company would have been entitled to Incur
the same amount of Indebtedness pursuant to clause (1) above; and
(13) Indebtedness of the Company or any Subsidiary Guarantor in an
aggregate principal amount which, when taken together with all
other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (1) through (12) above or
paragraph (a)) does not exceed $15.0 million.
(c) Notwithstanding the foregoing, neither the Company nor any Subsidiary
Guarantor will Incur any Indebtedness pursuant to the foregoing paragraph (b) if
the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company or any Subsidiary Guarantor unless such
Indebtedness shall be subordinated to the Exchange Notes or the applicable
Subsidiary Guaranty to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with this covenant:
(1) any Indebtedness remaining outstanding under the Credit Agreement
after the application of the net proceeds from the sale of the
Notes will be treated as Incurred on the Issue Date under clauses
(1) and (2) of paragraph (b) above;
(2) in the event that an item of Indebtedness (or any portion
thereof) meets the criteria of more than one of the types of
Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness (or any
portion thereof) at the time of Incurrence and will only be
required to include the amount and type of such Indebtedness in
one of the above clauses; and
(3) the Company will be entitled to divide and classify an item of
Indebtedness in more than one of the types of Indebtedness
described above.
(e) For purposes of determining compliance with any U.S. dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is
denominated in a different currency, the amount
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of such Indebtedness will be the U.S. Dollar Equivalent determined on the date
of the Incurrence of such Indebtedness; provided, however, that if any such
Indebtedness denominated in a different currency is subject to a Currency
Agreement with respect to U.S. dollars covering all principal, premium, if any,
and interest payable on such Indebtedness, the amount of such Indebtedness
expressed in U.S. dollars will be as provided in such Currency Agreement. The
principal amount of any Refinancing Indebtedness Incurred in the same currency
as the Indebtedness being Refinanced will be the U.S. Dollar Equivalent of the
Indebtedness Refinanced, except to the extent that (1) such U.S. Dollar
Equivalent was determined based on a Currency Agreement, in which case the
Refinancing Indebtedness will be determined in accordance with the preceding
sentence, and (2) the principal amount of the Refinancing Indebtedness exceeds
the principal amount of the Indebtedness being Refinanced, in which case the
U.S. Dollar Equivalent of such excess will be determined on the date such
Refinancing Indebtedness is Incurred.
Limitation on Restricted Payments
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to, make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not entitled to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described
under "--Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of
(without duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter
during which the Issue Date occurs to the end of the most
recent fiscal quarter ending at least 45 days prior to the
date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of
such deficit); plus
(B) 100% of the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock
(other than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of the
Company and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their
employees) and 100% of any cash capital contribution
received by the Company from its shareholders subsequent to
the Issue Date; plus
(C) the amount by which Indebtedness of the Company is reduced
on the Company's balance sheet upon the conversion or
exchange subsequent to the Issue Date of any Indebtedness of
the Company convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company (less the
amount of any cash, or the fair value of any other property,
distributed by the Company upon such conversion or
exchange); provided, however, that the foregoing amount
shall not exceed the Net Cash Proceeds received by the
Company or any Restricted Subsidiary from the sale of such
Indebtedness (excluding Net Cash Proceeds from sales to a
Subsidiary of the Company or to an employee stock ownership
plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); plus
(D) an amount equal to the sum of (i) the net reduction in the
Investments (other than Permitted Investments) made by the
Company or any Restricted Subsidiary in any Person
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resulting from repurchases, repayments or redemptions of such
Investments by such Person, proceeds realized on the sale of such
Investment and proceeds representing the return of capital, in
each case received by the Company or any Restricted Subsidiary,
and (ii) to the extent such Person is an Unrestricted Subsidiary,
the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of
such Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed, in the case of
any such Person or Unrestricted Subsidiary, the amount of
Investments (excluding Permitted Investments) previously made
(and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made out of the Net Cash Proceeds of the
substantially concurrent sale of, or made by exchange for,
Capital Stock of the Company (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of the
Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the
benefit of their employees) or a substantially concurrent cash
capital contribution received by the Company from its
shareholders; provided, however, that (A) such Restricted Payment
shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale or such
cash capital contribution (to the extent so used for such
Restricted Payment) shall be excluded from the calculation of
amounts under clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations
of the Company or a Subsidiary Guarantor made by exchange for, or
out of the proceeds of the substantially concurrent sale of,
Indebtedness which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness";
provided, however, that such purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value shall be
excluded in the calculation of the amount of Restricted Payments;
(3) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have
complied with this covenant; provided, however, that such
dividend shall be included in the calculation of the amount of
Restricted Payments;
(4) so long as no Default has occurred and is continuing, the
repurchase or other acquisition of shares of Capital Stock of the
Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of
its Subsidiaries (or permitted transferees of such employees,
former employees, directors or former directors), pursuant to the
terms of the agreements (including employment agreements) or
plans (or amendments thereto) approved by the Board of Directors
under which such individuals purchase or sell or are granted the
option to purchase or sell, shares of such Capital Stock;
provided, however, that the aggregate amount of such repurchases
and other acquisitions (excluding amounts representing
cancellation of Indebtedness) in any calendar year shall not
exceed $2.0 million; provided further, however, that such
repurchases and other acquisitions shall be excluded in the
calculation of the amount of Restricted Payments;
(5) payments of dividends on Disqualified Stock issued pursuant to
the covenant described under "--Limitation on Indebtedness";
provided, however, that such dividends shall be excluded in the
calculation of the amount of Restricted Payments;
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(6) repurchases and other acquisitions of Capital Stock deemed to
occur upon exercise of stock options or to satisfy federal income
tax obligations of option holders upon exercise of stock options
if such Capital Stock represents a portion of the exercise price
of such options; provided, however, that such Restricted Payments
shall be excluded in the calculation of the amount of Restricted
Payments;
(7) cash payments in lieu of the issuance of fractional shares in
connection with the exercise of warrants, options or other
securities convertible into or exchangeable for Capital Stock of
the Company; provided, however, that any such cash payment shall
not be for the purpose of evading the limitation of the covenant
described under this subheading (as determined in good faith by
the Board of Directors); provided further, however, that such
payments shall be excluded in the calculation of the amount of
Restricted Payments;
(8) in the event of a Change of Control, and if no Default shall have
occurred and be continuing, the payment, purchase, redemption,
defeasance or other acquisition or retirement of Subordinated
Obligations and Preferred Stock of the Company or any Subsidiary
Guarantor, in each case, at a purchase price not greater than
101% of the principal amount of such Subordinated Obligations or
Preferred Stock, plus any accrued and unpaid interest or
dividends thereon; provided, however, that prior to such payment,
purchase, redemption, defeasance or other acquisition or
retirement, the Company (or a third party to the extent permitted
by the Indenture) has made a Change of Control Offer with respect
to the Exchange Notes as a result of such Change of Control and
has repurchased all Exchange Notes validly tendered and not
withdrawn in connection with such Change of Control Offer;
provided further, however, that such repurchase and other
acquisitions shall be included in the calculation of the amount
of Restricted Payments;
(9) payments of intercompany subordinated Indebtedness, the
Incurrence of which was permitted under clause (3) of paragraph
(b) of the covenant described under "--Limitation on
Indebtedness"; provided, however, that no Default has occurred
and is continuing or would otherwise result therefrom; provided
further, however, that such payments shall be excluded in the
calculation of the amount of Restricted Payments;
(10) one or more dividends or share repurchases from the proceeds of
the offering of the Notes in an amount up to $40.0 million;
provided, however, that such dividends or share repurchases shall
be excluded in the calculation of the amount of Restricted
Payments;
(11) one or more dividends or share repurchases in an amount up to
$39.8 million; provided, however, that such dividends or share
repurchases shall be excluded in the calculation of the amount of
Restricted Payments; or
(12) Restricted Payments in an amount which, when taken together with
all other Restricted Payments made pursuant to this clause (12),
does not exceed $7.5 million; provided, however, that (A) at the
time of each such Restricted Payment, no Default shall have
occurred and be continuing (or result therefrom) and (B) such
Restricted Payments shall be excluded in the calculation of the
amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
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(1) with respect to clauses (a), (b) and (c),
(A) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date;
(B) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on
which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness Incurred as consideration in, or to
provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date;
(C) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (A) or (B) of clause (1) of this covenant
or this clause (C) or contained in any amendment to an agreement
referred to in clause (A) or (B) of clause (1) of this covenant
or this clause (C); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained
in any such refinancing agreement or amendment are not materially
more restrictive, taken as a whole, than encumbrances and
restrictions with respect to such Restricted Subsidiary contained
in such predecessor agreements;
(D) any encumbrance or restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the
sale or disposition of all or substantially all the Capital Stock
or assets of such Restricted Subsidiary pending the closing of
such sale or disposition;
(E) any encumbrance or restriction existing under Indebtedness of
Foreign Subsidiaries (other than Subsidiary Guarantors) permitted
to be Incurred pursuant to the covenant described under
"--Limitation on Indebtedness"; and
(F) any encumbrance or restriction existing under Non-Recourse
Securitization Entity Indebtedness or other contractual
requirements of a Securitization Entity in connection with a
Qualified Securitization Transaction; provided, however, that
such restrictions apply only to such Securitization Entity;
(2) with respect to clause (c) only,
(A) any encumbrance or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests
to the extent such provisions restrict the transfer of the lease
or the property leased thereunder;
(B) any encumbrance or restriction contained in security agreements
or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such encumbrance or restriction restricts the transfer
of the property subject to such security agreements or mortgages;
(C) any encumbrance or restriction pursuant to purchase money
obligations for property acquired in the ordinary course of
business that impose restrictions on the property so acquired;
(D) any encumbrance or restriction on cash or other deposits or net
worth imposed by customers under contracts entered into in the
ordinary course of business; and
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(E) any encumbrance or restriction contained in customary provisions
in joint venture agreements or other similar agreements entered
into in the ordinary course of business.
Limitation on Sales of Assets and Subsidiary Stock
(a) The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of
Directors (or, in the case of any such Asset Disposition for
aggregate consideration of less than $5.0 million, as determined
in good faith by the Company's chief financial officer), of the
shares and assets subject to such Asset Disposition;
(2) at least 80% of the consideration thereof received by the Company
or such Restricted Subsidiary is in the form of cash or cash
equivalents; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be)
(A) to the extent the Company elects (or is required by the
terms of any Applicable Indebtedness), to prepay, repay,
redeem or purchase Applicable Indebtedness of the Company or
a Subsidiary Guarantor (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company) within
one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash;
(B) to the extent the Company elects, to acquire Additional
Assets (provided, however, that if the assets that were the
subject of such Asset Disposition constituted Collateral,
then such Additional Assets shall become Collateral and be
pledged at the time of their acquisition to the Trustee as
Collateral for the benefit of the Noteholders, subject to
Specified Permitted Liens and the Intercreditor Agreement)
in each case within one year from the later of the date of
such Asset Disposition or the receipt of such Net Available
Cash; and
(C) to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to
make an offer to the holders of the Exchange Notes (and to
holders of other Applicable Senior Indebtedness of the
Company or of a Subsidiary Guarantor designated by the
Company) to purchase Exchange Notes (and such other
Applicable Senior Indebtedness of the Company or of a
Subsidiary Guarantor) pursuant to and subject to the
conditions contained in the Indenture;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (C) above, the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this covenant exceeds $10.0 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Temporary Cash Investments (which, if the assets that were the subject of such
Asset Disposition constituted Collateral, shall be pledged to the Trustee as
Collateral for the benefit of
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the Noteholders, subject to Specified Permitted Liens and the Intercreditor
Agreement, pending such application) or applied to temporarily reduce revolving
credit indebtedness that is Applicable Indebtedness.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents:
(1) the assumption of Indebtedness of the Company (other than obligations
in respect of Disqualified Stock of the Company) or any Restricted
Subsidiary (other than obligations in respect of Disqualified Stock or
Preferred Stock of a Subsidiary Guarantor) and the release of the
Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition; and
(2) securities received by the Company or any Restricted Subsidiary from
the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash, to the extent of cash received in
that conversion.
Notwithstanding the foregoing, the 80% limitation set forth in clause
(a)(2) above will be deemed satisfied with respect to any Asset Disposition in
which the cash or cash equivalents portion of the consideration received
therefrom, determined in accordance with the immediately preceding paragraph on
an after-tax basis, is equal to or greater than what the after-tax proceeds
would have been had such Asset Disposition complied with the aforementioned 80%
limitation.
The requirement of clause (a)(3)(B) above will be deemed to be satisfied if
an agreement (including a lease, whether a capital lease or an operating lease)
committing to make the acquisitions or expenditures referred to therein is
entered into by us or a Restricted Subsidiary within the time period specified
in such clause and such Net Available Cash is subsequently applied in accordance
with such agreement within six months following the date of such agreement.
(b) In the event of an Asset Disposition that requires the purchase of
Exchange Notes (and other Applicable Senior Indebtedness of the Company or a
Subsidiary Guarantor) pursuant to clause (a)(3)(C) above, the Company will
purchase Exchange Notes tendered pursuant to an offer by the Company or such
Subsidiary Guarantor for the Exchange Notes (and such other Applicable Senior
Indebtedness of the Company or such Subsidiary Guarantor) at a purchase price of
100% of their principal amount (or, in the event such other Applicable Senior
Indebtedness of the Company or such Subsidiary Guarantor was issued with
significant original issue discount, 100% of the accreted value thereof) without
premium, plus accrued but unpaid interest (or, in respect of such other
Applicable Senior Indebtedness of the Company or such Subsidiary Guarantor, such
lesser price, if any, as may be provided for by the terms of such Applicable
Senior Indebtedness) in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture; provided, however,
that the procedures for making an offer to holders of other Applicable Senior
Indebtedness will be as provided for by the terms of such Applicable Senior
Indebtedness. If the aggregate purchase price of the Indebtedness tendered
exceeds the Net Available Cash allotted to their purchase, the Company will
select the Indebtedness to be purchased on a pro rata basis but in round
denominations, which in the case of the Exchange Notes will be denominations of
$1,000 principal amount or multiples thereof. The Company shall not be required
to make such an offer to purchase Exchange Notes (and other Applicable Senior
Indebtedness of the Company or a Subsidiary Guarantor) pursuant to this covenant
if the Net Available Cash available therefor is less than $10.0 million (which
lesser amount shall be carried forward for purposes of determining whether such
an offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition). Upon completion of such an offer to purchase, Net Available
Cash will be deemed to be reduced by the aggregate amount of such offer.
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Exchange Notes pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations
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and will not be deemed to have breached its obligations under this covenant by
virtue of its compliance with such securities laws or regulations.
(d) Notwithstanding the foregoing, to the extent that any or all of the Net
Available Cash from Asset Dispositions is prohibited or delayed by applicable
non-U.S. law from being repatriated to the United States, the portion of such
Net Available Cash so affected will not be required to be applied as set forth
in this covenant (other than to repay Applicable Indebtedness of the Subsidiary
making such Asset Disposition as contemplated in clause (a)(3)(A) above) at the
time provided above but may be retained by the applicable Subsidiary for so long
as the applicable local law will not permit repatriation to the United States,
and once such repatriation of any of such affected Net Available Cash is
permitted under the applicable local law, such repatriation will be promptly
effected and such repatriated Net Available Cash will be applied in the manner
described above; provided, however, that to the extent that the Company has
determined in good faith that repatriation of any or all of such Net Available
Cash would have a material adverse tax consequence, such Net Available Cash may
be retained by the applicable Subsidiary for so long as such material adverse
tax consequence would continue.
Limitation on Affiliate Transactions
(a) The Company will not, and will not permit any Restricted Subsidiary
to, enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property, employee
compensation arrangements or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate
Transaction") unless:
(1) the terms of the Affiliate Transaction are no less favorable to
the Company or such Restricted Subsidiary than those that could
be obtained at the time of the Affiliate Transaction in
arm's-length dealings with a Person who is not an Affiliate; (2)
if such Affiliate Transaction involves an amount in excess of
$5.0 million, the terms of the Affiliate Transaction are set
forth in writing and a majority of the non-employee directors of
the Company disinterested with respect to such Affiliate
Transaction have determined in good faith that the criteria set
forth in clause (1) are satisfied and have approved the relevant
Affiliate Transaction as evidenced by a resolution of the Board
of Directors; and
(3) if such Affiliate Transaction involves an amount in excess of
$10.0 million, the Board of Directors shall also have received a
written opinion from an Independent Qualified Party to the effect
that such Affiliate Transaction is fair, from a financial
standpoint, to the Company and its Restricted Subsidiaries or is
not less favorable to the Company and its Restricted Subsidiaries
than could reasonably be expected to be obtained at the time in
an arm's-length transaction with a Person who was not an
Affiliate.
(b) The provisions of the preceding paragraph (a) will not prohibit:
(1) any Investment (other than a Permitted Investment) or other
Restricted Payment, in each case permitted to be made pursuant to
(but only to the extent included in the calculation of the amount
of Restricted Payments made pursuant to paragraph (a)(3) of) the
covenant described under "--Limitation on Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants
in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by the Board of Directors;
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(3) loans or advances to employees in the ordinary course of business
in accordance with the past practices of the Company or its
Restricted Subsidiaries, but in any event not to exceed $2.0
million in the aggregate outstanding at any one time;
(4) the payment of reasonable fees to directors of the Company and
its Restricted Subsidiaries who are not employees of the Company
or its Restricted Subsidiaries;
(5) any transaction with a Restricted Subsidiary or joint venture or
similar entity which would constitute an Affiliate Transaction
solely because the Company or a Restricted Subsidiary owns an
equity interest in or otherwise controls such Restricted
Subsidiary, joint venture or similar entity;
(6) the issuance or sale of any Capital Stock (other than
Disqualified Stock) of the Company;
(7) any agreement as in effect on the Issue Date and described in
this prospectus or identified in an exhibit to the Indenture or
any renewals or extensions of any such agreement (so long as such
renewals or extensions are not less favorable to the Company or
the Restricted Subsidiaries) and the transactions evidenced
thereby;
(8) (A) the payment of management, advisory or consulting fees to
Saratoga Management Company LLC or its Affiliates in an amount
not to exceed $600,000 in any year and (B) the payment of
financial advisory, financing, underwriting or placement services
fees or fees in respect of other investment banking activities,
including in connection with acquisitions or divestitures, to
Saratoga Management Company LLC or its Affiliates, which payments
described in this clause (B) are approved by a majority of the
disinterested members of the Board of Directors;
(9) the sale to an Affiliate of the Company of Indebtedness
(including Disqualified Stock) of the Company in connection with
an offering of such Indebtedness in a market transaction and on
terms substantially identical to those of other purchasers in
such market transaction; and
(10) transactions effected as part of a Qualified Securitization
Transaction.
Limitation on the Sale or Issuance of Common Stock of Restricted Subsidiaries
The Company
(1) will not, and will not permit any Restricted Subsidiary (other than a
Securitization Entity) to, sell, lease, transfer or otherwise dispose
of any Common Stock of any Restricted Subsidiary to any Person (other
than the Company or a Restricted Subsidiary), and
(2) will not permit any Restricted Subsidiary (other than a Securitization
Entity) to issue any of its Common Stock (other than, if necessary,
shares of its Common Stock constituting directors' or other legally
required qualifying shares) to any Person (other than to the Company
or a Restricted Subsidiary),
unless
(A) immediately after giving effect to such issuance, sale or other
disposition, (A) the Company is the beneficial owner of either
(x) at least 80% or (y) less than 50% of the Common Stock of such
Restricted Subsidiary and (B) any Investment in such Person
remaining after giving effect thereto is treated as a new
Investment by the Company and such Investment would be
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permitted to be made under the covenant described under
"--Limitation on Restricted Payments" if made on the date of such
issuance, sale or other disposition; and
(B) the Net Available Cash from such issuance, sale or other
disposition is applied in the manner and to the extent required
by the covenant described under "--Limitation on Sales of Assets
and Subsidiary Stock."
Notwithstanding the foregoing, this covenant shall not apply to issuances,
sales or other dispositions of any Common Stock of any Restricted Subsidiary
that has a fair market value at the time of such disposition of less than $1.0
million.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur or permit to exist any Lien of any nature
whatsoever on any of its properties (including Capital Stock of a Restricted
Subsidiary), whether owned at the Issue Date or thereafter acquired, other than
(1) with respect to Collateral, Specified Permitted Liens, Liens securing the
Notes (including Additional Notes, if any) and the Subsidiary Guarantees, Liens
securing First Lien Obligations and Liens securing Permitted Collateral Debt and
(2) with respect to non-Collateral, Permitted Liens, without, in the case of
this clause (2), effectively providing that the Exchange Notes shall be secured
equally and ratably with (or prior to) the obligation so secured for so long as
such obligation is so secured.
In addition, if the Company or any Subsidiary Guarantor creates any
security interest upon any property to secure any Obligations pursuant to the
Credit Agreement, it must concurrently grant a second-priority Lien (subject to
Specified Permitted Liens) upon such property as security for the Exchange
Notes, subject to certain exceptions and limitations, all as more fully
described above in the second paragraph under the heading "--Security."
Limitation on Sale/Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale/Leaseback Transaction with respect to any property unless:
(1) the Company or such Restricted Subsidiary would be entitled to (A)
Incur Indebtedness in an amount equal to the Attributable Debt with
respect to such Sale/Leaseback Transaction pursuant to the covenant
described under "--Limitation on Indebtedness" and (B) create a Lien
on such property securing such Attributable Debt without equally and
ratably securing the Exchange Notes pursuant to the covenant described
under "--Limitation on Liens";
(2) the net proceeds received by the Company or any Restricted Subsidiary
in connection with such Sale/Leaseback Transaction are at least equal
to the fair market value (as determined by the Board of Directors) of
such property; and
(3) the Company applies the proceeds of such transaction in compliance
with the covenant described under "--Limitation on Sale of Assets and
Subsidiary Stock."
Merger and Consolidation
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or
indirectly, all or substantially all its assets (determined on a consolidated
basis) to, any Person, unless:
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(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of
the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall
expressly assume, by an indenture supplemental thereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Exchange Notes and the Indenture;
(2) immediately after giving pro forma effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having
been Incurred by such Successor Company or such Subsidiary at the time
of such transaction), no Default shall have occurred and be
continuing;
(3) immediately after giving pro forma effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness";
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with the Indenture; and
(5) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that the Holders will not recognize income, gain or loss
for Federal income tax purposes as a result of such transaction 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
transaction had not occurred;
provided, however, that clause (3) will not be applicable to (A) a Restricted
Subsidiary consolidating with, merging into or transferring all or part of its
properties and assets to the Company or (B) the Company merging with an
Affiliate of the Company solely for the purpose and with the sole effect of
reincorporating the Company in another jurisdiction.
For purposes of this covenant, the sale, lease, conveyance, assignment,
transfer or other disposition of all or substantially all of the properties and
assets of one or more Subsidiaries of the Company, which properties and assets,
if held by the Company instead of such Subsidiaries, would constitute all or
substantially all of the properties and assets of the Company on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
The Successor Company will be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and the predecessor Company, except in the case
of a lease, shall be released from the obligation to pay the principal of and
interest on the Exchange Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(1) the resulting, surviving or transferee Person (if not such Subsidiary)
shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the
laws of the United States of America, or any State thereof or the
District of Columbia, and such Person shall expressly assume, by a
Guaranty Agreement, in a form satisfactory to the Trustee, all the
obligations of such Subsidiary, if any, under its Subsidiary Guaranty;
provided, however, that the foregoing shall not apply in the case of a
Subsidiary Guarantor (x) that has been disposed of in its entirety to
another Person (other than
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to the Company or an Affiliate of the Company), whether through a
merger, consolidation or sale of Capital Stock or assets or (y) that,
as a result of the disposition of all or a portion of its Capital
Stock, ceases to be a Subsidiary, if, in both cases, in connection
therewith the Company provides an Officers' Certificate to the Trustee
to the effect that the Company will comply with its obligations under
the covenant described under "--Limitation on Sales of Assets and
Subsidiary Stock" in respect of such disposition;
(2) immediately after giving effect to such transaction or transactions on
a pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at the
time of such transaction), no Default shall have occurred and be
continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such Guaranty Agreement, if any, complies with the
Indenture.
Future Guarantors
The Company will cause each Domestic Restricted Subsidiary that Incurs any
Indebtedness to, and each Foreign Subsidiary that enters into a Guarantee of any
Indebtedness (other than a Foreign Subsidiary that Guarantees Indebtedness
Incurred by another Foreign Subsidiary) to, in each case, at the same time,
execute and deliver to the Trustee a Guaranty Agreement pursuant to which such
Restricted Subsidiary will Guarantee payment of the Exchange Notes on the same
terms and conditions as those set forth in the Indenture; provided, however,
that such Restricted Subsidiary will not be required to deliver a Subsidiary
Guaranty if (A) the aggregate amount of such Indebtedness or such Guarantee,
together with all other Indebtedness and such Guarantees then outstanding by
such Restricted Subsidiary, does not exceed $3.0 million and (B) the aggregate
amount of such Indebtedness or such Guarantee, together with all other
Indebtedness and such Guarantees then outstanding among Restricted Subsidiaries
that are not Subsidiary Guarantors, does not exceed $15.0 million. Each
Subsidiary issuing a Subsidiary Guaranty pursuant to this paragraph will be
automatically and unconditionally released and discharged from its obligations
under such Subsidiary Guaranty upon the release or discharge of the Indebtedness
or Guarantee that resulted in the Company's obligations under the Exchange Notes
and the Indenture being so Guaranteed.
SEC Reports
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company will file with the SEC
(subject to the next sentence) and provide the Trustee and Noteholders with such
annual and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
reports to be so filed and provided at the times specified for the filings of
such reports under such Sections and containing all the information, audit
reports and exhibits required for such reports. If at any time the Company is
not subject to the periodic reporting requirements of the Exchange Act for any
reason, the Company will nevertheless continue filing the reports specified in
the preceding sentence with the SEC within the time periods required unless the
SEC will not accept such a filing. The Company agrees that it will not take any
action for the purpose of causing the SEC not to accept any such filings. If,
notwithstanding the foregoing, the SEC will not accept such filings for any
reason, the Company will post the reports specified in the preceding sentence on
its website within the time periods that would apply if the Company were
required to file those reports with the SEC. Notwithstanding the foregoing, the
Company may satisfy such requirements prior to the effectiveness of the Exchange
Offer Registration Statement or the Shelf Registration Statement by filing with
the SEC the Exchange Offer Registration Statement or Shelf Registration
Statement, to the extent that any such Registration Statement contains
substantially the same information (and at substantially the same time) as would
be required to be filed by the Company if it were subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, and by providing the
Trustee and Noteholders with such Registration Statement (and any amendments
thereto) promptly following the filing thereof.
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At any time that any of the Company's Subsidiaries are Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, the Company will furnish to the Holders of the Exchange Notes
and to prospective investors, upon the requests of such Holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the Exchange Notes are not freely transferable under the Securities Act.
Defaults
Each of the following is an Event of Default:
(1) a default in the payment of interest on the Exchange Notes when due,
continued for 30 days;
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required purchase,
upon declaration of acceleration or otherwise;
(3) the failure by the Company to comply with its obligations under
"--Certain Covenants--Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with any
of its obligations in the covenants described above under "Change of
Control" (other than a failure to purchase Exchange Notes) or under
"--Certain Covenants" under "--Limitation on Indebtedness,"
"--Limitation on Restricted Payments," "--Limitation on Restrictions
on Distributions from Restricted Subsidiaries," "--Limitation on Sales
of Assets and Subsidiary Stock" (other than a failure to purchase
Exchange Notes), "--Limitation on Affiliate Transactions,"
"--Limitation on the Sale or Issuance of Common Stock of Restricted
Subsidiaries," "--Limitation on Liens," "--Limitation on
Sale/Leaseback Transactions," "--Future Guarantors" or "--SEC
Reports";
(5) the failure by the Company or any Subsidiary Guarantor to comply for
60 days after notice with its other agreements contained in the
Indenture or in the Security Documents;
(6) Indebtedness of the Company, any Subsidiary Guarantor or any
Significant Subsidiary is not paid within any applicable grace period
after final maturity or the maturity of such Indebtedness is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10.0
million (the "cross-acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company, a Subsidiary Guarantor or any Significant Subsidiary (the
"bankruptcy provisions");
(8) any judgment or decree for the payment of money in excess of $10.0
million (excluding the amount of any insurance proceeds or
indemnification claims available to the obligor from insurance
carriers and indemnitors who in the reasonable judgment of the Board
of Directors of the Company are creditworthy and who have not
disclaimed their liability with respect thereto) is entered against
the Company, a Subsidiary Guarantor or any Significant Subsidiary,
remains outstanding for a period of 60 consecutive days following such
judgment and is not discharged, waived or stayed within 10 days after
notice (the "judgment default provision");
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(9) a Subsidiary Guaranty ceases to be in full force and effect (other
than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty (the "Subsidiary Guaranty provision"); or
(10) (A) the failure of the Company or any Subsidiary Guarantor to comply
with any covenant or agreement contained in any of the Security
Documents (after the lapse of any applicable grace periods) which
adversely affects the enforceability, validity, perfection or priority
of the Collateral Agent's Lien on the Collateral for the benefit of
the Exchange Notes or which adversely affects the condition or value
of the Collateral, taken as a whole, in any material respect, (B) the
repudiation or disaffirmation by the Company or any Subsidiary
Guarantor of its obligations under any of the Security Documents or
the determination in a judicial proceeding that any of the Security
Documents is unenforceable or invalid against the Company or any
Subsidiary Guarantor for any reason or (C) any Security Document shall
cease to be in full force and effect (other than in accordance with
the terms of the applicable Security Document and the indenture), or
cease to be effective in all material respects to grant the Collateral
Agent a perfected Lien on the Collateral with the priority purported
to be created thereby.
However, a default under clauses (4), (5) and (8) will not constitute an Event
of Default until the Trustee or the holders of 25% in principal amount of the
outstanding Exchange Notes notify the Company of the default and the Company
does not cure such default within the time specified after receipt of such
notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Exchange Notes may
declare the principal of and accrued but unpaid interest on all the Exchange
Notes to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
occurs and is continuing, the principal of and interest on all the Exchange
Notes will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the
Exchange Notes. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Exchange Notes may rescind any such
acceleration with respect to the Exchange Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Exchange
Notes unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
of a Note may pursue any remedy with respect to the Indenture or the Exchange
Notes unless:
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding
Exchange Notes have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in principal amount of the outstanding Exchange
Notes have not given the Trustee a direction inconsistent with such
request within such 60-day period.
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Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding Exchange Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each holder of the Exchange Notes notice of the Default within 90
days after it occurs. Except in the case of a Default in the payment of
principal of or interest on any Note, the Trustee may withhold notice if and so
long as a committee of its Trust Officers determines that withholding notice is
not opposed to the interest of the holders of the Exchange Notes. In addition,
we are required to deliver to the Trustee, within 120 days after the end of each
fiscal year, a certificate indicating whether the signers thereof know of any
Default that occurred during the previous year. We are required to deliver to
the Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action we
are taking or propose to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture, the Security Documents and
the Intercreditor Agreement may be amended with the consent of the holders of a
majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange for the Notes) and any
past default or compliance with any provisions may also be waived with the
consent of the holders of a majority in principal amount of the Exchange Notes
then outstanding. However, without the consent of each holder of an outstanding
Note affected thereby, an amendment or waiver may not, among other things:
(1) reduce the amount of Exchange Notes whose holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on any
Note;
(3) reduce the principal of or change the Stated Maturity of any Note;
(4) change the provisions applicable to the redemption of any Note as
described under "--Optional Redemption" above;
(5) make any Note payable in money other than that stated in the Note;
(6) impair the right of any holder of the Exchange Notes to receive
payment of principal of and interest on such holder's Exchange Notes
on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's
Exchange Notes;
(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions;
(8) make any change in the ranking or priority of any Note that would
adversely affect the Noteholders;
(9) make any change in, or release other than in accordance with the
Indenture, any Subsidiary Guaranty that would adversely affect the
Noteholders; or
(10) release any Collateral, except as otherwise provided in the Indenture,
the Security Documents or the Intercreditor Agreement.
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Notwithstanding the preceding, without the consent of any holder of the
Exchange Notes, the Company, the Subsidiary Guarantors and Trustee may amend the
Indenture, the Intercreditor Agreement or the Security Documents:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of the
obligations of the Company, or any Subsidiary Guarantor under the
Indenture;
(3) to provide for uncertificated Exchange Notes in addition to or in
place of certificated Exchange Notes (provided that the uncertificated
Exchange Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated
Exchange Notes are described in Section 163(f)(2)(B) of the Code);
(4) to add Guarantees with respect to the Exchange Notes, including any
Subsidiary Guarantees, or to secure the Exchange Notes;
(5) to add to the covenants of the Company or a Subsidiary Guarantor for
the benefit of the holders of the Exchange Notes or to surrender any
right or power conferred upon the Company or a Subsidiary Guarantor;
(6) to make any change that does not adversely affect the rights of any
holder of the Exchange Notes;
(7) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act; or
(8) to make any amendment to the provisions of the Indenture relating to
the form, authentication, transfer and legending of Exchange Notes;
provided, however, that (a) compliance with the Indenture as so
amended would not result in Exchange Notes being transferred in
violation of the Securities Act or any other applicable securities law
and (b) such amendment does not materially affect the rights of
Holders to transfer Exchange Notes.
Notwithstanding the second preceding paragraph, without the consent of any
Holder of Exchange Notes, any amendment, waiver or consent agreed to by the
Credit Agent or the holders of First Lien Obligations under any provision of any
of the security documents granting the first-priority Lien on any Collateral to
secure the First Lien Obligations will automatically apply to the comparable
provision of the comparable Security Document entered into in connection with
the Exchange Notes; provided, however, that if any such amendment, waiver or
consent could reasonably be expected to be materially adverse to the Noteholders
or the interest of the Noteholders in the Collateral, such amendment, waiver or
consent will not be applicable to the Security Documents entered into in
connection with the Exchange Notes as provided above unless First Lien
Obligations (including commitments in respect thereof to the extent that such
commitments are subject only to reasonable and customary funding conditions and
are then available to be funded at the election of the Company) of no less than
$30.0 million secured by first-priority Liens on the Collateral are then
outstanding. Notwithstanding the foregoing, no such amendment, waiver or consent
may have the effect of releasing the Collateral, except to the extent described
under the caption "--Security."
The consent of the holders of the Exchange Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
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After an amendment under the Indenture becomes effective, we are required
to mail to holders of the Exchange Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
Exchange Notes, or any defect therein, will not impair or affect the validity of
the amendment.
Neither the Company nor any Affiliate of the Company may, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture
or the Exchange Notes unless such consideration is offered to be paid to all
Holders that so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement.
Transfer
The Exchange Notes will be issued in registered form and will be
transferable only upon the surrender of the Exchange Notes being transferred for
registration of transfer. We may require payment of a sum sufficient to cover
any tax, assessment or other governmental charge payable in connection with
certain transfers and exchanges.
Satisfaction and Discharge
When we (1) deliver to the Trustee all outstanding Exchange Notes for
cancellation or (2) all outstanding Exchange Notes have become due and payable,
whether at maturity or on a redemption date as a result of the mailing of notice
of redemption and, in the case of clause (2), we irrevocably deposit with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Exchange Notes, including interest thereon to maturity or such redemption date,
and if in any case we pay all other sums payable under the Indenture by us, then
the Indenture shall, subject to certain exceptions, cease to be of further
effect.
Defeasance
At any time, we may terminate all our obligations under the Exchange Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Exchange Notes, to replace mutilated, destroyed,
lost or stolen Exchange Notes and to maintain a registrar and paying agent in
respect of the Exchange Notes.
In addition, at any time we may terminate our obligations under "--Change
of Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Subsidiary Guarantors and Significant Subsidiaries, the judgment default
provision, the security default provision and the Subsidiary Guaranty provision
described under "--Defaults" above and the limitations contained in clause (3)
of the first paragraph under "--Certain Covenants--Merger and Consolidation"
above ("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the Exchange Notes may not be accelerated because of an Event
of Default with respect thereto. If we exercise our covenant defeasance option,
payment of the Exchange Notes may not be accelerated because of an Event of
Default specified in clause (4), (6), (7) (with respect only to Significant
Subsidiaries and Subsidiary Guarantors), (8) or (9) under "--Defaults" above or
because of the failure of the Company to comply with clause (3) of the first
paragraph under "--Certain Covenants--Merger and Consolidation" above. If we
exercise our legal defeasance option or our covenant defeasance option, each
Subsidiary Guarantor will be released from all of its obligations with respect
to its Subsidiary Guaranty and the Security Documents and we will be released
from our obligations with respect to the Security Documents.
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In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Exchange
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that holders of the Exchange Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
Concerning the Trustee
JPMorgan Chase Bank is to be the Trustee under the Indenture. We have
appointed JPMorgan Chase Bank as Registrar and Paying Agent with regard to the
Exchange Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The Holders of a majority in principal amount of the outstanding Exchange
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. If an Event of Default occurs (and is not cured), the
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of his or her own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of Exchange
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor will have any liability for any obligations of the
Company or any Subsidiary Guarantor under the Exchange Notes, any Subsidiary
Guaranty, any Security Document or the Indenture or for any claim based on, in
respect of, or by reason of such obligations or their creation. Each Holder of
the Exchange Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the
Exchange Notes. Such waiver and release may not be effective to waive
liabilities under the U.S. Federal securities laws, and it is the view of the
SEC that such a waiver is against public policy.
Governing Law
The Indenture, the Intercreditor Agreement and the Exchange Notes will be
governed by, and construed in accordance with, the laws of the State of New
York.
Certain Definitions
"Additional Assets" means:
(1) any property, plant or equipment used in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as
a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
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(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clause (2)
or (3) above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Applicable Indebtedness" means:
(1) in respect of any asset that is the subject of an Asset Disposition at
a time when such asset is included in the Collateral, Senior
Indebtedness or Indebtedness of a Subsidiary or any other non-debt
obligation that, in each case, is secured at such time by Collateral
under a Lien that takes priority over the Lien in respect of the
Exchange Notes under the Security Documents; or
(2) in respect of any asset that is the subject of an Asset Disposition at
a time when such asset is not included in the Collateral but is owned,
directly or indirectly, by a Foreign Subsidiary the stock of which is
included in the Collateral, any Indebtedness or other obligation
referred to in clause (1) above, any Indebtedness of such Foreign
Subsidiary or any Indebtedness of any other Foreign Subsidiary that is
a Wholly Owned Subsidiary; or
(3) in respect of any other asset, Senior Indebtedness.
"Applicable Senior Indebtedness" means:
(1) in respect of any asset that is the subject of an Asset Disposition at
a time when such asset is included in the Collateral, Senior
Indebtedness that is secured at such time by Collateral; or
(2) in respect of any asset that is the subject of an Asset Disposition at
a time when such asset is not included in the Collateral but is owned,
directly or indirectly, by a Foreign Subsidiary the stock of which is
included in the Collateral, Senior Indebtedness that is secured at
such time by Collateral; or
(3) in respect of any other asset, Senior Indebtedness.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted
Subsidiary);
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(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside
of the ordinary course of business of the Company or such Restricted
Subsidiary,
other than, in the case of clauses (1), (2) and (3) above,
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary;
(B) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
(i) a disposition (other than a disposition of Collateral) that
constitutes a Restricted Payment (or would constitute a Restricted
Payment but for the exclusions from the definition thereof) and that
is not prohibited by the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" and (ii) a disposition
of all or substantially all the assets of the Company in accordance
with the covenant described under "--Certain Covenants--Merger and
Consolidation";
(C) a disposition of assets (other than any assets that constitute
Collateral) with a fair market value of less than $500,000;
(D) a disposition of cash or Temporary Cash Investments;
(E) the creation of a Lien (but not the sale or other disposition of the
property subject to such Lien);
(F) any disposition of receivables and related assets (including contract
rights of the type described in the definition of "Qualified
Securitization Transaction") to a Securitization Entity pursuant to a
Qualified Securitization Transaction for the fair market value
thereof, including cash and Temporary Cash Investments in an amount at
least equal to 80% of the fair market value thereof (for purposes of
this clause (F), Purchase Money Notes will be deemed to be cash); and
(G) any transfer of receivables and related assets (including contract
rights of the type described in the definition of "Qualified
Securitization Transaction"), or a fractional undivided interest
therein, by a Securitization Entity in a Qualified Securitization
Transaction).
For purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, the
disposition of Capital Stock of a Person will be treated as a disposition of all
Collateral owned by such Person if after giving effect to such disposition of
such Capital Stock, the Company and the Restricted Subsidiaries do not control
such Person.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Exchange Notes, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended); provided, however, that if such Sale/ Leaseback Transaction
results in a Capital Lease Obligation, the amount of Indebtedness represented
thereby will be determined in accordance with the definition of "Capital Lease
Obligation."
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
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(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal
payment of or redemption or similar payment with respect to such
Indebtedness multiplied by the amount of such payment by
(2) the sum of all such payments.
"Australian Grantors" means Koppers Shipping Pty Ltd, Continental Carbon
Australia Pty Ltd, Koppers Carbon Materials & Chemicals Pty Ltd, Koppers Wood
Products Pty Ltd, Koppers Australia Pty Ltd, Koppers Investment Subsidiary Pty
Ltd and Koppers Australia Holding Company Pty Ltd, and their respective
successors.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty. For purposes of the covenant described under "--Certain
Covenants--Limitations on Liens," a Capital Lease Obligation will be deemed to
be secured by a Lien on the property being leased.
"Capital Stock" of any Person means any and all shares, interests
(including partnership interests), rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated)
equity of such Person, including any Preferred Stock, but excluding any debt
securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all the collateral provided for and described in the
Security Documents.
"Collateral Agent" means JPMorgan Chase Bank, in its capacity as collateral
agent for the Noteholders, until a successor replaces it and, thereafter, means
the successor.
"Commodity Agreement" means any forward contracts, commodity swap,
commodity option or other similar financial agreement or arrangement relating
to, or the value of which is dependent upon, fluctuations in commodity prices.
"Common Stock" of any Person means any and all shares, interests (including
partnership interests), rights to purchase, warrants, options, participations or
other equivalents or interests in (however designated) equity of such Person,
excluding any Preferred Stock and any debt securities convertible into such
equity.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (a) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (b) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, EBITDA and Consolidated Interest Expense for such period shall
be calculated after giving
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effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period;
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning
of such period or if any Indebtedness is to be repaid, repurchased,
defeased or otherwise discharged (in each case other than Indebtedness
Incurred under any revolving credit facility unless such Indebtedness
has been permanently repaid and has not been replaced) on the date of
the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such
period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if the Company or
such Restricted Subsidiary had not earned the interest income actually
earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, EBITDA for such
period shall be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to
EBITDA (if negative), directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by
an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if the
Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company
and its continuing Restricted Subsidiaries are no longer liable for
such Indebtedness after such sale);
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the
first day of such period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company
or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3)
or (4) above if made by the Company or a Restricted Subsidiary during
such period, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day
of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness to the extent such Interest Rate Agreement has a remaining
term in excess of 12 months).
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If any Indebtedness is incurred under a revolving credit facility and is
being given pro forma effect, the interest on such Indebtedness shall be
calculated based on the average daily balance of such Indebtedness for the four
fiscal quarters subject to the pro forma calculation to the extent that such
Indebtedness was incurred solely for working capital purposes.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to Capital Lease Obligations;
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
(6) net payments pursuant to Hedging Obligations;
(7) dividends accrued in respect of all Preferred Stock held by Persons
other than the Company or a Restricted Subsidiary (other than
dividends payable solely in Capital Stock (other than Disqualified
Stock) of the Company); provided, however, that such dividends will be
multiplied by a fraction the numerator of which is one and the
denominator of which is one minus the effective combined tax rate of
the issuer of such Preferred Stock (expressed as a decimal) for such
period (as estimated by the chief financial officer of the Company in
good faith);
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest accruing on any Indebtedness of any other Person if such
Indebtedness is in default to the extent such Indebtedness is
Guaranteed by (or secured by the assets of) the Company or any
Restricted Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person
is not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary,
to the limitations contained in clause (3) below); and
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(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net
Income;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction (or any transaction
accounted for in a manner similar to a pooling of interests) for any
period prior to the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash permitted at the
date of determination to be distributed by such Restricted
Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to
another Restricted Subsidiary, to the limitation contained in
this clause); and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain (or loss) realized upon the sale or other disposition of any
assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement)
which is not sold or otherwise disposed of in the ordinary course of
business and any gain (or loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
(5) any gain or loss realized upon the discontinuation of the utility pole
business of the Company and its Restricted Subsidiaries up to a
cumulative aggregate amount of $13.0 million;
(6) extraordinary gains or losses; and
(7) the cumulative effect of a change in accounting principles;
in each case, for such period. Notwithstanding the foregoing, for the purposes
of the covenant described under "--Certain Covenants--Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
repurchases, repayments or redemptions of Investments, proceeds realized on the
sale of Investments or return of capital to the Company or a Restricted
Subsidiary to the extent such repurchases, repayments, redemptions, proceeds or
returns increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Credit Agreement" means the Credit Agreement dated as of May 12, 2003, by
and among, the Company, certain of its Subsidiaries, the lenders referred to
therein, PNC Bank, National Association, as Administrative Agent, National City
Bank of Pennsylvania, as Syndication Agent, and Citizens Bank of Pennsylvania,
Fleet National Bank and Wachovia Bank, National Association, as co-Documentation
Agents, together with the related documents thereto (including the term loans
and revolving loans thereunder, any guarantees and security documents), as
amended, extended, replaced, renewed, restated, supplemented or otherwise
modified (in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions) from time to time, and any agreement
(and related document) governing Indebtedness incurred to Refinance, in whole or
in part, the borrowings and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or a successor Credit Agreement.
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"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement with respect to currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, 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 at the option of the holder) or upon the
happening of any event:
(1) matures or is mandatorily redeemable (other than redeemable only for
Capital Stock of such Person which is not itself Disqualified Stock)
pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence of
certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
Exchange Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Exchange Notes shall not
constitute Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital
Stock than the corresponding terms applicable to the Exchange Notes
described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" and "--Certain Covenants--Change of Control";
and
(2) any such requirement only becomes operative after compliance with such
corresponding terms applicable to the Exchange Notes, including the
purchase of any Exchange Notes tendered pursuant thereto.
The amount of any Disqualified Stock that does not have a fixed redemption,
repayment or repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or
repurchased on any date on which the amount of such Disqualified Stock is to be
determined pursuant to the Indenture; provided, however, that if such
Disqualified Stock could not be required to be redeemed, repaid or repurchased
at the time of such determination, the redemption, repayment or repurchase price
will be the book value of such Disqualified Stock as reflected in the most
recent financial statements of such Person.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated
or organized under the laws of the United States of America, any State thereof
or the District of Columbia.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated Restricted
Subsidiaries;
(2) Consolidated Interest Expense;
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(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid operating activity item that was paid in
cash in a prior period); and
(4) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash
expenditures in any future period);
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion,
including by reason of minority interests) that the net income or loss of such
Restricted Subsidiary was included in calculating Consolidated Net Income and
only if a corresponding amount would be permitted at the date of determination
to be dividended or otherwise made available to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"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.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"First Lien Obligations" means (1) all Indebtedness Incurred under the
Credit Agreement, in an amount not to exceed the greater of (A) $130.0 million
and (B) the sum of (i) 60% of the book value of the inventory of the Company and
its Restricted Subsidiaries and (ii) 80% of the book value of the accounts
receivable of the Company and its Restricted Subsidiaries, plus in the case of
clauses (A) and (B) $20.0 million (provided, however, that such $20.0 million of
Indebtedness or any portion thereof is issued to and held by the same lender or
group of lenders providing the balance of the then outstanding Indebtedness
under the Credit Agreement), that is secured by a Lien permitted under clause
(7) of the definition of Permitted Liens and that is, except with respect to the
Credit Agreement, designated by the Company as first-lien Indebtedness, (2) all
other Obligations (not constituting Indebtedness) of the Company or any
Subsidiary Guarantor under the agreements governing such Indebtedness and (3)
all other Obligations of the Company or any Subsidiary Guarantor in respect of
Hedging Obligations or Obligations in respect of cash management services in
connection with such first-lien Indebtedness.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting Standards
Board;
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13
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of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the
accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the
Company's obligations with respect to the Exchange Notes on the terms provided
for in the Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodity
Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Person at the
time it becomes a Restricted Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. Solely for purposes of determining
compliance with "--Certain Covenants--Limitation on Indebtedness":
(1) amortization of debt discount or the accretion of principal with
respect to a non-interest bearing or other discount security;
(2) the payment of regularly scheduled interest in the form of additional
Indebtedness of the same instrument or the payment of regularly
scheduled dividends on Capital Stock in the form of additional Capital
Stock of the same class and with the same terms; and
(3) the obligation to pay a premium in respect of Indebtedness arising in
connection with the issuance of a notice of redemption or making of a
mandatory offer to purchase such Indebtedness will not be deemed to be
the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
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(2) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, which purchase price is due more than six
months after the date of taking delivery of title to such property,
all conditional sale obligations of such Person and all obligations of
such Person under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business);
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, bankers' acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (1)
through (3) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon
or, if and to the extent drawn upon, such drawing is reimbursed no
later than the tenth Business Day following payment on the letter of
credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Capital Stock of such
Person or any Subsidiary of such Person or that are determined by the
value or liquidation preference of such Capital Stock, the principal
amount of such Capital Stock to be determined in accordance with the
Indenture;
(6) all obligations of the type referred to in clauses (1) through (5) of
other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly
or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6) of
other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value
of such property or assets and the amount of the obligation so
secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
Notwithstanding the foregoing, in connection with the purchase by the Company or
any Restricted Subsidiary of any business, the term "Indebtedness" will exclude
post-closing payment adjustments to which the seller may become entitled to the
extent such payment is determined by a final closing balance sheet or such
payment depends on the performance of such business after the closing; provided,
however, that, at the time of closing, the amount of any such payment is not
determinable and, to the extent such payment thereafter becomes fixed and
determined, the amount is paid within 30 days thereafter.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all obligations as described above;
provided, however, that in the case of Indebtedness sold at a discount, the
amount of such Indebtedness at any time will be the accreted value thereof at
such time.
None of the following will constitute "Indebtedness":
(1) any trade payables or other similar liabilities to trade creditors and
other accrued current liabilities Incurred in the ordinary course of
business as the deferred purchase price of property;
(2) any liability for Federal, state, local or other taxes owed or owing
by such Person;
(3) amounts due in the ordinary course of business to royalty and working
interest owners;
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(4) obligations arising from guarantees to suppliers, lessors, licensees,
contractors, franchisees or customers Incurred in the ordinary course
of business;
(5) obligations (other than express Guarantees of Indebtedness for
borrowed money) in respect of Indebtedness of Persons arising in
connection with (A) the sale or discount of accounts receivable, (B)
trade acceptances and (C) endorsements of instruments for deposit in
the ordinary course of business;
(6) obligations in respect of performance, bid and surety bonds and
completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business;
(7) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within two Business
Days of its Incurrence; and
(8) any obligations under workers' compensation laws and similar
legislation.
"Independent Qualified Party" means an investment banking firm, accounting
firm or appraisal firm of national standing; provided, however, that such firm
is not an Affiliate of the Company.
"Initial Purchasers" means Credit Suisse First Boston LLC, Deutsche Bank
Securities Inc., UBS Securities LLC, PNC Capital Markets, Inc., NatCity
Investments, Inc., Fleet Securities, Inc., The Royal Bank of Scotland plc and
Wachovia Securities, Inc.
"Intercreditor Agreement" means the Intercreditor Agreement, dated as of
October 15, 2003, among the Trustee, PNC Bank, National Association, the Company
and the Subsidiary Guarantors, as it may be amended from time to time in
accordance with its terms and the Indenture.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement with respect to
exposure to interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) 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 of Capital Stock, Indebtedness or other
similar instruments issued by such Person. Except as otherwise provided for
herein, the amount of an Investment shall be its fair value at the time the
Investment is made and without giving effect to subsequent changes in value.
For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (A) the Company's "Investment" in such
Subsidiary at the time of such redesignation less (B) the portion
(proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time
of such redesignation; and
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(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors.
"Issue Date" means October 15, 2003.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Investors" means each member of the Company's management that
is party to the Stockholders' Agreement among the Permitted Holders as of the
Issue Date.
"Moody's" means Moody's Investors Service, Inc. and any successor to its
rating agency business.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
non-cash form), in each case net of:
(1) all legal, title and recording tax expenses, commissions, financial,
advisory and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a
liability under GAAP, as a consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out
of the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such Asset
Disposition;
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated
with the property or other assets disposed in such Asset Disposition
and retained by the Company or any Restricted Subsidiary after such
Asset Disposition; and
(5) any portion of the purchase price from an Asset Disposition placed in
escrow, whether as a reserve for adjustment of the purchase price, for
satisfaction of indemnities in respect of such Asset Disposition or
otherwise in connection with that Asset Disposition; provided,
however, that upon the termination of that escrow, Net Available Cash
will be increased by any portion of funds in the escrow that are
released to the Company or any Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock
or Indebtedness, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
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"Non-Recourse Securitization Entity Indebtedness" has the meaning set forth
in the definition of "Securitization Entity."
"Obligations" means, with respect to any Indebtedness, all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements
and other amounts payable pursuant to the documentation governing such
Indebtedness.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Collateral Debt" means (1) Refinancing Indebtedness in respect
of the Notes and (2) Refinancing Indebtedness in respect of First Lien
Obligations.
"Permitted Holders" means (1) Saratoga Associates III LLC, a Delaware
limited liability company, and its Affiliates, (2) the Management Investors and
(3) any Related Party. Except for a Permitted Holder specifically identified by
name, in determining whether Voting Stock is owned by a Permitted Holder, only
Voting Stock acquired by a Permitted Holder in its described capacity will be
treated as "beneficially owned" by such Permitted Holder.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary;
(2) another Person if, as a result of such Investment, such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted
Subsidiary;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade
terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary
course of business;
(6) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted
Subsidiary;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or
any Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for (A) an Asset Disposition as
permitted pursuant to the covenant described under
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"--Certain Covenants--Limitation on Sales of Assets and Subsidiary
Stock" or (B) a disposition of assets not constituting an Asset
Disposition;
(9) any Person where such Investment was acquired by the Company or any of
its Restricted Subsidiaries (A) in exchange for any other Investment
or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (B) as a result of a foreclosure
by the Company or any of its Restricted Subsidiaries with respect to
any secured Investment or other transfer of title with respect to any
secured Investment in default;
(10) any Person to the extent such Investments consist of prepaid expenses,
negotiable instruments held for collection and lease, utility and
workers' compensation, performance and other similar deposits made in
the ordinary course of business by the Company or any Restricted
Subsidiary;
(11) any Person to the extent such Investments consist of Hedging
Obligations otherwise permitted under the covenant described under
"--Certain Covenants--Limitation on Indebtedness";
(12) any Person existing on the Issue Date, and any extension, modification
or renewal of any such Investments existing on the Issue Date, but
only to the extent not involving additional advances, contributions or
other Investments of cash or other assets or other increases thereof
(other than as a result of the accrual or accretion of interest or
original issue discount or the issuance of pay-in-kind securities, in
each case, pursuant to the terms of such Investment as in effect on
the Issue Date;
(13) Investments by the Company in a Securitization Entity or any
Investment by a Securitization Entity in any other Person in
connection with a Qualified Securitization Transaction which
Investments consist of the transfer of receivables and related assets;
provided, however, that any Investment in a Securitization Entity is
in the form of (a) a Purchase Money Note, (b) an equity interest, (c)
obligations of the Securitization Entity to pay the purchase price for
assets transferred to it or (d) interests in accounts receivable
generated by the Company or a Restricted Subsidiary and, in each case,
transferred to such Securitization Entity or other Person in
connection with a Qualified Securitization Transaction; and
(14) Persons to the extent such Investment, when taken together with all
other Investments made pursuant to this clause (14) outstanding on the
date such Investment is made, does not exceed $10.0 million.
"Permitted Liens" means, with respect to any Person:
(1) pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for
the payment of Indebtedness) or leases to which such Person is a
party, or deposits to secure public or statutory obligations of such
Person or deposits of cash or United States government bonds to secure
surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of
rent, in each case Incurred in the ordinary course of business;
(2) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good
faith by appropriate proceedings or other Liens arising out of
judgments or awards against such Person with respect to which such
Person shall then be proceeding with an appeal or other proceedings
for review and Liens arising solely by virtue of any statutory or
common law provision relating to banker's Liens, rights of set-off or
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similar rights and remedies as to deposit accounts or other funds
maintained with a creditor depository institution; provided, however,
that (A) such deposit account is not a dedicated cash collateral
account and is not subject to restrictions against access by the
Company in excess of those set forth by regulations promulgated by the
Federal Reserve Board and (B) such deposit account is not intended by
the Company or any Restricted Subsidiary to provide collateral to the
depository institution;
(3) Liens for property taxes not yet subject to penalties for non-payment
or which are being contested in good faith by appropriate proceedings;
(4) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters
of credit do not constitute Indebtedness;
(5) minor survey exceptions, minor encumbrances, easements or reservations
of, or rights of others for, licenses, rights-of-way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real property or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in
the operation of the business of such Person;
(6) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, any
property or assets of such Person; provided, however, that the Lien
may not extend to any other property owned by such Person or any of
its Restricted Subsidiaries at the time the Lien is Incurred (other
than assets and property affixed or appurtenant thereto), and the
Indebtedness (other than any interest thereon) secured by the Lien may
not be Incurred more than 180 days after the later of the acquisition,
completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien;
(7) Liens to secure Indebtedness under the Credit Agreement not to exceed
the greater of (A) $130.0 million and (B) the sum of (i) 60% of the
book value of the inventory of the Company and its Restricted
Subsidiaries and (ii) 80% of the book value of the accounts receivable
of the Company and its Restricted Subsidiaries, plus in the case of
clauses (A) and (B) $20.0 million; provided, however, that such $20.0
million of Indebtedness or any portion thereof is issued to and held
by the same lender or group of lenders providing the balance of the
then outstanding Indebtedness under the Credit Agreement;
(8) Liens existing on the Issue Date (other than Liens subject to the
clause (7) of this definition);
(9) Liens on property or shares of Capital Stock of another Person at the
time such other Person becomes a Subsidiary of such Person; provided,
however, that the Liens may not extend to any other property owned by
such Person or any of its Restricted Subsidiaries (other than assets
and property affixed or appurtenant thereto);
(10) Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a merger
or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that the Liens may not extend to any other
property owned by such Person or any of its Restricted Subsidiaries
(other than assets and property affixed or appurtenant thereto);
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(11) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a Restricted Subsidiary of such
Person;
(12) Liens securing Hedging Obligations so long as such Hedging Obligations
relate to Indebtedness that is, and is permitted to be under the
Indenture, secured by a Lien on the same property securing such
Hedging Obligations;
(13) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of the Company or any one
of its Subsidiaries relating to such property or assets;
(14) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to
in the foregoing clause (6), (8), (9) or (10) or clause (15) or (16)
below; provided, however, that:
(A) such new Lien shall be limited to all or part of the same
property and assets that secured or, under the written agreements
pursuant to which the original Lien arose, could secure the
original Lien (plus improvements and accessions to, such property
or proceeds or distributions thereof); and
(B) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of (i) the
outstanding principal amount or, if greater, committed amount of
the Indebtedness described under clause (6), (8), (9), (10), (15)
or (16) at the time the original Lien became a Permitted Lien and
(ii) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension,
renewal or replacement;
(15) Liens upon the Collateral securing the Exchange Notes, if any, and any
Additional Notes; and
(16) Liens to secure Indebtedness of any Foreign Subsidiary that is not a
Subsidiary Guarantor permitted to be Incurred under the covenant
described under "--Certain Covenants--Limitation on Indebtedness."
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clause (6), (9) or (10) above to the extent such Lien applies to
any Additional Assets acquired directly or indirectly from Net Available Cash
pursuant to the covenant described under "--Certain Covenants--Limitation on
Sale of Assets and Subsidiary Stock." For purposes of this definition, the term
"Indebtedness" shall be deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Purchase Money Note" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified
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Securitization Transaction to a Securitization Entity, which note shall be
repaid from cash available to the Securitization Entity, other than amounts
required to be established as reserves pursuant to agreements, amounts paid to
investors in respect of interest, principal and other amounts paid in connection
with the purchase of newly generated receivables.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any of its Subsidiaries may sell, convey or
otherwise transfer to (1) a Securitization Entity, in the case of a transfer by
the Company or any of its Subsidiaries, and (2) any other Person, in the case of
a transfer by a Securitization Entity, or may grant a security interest in, any
accounts receivable, whether now existing or arising or acquired in the future,
of the Company or any of its Subsidiaries, and any assets related thereto,
including all collateral securing such accounts receivable, all contracts and
contract rights and all guarantees or other obligations in respect of such
accounts receivable, proceeds of such accounts receivable and other assets,
including contract rights, that are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being Refinanced;
(3) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that
is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value)
then outstanding or committed (plus fees and expenses, including any
premium and defeasance costs) under the Indebtedness being Refinanced;
and
(4) if the Indebtedness being Refinanced is subordinated in right of
payment to the Exchange Notes, such Refinancing Indebtedness is
subordinated in right of payment to the Exchange Notes at least to the
same extent as the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Subsidiary that is not a Subsidiary Guarantor that Refinances
Indebtedness of the Company or (B) Indebtedness of the Company or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business in which the Company or any of the
Restricted Subsidiaries was engaged on the Issue Date and any business related,
ancillary or complementary to such business.
"Related Party" means (1) any majority owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of any Permitted Holder,
(2) any estate, trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons holding a controlling
interest of which consist solely of one or more Permitted Holders and/or such
other Persons referred to in the immediately preceding clause (1)
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or (3) any executor, administrator, trustee, manager, director or other similar
fiduciary of any Person referred to in the immediately preceding clause (2)
acting solely in such capacity.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving such Person) or
similar payment to the direct or indirect holders of its Capital Stock
(other than (A) dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock), (B) dividends or
distributions payable solely to the Company or a Restricted Subsidiary
and (C) pro rata dividends or other distributions made by a Subsidiary
that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is
an entity other than a corporation));
(2) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person (other than by
a Restricted Subsidiary) or of any Capital Stock of a Restricted
Subsidiary held by any Affiliate of the Company (other than by a
Restricted Subsidiary), including in connection with any merger or
consolidation and including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is
not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated
Obligations or Disqualified Stock of the Company or any Subsidiary
Guarantor (other than (A) from the Company or a Restricted Subsidiary
or (B) the purchase, repurchase, redemption, defeasance or other
acquisition of Subordinated Obligations or Disqualified Stock
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one
year of the date of such purchase, repurchase, redemption, defeasance
or other acquisition); or
(4) the making of any Investment (other than a Permitted Investment) in
any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit facility contained
in the Credit Agreement and any other facility or financing arrangement that
Refinances, in whole or in part, any such revolving credit facility.
"Sale/Leaseback Transaction" means an arrangement relating to property
owned by the Company or a Restricted Subsidiary on the Issue Date or thereafter
acquired by the Company or a Restricted Subsidiary whereby the Company or a
Restricted Subsidiary transfers such property to a Person and the Company or a
Restricted Subsidiary leases it from such Person.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Securitization Entity" means a Wholly Owned Subsidiary (or a wholly owned
Subsidiary of another Person in which the Company or any Subsidiary of the
Company makes an Investment and in which the Company or any Subsidiary of the
Company transfers accounts receivable) that engages in no activities other than
in connection with the financing of accounts receivable and that is designated
by the Board of Directors of the Company (as provided below) as a Securitization
Entity and:
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(1) no portion of the Indebtedness or any other obligations (contingent or
otherwise) of which:
(a) is guaranteed by the Company or any Restricted Subsidiary
(excluding guarantees of obligations (other than the principal
of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings);
(b) is recourse to or obligates the Company or any Restricted
Subsidiary (other than such Securitization Entity) in any way
other than pursuant to Standard Securitization Undertakings; or
(c) subjects any property or asset of the Company or any Restricted
Subsidiary (other than such Securitization Entity), directly or
indirectly, contingently or otherwise, to the satisfaction
thereof, other than pursuant to Standard Securitization
Undertakings; (such Indebtedness described in this clause (1),
"Non-Recourse Securitization Entity Indebtedness");
(2) with which neither the Company nor any Restricted Subsidiary (other
than such Securitization Entity) has any material contract, agreement,
arrangement or understanding other than those that might be obtained
at the time from Persons that are not Affiliates of the Company, other
than fees payable in the ordinary course of business in connection
with servicing accounts receivable of such entity; and
(3) to which neither the Company nor any Restricted Subsidiary (other than
such Securitization Entity) has any obligation to maintain or preserve
such entity's financial condition or cause such entity to achieve
certain levels of operating results.
Any designation of a Subsidiary as a Securitization Entity shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Board of Directors of the Company giving effect to the
designation and an Officers' Certificate certifying that the designation
complied with the preceding conditions and was permitted by the Indenture.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person, whether outstanding on the Issue Date or
thereafter Incurred; and
(2) all other Obligations of such Person (including interest accruing on
or after the filing of any petition in bankruptcy or for
reorganization relating to such Person whether or not post-filing
interest is allowed in such proceeding) in respect of Indebtedness
described in clause (1) above
unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such Indebtedness or other Obligations are subordinate in right of payment
to the Exchange Notes or the Subsidiary Guaranty of such Person, as the case may
be; provided, however, that Senior Indebtedness shall not include:
(1) any obligation of such Person to the Company or any Subsidiary; (2)
any liability for Federal, state, local or other taxes owed or owing
by such Person;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or other Obligation of such Person which is
subordinate or junior in any respect to any other Indebtedness or
other Obligation of such Person; or
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(5) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Specified Permitted Liens" means Permitted Liens, other than any Liens
described in clause (9), (10), (11) or (16).
"Standard & Poor's" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc., and any successor to its rating agency business.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Restricted
Subsidiary that are customary in an accounts receivable securitization
transaction, including servicing of the obligations thereunder.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means, with respect to a Person, any Indebtedness
of such Person (whether outstanding on the Issue Date or thereafter Incurred)
which is subordinate or junior in right of payment to the Exchange Notes or a
Subsidiary Guaranty of such Person, as the case may be, pursuant to a written
agreement to that effect.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary of the Company that executes
the Indenture as a guarantor on the Issue Date and each other Subsidiary of the
Company that thereafter guarantees the Exchange Notes pursuant to the terms of
the Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Exchange Notes.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States
of America or any agency thereof;
(2) investments in demand and time deposit accounts, certificates of
deposit and money market deposits maturing within one year of the date
of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America, any State
thereof or any foreign country recognized by the United States of
America, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50.0 million (or
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the foreign currency equivalent thereof) and has outstanding debt
which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above
entered into with a bank meeting the qualifications described in
clause (2) above;
(4) investments in commercial paper, maturing not more than one year after
the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of
the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to Standard and Poor's;
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least
"A" by Standard & Poor's or "A" by Moody's; and
(6) investments in money market funds that invest substantially all their
assets in securities of the types described in clauses (1) through (5)
above.
"Term Loan Facility" means the term loan facility contained in the Credit
Agreement and any other facility or financing arrangement that Refinances in
whole or in part any such term loan facility.
"Trustee" means JPMorgan Chase Bank until a successor replaces it and,
thereafter, means the successor.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) as in effect on the Issue Date.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination shall
be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
As of the Issue Date, (1) Koppers Mauritius and (2) Koppers (China) Carbon
& Chemical Co., Ltd are designated as Unrestricted Subsidiaries.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "-- Certain Covenants--Limitation on Restricted
Payments."
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The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness" and (B) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. dollars, at any time for determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as published in The Wall Street
Journal in the "Exchange Rates" column under the heading "Currency Trading" on
the date two Business Days prior to such determination.
Except as described under "--Certain Covenants--Limitation on
Indebtedness," whenever it is necessary to determine whether the Company has
complied with any covenant in the Indenture or a Default has occurred and an
amount is expressed in a currency other than U.S. dollars, such amount will be
treated as the U.S. Dollar Equivalent determined as of the date such amount is
initially determined in such currency.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock of such
Person then outstanding and normally entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more other Wholly Owned Subsidiaries.
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MATERIAL TAX CONSIDERATIONS
Material U.S. Federal Tax Considerations
The following summary describes certain material U.S. federal income and
estate tax consequences associated with the exchange of Old Notes for Exchange
Notes and the beneficial ownership and disposition of the Exchange Notes as of
the date of this prospectus. This discussion deals only with beneficial owners
that hold Notes as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended. This discussion does not address the
U.S. federal income tax consequences that may be relevant to a particular holder
subject to special treatment under certain U.S. federal income tax laws (for
example, persons subject to the alternative minimum tax provisions of the Code).
Also, this discussion is not intended to be wholly applicable to all categories
of investors, some of which, such as dealers in securities or currencies, banks,
trusts, partnerships or other pass-through entities, expatriates, insurance
companies, tax-exempt organizations, persons that hold Notes as part of a
hedging or conversion transaction or a straddle and persons that have a
functional currency other than the U.S. dollar, may be subject to special rules.
This discussion is based on the Code, the final, temporary and proposed
Treasury regulations promulgated thereunder, administrative pronouncements and
judicial decisions, all as in effect on the date hereof and all of which are
subject to change, possibly with retroactive effect. We have not requested, and
do not intend to request, a ruling from the U.S. Internal Revenue Service (the
"IRS"), with respect to any of the U.S. federal income tax consequences
described below. There can be no assurance that the IRS will not disagree with
or challenge any of the conclusions set forth herein.
This discussion does not purport to be legal advice to prospective
investors generally or to any particular prospective investor. Persons
considering the purchase of Notes should consult their own tax advisors
concerning the application of U.S. federal income and estate tax laws, as well
as the laws of any state, local or foreign taxing jurisdiction, to their
particular situations.
Exchange of Notes
The exchange of Old Notes for Exchange Notes pursuant to this exchange
offer will not constitute a taxable event for U.S. federal income tax purposes.
Consequently, no gain or loss will be recognized by a holder of the Old Notes
upon receipt of an exchange note. A holder's adjusted tax basis in the Exchange
Note will be the same as the adjusted tax basis in the old note exchanged
therefor. A holder's holding period of the exchange note will include the
holding period of the old note exchanged therefor.
U.S. Holders
The following discussion is limited to persons that are U.S. Holders. For
these purposes, "U.S. Holder" means the beneficial owner of a note that for U.S.
federal income tax purposes is: (i) an individual who is a citizen or resident
of the United States, (ii) a corporation or other entity treated as a
corporation that is created or organized under the laws of the United States or
any political subdivision thereof or therein, (iii) an estate the income of
which is subject to U.S. federal income tax regardless of its source or (iv) a
trust, if (a) it is subject to the primary supervision of a United States court
and the control of one or more U.S. persons or (b) a valid election to be
treated as a U.S. person is in effect. If a partnership or other entity taxable
as a partnership holds the Notes, the tax treatment of a partner will generally
depend on the status of the partner and the activities of the partnership. Each
partner should consult its own tax advisor as to the tax consequences of the
purchase, ownership and disposition of the Notes.
Interest. A U.S. Holder must generally include interest on a note in its
ordinary income at the time such interest is received or accrued, in accordance
with such U.S. Holder's method of accounting for U.S. federal income tax
purposes.
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Market Discount. If a U.S. Holder purchased an old note prior to the
exchange for an amount that is less than its "revised issue price" by an amount
more than the statutory "de minimis" amount, the amount of such difference is
treated as "market discount" for U.S. federal income tax purposes. The revised
issue price of a note for these purposes should be equal to its issue price. If
a U.S. Holder exchanges an old note, with respect to which there is market
discount, for an exchange note pursuant to the exchange offer, the market
discount applicable to the initial note should carry over to the exchange note
so received.
Under the market discount rules of the Code, a U.S. Holder is required to
treat any gain on the sale, exchange (other than pursuant to this exchange
offer), retirement or other taxable disposition of a note as ordinary income to
the extent of the accrued market discount that has not been previously included
in income. In general, market discount accrues on a ratable basis over the
remaining term of the note unless the holder makes an irrevocable election to
accrue market discount on a constant yield to maturity basis. A U.S. Holder may
elect to include market discount in income currently as it accrues. An election
made to include market discount in income as it accrues will apply to all debt
instruments that a U.S. Holder acquires on or after the first day of the first
taxable year to which the election applies and is irrevocable without the
consent of the IRS. A U.S. Holder might be required to defer all or a portion of
the interest expense on indebtedness incurred or continued to purchase or carry
a note with market discount unless such U.S. Holder has elected to include
market discount in income as it accrues.
The rules governing market discount are complex and U.S. Holders should
consult their own tax advisors concerning the application of these rules.
Amortizable Bond Premium. In general, if a U.S. Holder purchased an old
note prior to the exchange offer for an amount in excess of its face amount,
such excess will constitute "amortizable bond premium" if the excess is more
than the statutory "de minimis" amount. If a U.S. Holder exchanges an old note,
with respect to which there is bond premium, for an exchange note pursuant to
the exchange offer, the bond premium applicable to the old note should carry
over to the exchange note so received. In general, a U.S. Holder may elect to
amortize the bond premium as an offset to interest income otherwise required to
be included in income in respect of the note during taxable year using a
constant-yield method over the remaining term of the note (or, if it results in
a smaller amount of amortizable premium, until an earlier call date). Any
election to amortize bond premium applies to all taxable debt instruments
acquired by the U.S. Holder on or after the first day of the first taxable year
to which such election applies and may be revoked only with the consent of the
IRS.
Sale, Exchange, Redemption or Other Taxable Disposition of Exchange Notes.
Upon the sale, exchange (other than pursuant to this exchange offer), redemption
or other taxable disposition of a note, a U.S. Holder generally will recognize
taxable gain or loss equal to the difference between (i) the amount realized on
such disposition (other than any amounts attributable to accrued and unpaid
interest, which will be interest income taxed as described above) and (ii) such
U.S. Holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax basis
in a note generally will equal the cost of such note. Any gain or loss that is
recognized on the disposition of a note will be capital gain or loss, and will
be long-term capital gain or loss if the U.S. Holder held the note for more than
one year. The deductibility of capital losses is subject to certain limitations.
Discharge. If we were to obtain a discharge of the Indenture with respect
to all of the Notes then outstanding, as described above under "Description of
the Exchange Notes--Satisfaction and Discharge," such discharge would generally
be deemed to constitute a taxable exchange of the Notes outstanding for other
property. In such case, a U.S. Holder would be required to recognize capital
gain or loss in connection with such deemed exchange. In addition, after such
deemed exchange, a U.S. Holder might also be required to recognize income from
the property deemed to have been received in such exchange over the remaining
life of the transaction in a manner or amount that is different than if the
discharge had not occurred. U.S. Holders should consult their tax advisors as to
the specific consequences arising from a discharge in their particular
situations.
Information Reporting and Backup Withholding. In general, we must report
certain information to the IRS with respect to payments of interest and
principal paid on the Notes and the gross proceeds of a sale, exchange,
redemption or other taxable disposition of the Notes paid to certain
non-corporate U.S. Holders.
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Additionally, the payor of any reportable payments may be required to withhold
backup withholding tax (currently at a rate of 28%) from such payments if (i)
the payee fails to furnish its correct Taxpayer Identification Number ("TIN") to
the payor in the prescribed manner, (ii) the IRS notifies the payor that the TIN
furnished by the payee is incorrect, (iii) the payee has failed properly to
report the receipt of reportable payments and the IRS has notified the payor
that backup withholding is required or (iv) the payee fails to certify under
penalties of perjury that such payee is not subject to backup withholding.
Any amounts withheld from a payment to a U.S. Holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
U.S. federal income tax liability, so long as the required information is timely
provided to the IRS. We, our paying agent or other withholding agent generally
will report to a U.S. Holder of Notes and to the IRS the amount of any
reportable payments made in respect of the Notes for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
Holders of Notes are urged to consult their own tax advisors regarding
their qualification for an exemption from backup withholding and information
reporting and the procedures for obtaining such an exemption, if applicable.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a beneficial owner of a note that is a nonresident
alien or a corporation, trust or estate that is not a U.S. Holder (a "Non-U.S.
Holder").
Interest. Generally, subject to the discussion of backup withholding below,
interest on a note received by a Non-U.S. Holder that is not effectively
connected with the conduct of a U.S. trade or business will not be subject to
U.S. federal income tax or withholding tax, provided that (i) the Non-U.S.
Holder does not actually or constructively own 10% or more of the combined
voting power of all classes of our stock entitled to vote, (ii) the Non-U.S.
Holder is not a controlled foreign corporation related to us actually or
constructively through stock ownership, (iii) the Non-U.S. Holder is not a bank
which acquired the Notes in consideration for an extension of credit made
pursuant to a loan agreement entered into in the ordinary course of business and
(iv) either (a) the holder provides an applicable Form W-8 BEN (or a suitable
substitute or successor form) signed under penalties of perjury that includes
its name and address and certifies as to its non-United States status in
compliance with applicable law and regulations, or (b) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business holds the Exchange
Notes and provides a statement to us or our agent under penalties of perjury in
which it certifies that such an applicable Form W-8 BEN (or a suitable
substitute or successor form) has been received by it from the Non-U.S. Holder
or qualifying intermediary and furnishes us or our agent with a copy thereof.
Except to the extent that an applicable income tax treaty otherwise
provides, a Non-U.S. Holder generally will be taxed in the same manner as a U.S.
Holder with respect to interest that is effectively connected with the conduct
of a U.S. trade or business of the Non-U.S. Holder. Under certain circumstances,
the Non-U.S. Holder may also be subject to an additional "branch profits tax" at
a 30% rate (or, if applicable, a lower income tax treaty rate) if the Non-U.S.
Holder is a corporation. Even though such effectively connected income is
subject to U.S. federal income tax, and may be subject to the branch profits
tax, it is not subject to withholding tax if the holder delivers a properly
executed IRS Form W-8 ECI (or a suitable substitute or successor form) to the
payor.
Sale, Exchange, Redemption or Other Taxable Disposition of Exchange Notes.
Subject to the discussion of backup withholding below, any gain realized by a
Non-U.S. Holder on the sale, exchange, redemption or other taxable disposition
of a note generally will not be subject to U.S. federal income tax, unless (i)
such gain is effectively connected with the conduct by such Non-U.S. Holder of a
trade or business within the United States or (ii) the Non-U.S. Holder is an
individual who is present in the United States for 183 days or more in the
taxable year of disposition and certain other conditions are satisfied.
-141-
If a Non-U.S. Holder's gain is effectively connected with its conduct of a
United States trade or business, such holder generally will be required to pay
U.S. federal income tax on the net gain derived from the sale in the same manner
as if it were a U.S. Holder. If a Non-U.S. Holder is a corporation, any such
effectively connected gain received by such holder may also, under certain
circumstances, be subject to the branch profits tax at a 30% rate (or, if
applicable, a lower income tax treaty rate).
Federal Estate Tax. Exchange Notes held (or treated as held) by an
individual who is a Non-U.S. Holder at the time of his or her death will not be
subject to U.S. federal estate tax, provided that the interest on such Notes
would be exempt under the conditions described above in subsections (i), (ii)
and (iii) of "Non-U.S. Holders--Interest" when received by the Non-U.S. Holder
at the time of his or her death without regard to whether the Non-U.S. holder
has completed Form W-8BEN and further provided that income on the Notes was not
effectively connected to the conduct of a U.S. trade or business.
Information Reporting and Backup Withholding. In certain instances, backup
withholding and information reporting (including, under the provisions of
certain income tax treaties, to the tax authorities of the country in which the
Non-U.S. Holder resides) may apply to interest and principal payments on a note
and payments of the proceeds of the sale of a note unless such Non-U.S. Holder
furnishes us or our paying agent with appropriate documentation as described
above in subsection (iv) of "Non-U.S. Holders--Interest" of such holder's
non-U.S. status provided that neither we nor our paying agent has actual
knowledge that the holder is a U.S. person.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided the required information is
timely provided to the IRS.
Material Australian Tax Considerations
Under Australian tax law, payment of principal made by a subsidiary
guarantor that is an Australian company in accordance with the provisions of its
subsidiary guarantee may be made without withholding tax deduction where the
payments are made to a beneficial owner of the Notes that is not a resident of
Australia. However, under Australian tax law, any payments of interest owing
under the Notes made by an Australian subsidiary guarantor in accordance with
the provisions of the subsidiary guarantee to a non-resident of Australia may
require withholding tax to be paid at a rate of 10 percent on the gross amount
of the interest remitted.
The Australian federal income tax liability to deduct withholding tax on
the remittance of interest may vary according to the individual circumstances of
the holder of the note. Holders should consult their tax advisers with respect
to the tax consequences to them of the ownership of the Notes and the possible
effects of changes in Australian income tax law.
Should the holder of a note deal in the note where an Australian subsidiary
guarantor has taken over the obligations of the Company under the guarantee,
Australian tax may apply to such dealings, and the holder should consult their
tax advisers concerning the tax consequences of the transactions.
-142-
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to this 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 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 after the expiration date, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 2004, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
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 market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to this 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 commission 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.
For a period of 180 days after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to this exchange offer
(including the expenses of one counsel for the holders of the Notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes will be passed
upon for us by Cahill Gordon & Reindel LLP, New York, New York.
EXPERTS
The consolidated financial statements of Koppers Industries, Inc. at
December 31, 2002 and 2001, and for each of the three years in the period ended
December 31, 2002, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
-143-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditors................................................................ F-2
Consolidated Statement of Operations for the Years Ended December 31, 2002, 2001 and 2000..... F-3
Consolidated Balance Sheet at December 31, 2002 and 2001...................................... F-4
Consolidated Statement of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000..... F-6
Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 2002, 2001
and 2000................................................................................. F-7
Notes to Consolidated Financial Statements.................................................... F-9
Schedule II - Valuation and Qualifying Accounts............................................... F-30
Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2003
and 2002 (unaudited)..................................................................... F-31
Condensed Consolidated Balance Sheet at September 30, 2003 (unaudited) and December 31, 2002.. F-32
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2003
and 2002 (unaudited)..................................................................... F-34
Notes to Condensed Consolidated Financial Statements (unaudited).............................. F-35
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Koppers Industries, Inc.
We have audited the accompanying consolidated balance sheet of Koppers
Industries, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 2002. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Koppers Industries, Inc. at December 31, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
As discussed in Note 1 to the Consolidated Financial Statements, the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets in 2002.
/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 31, 2003
F-2
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In millions except per share figures)
Years Ended December 31,
2002 2001 2000
Net sales............................................................... $ 730.3 $ 707.6 $ 723.5
Operating expenses:
Cost of sales.................................................. 613.3 585.3 598.8
Depreciation and amortization.................................. 28.7 30.4 30.0
Selling, general and administrative............................ 44.0 46.3 45.4
Restructuring charges.......................................... -- 3.3 --
--------- -------- -------
Total operating expenses............................... 686.0 665.3 674.2
--------- -------- -------
Operating profit ....................................................... 44.3 42.3 49.3
Equity in earnings of affiliates........................................ -- 0.3 2.2
Other income ....................................................... 9.8 8.2 8.6
--------- -------- -------
Income before interest expense, income tax provision and minority 54.1 50.8 60.1
interest.......................................................
Interest expense ....................................................... 22.9 24.5 28.0
--------- -------- -------
Income before income tax provision and minority interest................ 31.2 26.3 32.1
Income tax provision.................................................... 13.8 12.1 16.6
Minority interest....................................................... 0.9 0.9 0.8
--------- -------- -------
Net income..................................................... $ 16.5 $ 13.3 $ 14.7
========== ======== =======
Earnings per share of common stock:
Basic earnings per share....................................... $ 8.61 $ 3.15 $ 10.64
========== ======== =======
Diluted earnings per share..................................... $ 4.72 $ 3.15 $ 3.83
========== ======== =======
See accompanying notes.
F-3
KOPPERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(In millions)
December 31,
2002 2001
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 9.5 $ 5.2
Accounts receivable less allowance for doubtful accounts of
$0.9 in 2002 and $1.0 in 2001.................................. 95.9 84.3
Inventories:
Raw materials.......................................... 54.4 53.8
Work in process........................................ 4.8 3.7
Finished goods......................................... 54.8 58.0
LIFO reserve........................................... (10.4) (9.3)
------- -------
Total inventories...................................... 103.6 106.2
Deferred tax benefit........................................... 5.1 6.2
Other ......................................................... 5.5 4.0
Total current assets................................... 219.6 205.9
Equity in non-consolidated investments.................................. 11.3 12.2
Fixed assets:
Land ....................................................... 6.8 6.7
Buildings...................................................... 15.5 14.7
Machinery and equipment........................................ 395.1 368.4
------- -------
417.4 389.8
Less: accumulated depreciation................................. (262.1) (230.5)
------- -------
Net fixed assets....................................... 155.3 159.3
Goodwill 29.2 27.0
Deferred tax benefit.................................................... 35.2 35.3
Other assets .......................................................... 13.2 15.5
------- -------
Total assets........................................... $ 463.8 $ 455.2
======= =======
See accompanying notes.
F-4
KOPPERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(In millions except per share figures)
December 31,
2002 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 67.8 $ 57.8
Accrued liabilities............................................ 35.2 45.7
Revolving credit............................................... 31.3 --
Current portion of term loans 21.8 13.2
------ ------
Total current liabilities.............................. 156.1 116.7
Long-term debt:
Revolving credit............................................... 1.9 10.2
Term loans..................................................... 31.7 59.5
Senior Subordinated Notes due 2007............................. 175.0 175.0
Senior Notes due 2004.......................................... -- 11.1
------ ------
Total long-term debt................................... 208.6 255.8
Product warranty and insurance reserves................................. 17.2 16.6
Accrued pension liabilities............................................. 32.5 17.8
Other ................................................................ 21.7 23.2
------ ------
Total liabilities...................................... 436.1 430.1
Commitments and contingencies--See Note 9................................
Minority interest....................................................... 5.4 4.7
Common stock subject to redemption...................................... 23.1 22.3
Senior convertible preferred stock, $.01 par value; 10.0 shares authorized;
2.3 shares issued in 2002 and 2001................................. -- --
Common stock, $.01 par value:
37.0 shares authorized, 2.8 shares issued in 2002 and 2001......... -- --
Capital in excess of par value.......................................... 12.9 12.4
Receivable from Director for purchase of common stock................... (0.6) (0.6)
Retained earnings....................................................... 46.5 40.6
Accumulated other comprehensive loss:
Foreign currency translation adjustment........................ (14.6) (24.3)
Minimum pension liability, net of tax.......................... (12.4) (4.1)
------ ------
Total accumulated other comprehensive loss............. (27.0) (28.4)
Treasury stock, at cost, 1.7 shares in 2002 and 1.5 shares in 2001...... (32.6) (25.9)
------ ------
Total liabilities and stockholders' equity............. $463.8 $455.2
====== ======
See accompanying notes.
F-5
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
Years Ended December 31,
2002 2001 2000
Cash provided by operating activities:
Net income......................................................... $16.5 $13.3 $14.7
Adjustments to reconcile net income to net cash provided by
operating activities, net of acquisitions:
Depreciation and amortization.......................... 28.7 30.4 30.0
Bad debt expense....................................... -- 2.3 3.4
Deferred income taxes 6.2 4.8 6.9
Equity income of affiliated companies,
net of dividends received.............................. 0.9 0.6 (1.4)
Restructuring reserves................................. (3.4) 0.6 (0.8)
Change in reserves..................................... (3.9) 0.4 3.7
Other.................................................. -- (1.7) 1.0
(Increase) decrease in working capital, net of acquisitions:
Accounts receivable.................................... (7.0) 11.2 (12.6)
Inventories............................................ 7.2 (2.3) (8.7)
Accounts payable....................................... 7.1 4.0 (2.4)
Accrued liabilities.................................... (5.3) (3.5) 2.9
Other working capital items (1.0) (0.6) --
-------- -------- -------
Net cash provided by operating activities........ 46.0 59.5 36.7
Cash used in investing activities:
Acquisitions and related costs, net of cash acquired........... -- (6.4) (15.3)
Capital expenditures........................................... (19.7) (14.6) (14.8)
Other.......................................................... 1.4 2.7 0.5
-------- -------- -------
Net cash used in investing activities.................. (18.3) (18.3) (29.6)
Cash provided by (used in) financing activities, net of
acquisitions:
Borrowings of revolving credit................................. 253.3 165.7 122.3
Repayments of revolving credit................................. (231.5) (165.7) (112.9)
Repayments on long-term debt................................... (30.4) (21.1) (24.0)
Purchases of common stock...................................... (6.2) (5.9) (2.6)
Dividends paid................................................. (9.8) (14.6) --
-------- -------- -------
Net cash used in financing activities.................. (24.6) (41.6) (17.2)
Effect of exchange rates on cash........................................ 1.2 (1.2) (1.4)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents.................... 4.3 (1.6) (11.5)
Cash and cash equivalents at beginning of year.......................... 5.2 6.8 18.3
-------- -------- -------
Cash and cash equivalents at end of year................................ $ 9.5 $ 5.2 $ 6.8
-------- -------- -------
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest............................................... $22.3 $25.0 $26.6
Income taxes........................................... $7.0 $8.6 $9.4
See accompanying notes.
F-6
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In millions except per share figures)
Common Senior Loan
Stock Convertible Voting Capital In Receivable
Subject to Preferred Common Excess of From
Redemption Stock Stock Par Value Director
Balance at December 31, 1999......................... $25.6 $-- $-- $8.2 $--
Net income for 2000.................................. -- -- -- -- --
Foreign currency translation......................... -- -- -- -- --
Comprehensive income.................................
Net change in common stock subject to redemption..... 5.3 -- -- -- --
Options exercised, 0.1 shares........................ -- -- -- 0.9 --
Treasury stock purchases, 0.1 shares................. -- -- -- -- (0.6)
----- ---- ---- ----- -----
Balance at December 31, 2000......................... 30.9 -- -- 9.1 (0.6)
Net income for 2001.................................. -- -- -- -- --
Foreign currency translation......................... -- -- -- -- --
Minimum pension liability adjustment, net of tax of
$2.7............................................ -- -- -- -- --
Comprehensive income.................................
Net change in common stock subject to redemption..... (8.6) -- -- -- --
Options exercised, 0.2 shares........................ -- -- -- 3.3 --
Treasury stock purchases, 0.3 shares................. -- -- -- -- --
Dividends paid ($4.00 per share)..................... -- -- -- -- --
----- ---- ---- ----- -----
Balance at December 31, 2001......................... 22.3 -- -- 12.4 (0.6)
Net income for 2002.................................. -- -- -- -- --
Foreign currency translation......................... -- -- -- -- --
Minimum pension liability adjustment, net of tax of
$5.1............................................ -- -- -- -- --
Comprehensive income.................................
Net change in common stock subject to redemption..... 0.8 -- -- -- --
Options exercised, 0.1 shares........................ -- -- -- 0.5 --
Treasury stock purchases, 0.2 shares................. -- -- -- -- --
Dividends paid ($2.85 per share)..................... -- -- -- -- --
----- ---- ---- ----- -----
Balance at December 31, 2002......................... $23.1 $ -- $ -- $ 12.9 $ (0.6)
===== ==== ==== ===== =====
See accompanying notes.
F-7
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In millions except per share figures)
Accumulated
Other
Retained Comprehensive Comprehensive Treasury
Earnings Income (Loss) Income Stock
Balance at December 31, 1999........................... $ 23.9 $ (8.9) $ (14.8)
Net income for 2000.................................... 14.7 -- $ 14.7 --
Foreign currency translation........................... -- (11.2) (11.2) --
-------
Comprehensive income................................... $ 3.5
=======
Net change in common stock subject to redemption....... (5.3) -- --
Options exercised, 0.1 shares.......................... -- -- --
Treasury stock purchases, 0.1 shares................... -- -- (3.2)
----- ---- ---- -----
Balance at December 31, 2000........................... 33.3 (20.1) (18.0)
Net income for 2001.................................... 13.3 -- $ 13.3 --
Foreign currency translation........................... -- (4.2) (4.2) --
Minimum pension liability adjustment, net of tax of $2.7 -- (4.1) (4.1) --
-------
Comprehensive income................................... $ 5.0
=======
Net change in common stock subject to redemption....... 8.6 -- --
Options exercised, 0.2 shares.......................... -- -- --
Treasury stock purchases, 0.3 shares................... -- -- (7.9)
Dividends paid ($4.00 per share)....................... (14.6) -- -- --
----- ---- ---- -----
Balance at December 31, 2001........................... 40.6 (28.4) (25.9)
Net income for 2002.................................... 16.5 -- $ 16.5 --
Foreign currency translation........................... -- 9.7 9.7 --
Minimum pension liability adjustment, net of tax of $5.1 -- (8.3) (8.3) --
------
Comprehensive income................................... $ 17.9
======
Net change in common stock subject to redemption....... (0.8) -- --
Options exercised, 0.1 shares.......................... -- -- --
Treasury stock purchases, 0.2 shares................... -- -- (6.7)
Dividends paid ($2.85 per share)....................... (9.8) -- --
------ ------- --------
Balance at December 31, 2002........................... $ 46.5 $ (27.0) $ (32.6)
====== ======= ========
See accompanying notes.
F-8
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Business
Koppers Industries, Inc. (the "Company" or "Koppers") is a global
integrated producer of carbon compounds and treated wood products for use in a
variety of markets including the railroad, aluminum, chemical, utility and steel
industries. The Company's business is managed as two business segments, Carbon
Materials & Chemicals and Railroad & Utility Products.
The Company's Carbon Materials & Chemicals division is a supplier of a)
carbon pitch, which is used primarily by the aluminum industry as a binder in
the manufacture of anodes; b) phthalic anhydride ("PAA"), used in the
manufacture of plasticizers, unsaturated polyester resins, alkyd resins and dye
making; c) creosote and chemicals, used in the protection of timber against
termites, fungal decay and weathering; d) carbon black (and carbon black
feedstock), used in the production of rubber tires; and e) furnace coke, used in
the manufacture of steel.
The Company's Railroad & Utility Products division a) provides various
products and services to railroads, including crossties (both wood and
concrete), track and switch pre-assemblies, and disposal services; b) supplies
treated wood poles to electric and telephone utilities; and c) provides products
to, and performs various wood treating services for, vineyards, construction and
other commercial applications.
Basis of Financial Statements
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries for which the Company is deemed to exercise
control over operations. All significant intercompany transactions have been
eliminated.
The Company's investments in 20% to 50% owned companies in which it has the
ability to exercise significant influence over operating and financial policies
are accounted for on the equity method. Accordingly, the Company's share of the
earnings of these companies is included in the accompanying consolidated
statement of operations.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents
The Company considers all liquid investments with an original maturity of
90 days or less to be cash equivalents.
Accounts Receivable
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. In
circumstances where the Company becomes aware of a specific customer's inability
to meet its financial obligations to Koppers, a specific reserve for bad debts
is recorded against amounts due. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
F-9
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories
In the United States, Carbon Materials & Chemicals (excluding furnace coke)
and Railroad & Utility Products inventories are valued at the lower of cost,
utilizing the last-in, first-out ("LIFO") basis, or market. Market represents
replacement cost for raw materials and net realizable value for work in process
and finished goods. LIFO inventories constituted approximately 59% and 55% of
the first-in, first-out ("FIFO") inventory value at December 31, 2002 and 2001,
respectively. Liquidation of LIFO inventories resulted in $0.0 million and $2.6
million, respectively, of pretax income for the years ended December 31, 2002
and 2001.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment
and when title passes to the customer. Service revenue is recognized at the time
the service is provided. Shipping and handling costs are included as a component
of net sales and amounted to $50.1 million, $49.3 million and $49.1 million in
2002, 2001 and 2000, respectively.
Investments
The following describes activity related to the Company's significant
equity investments as included in the consolidated statement of operations as of
and for each of the years ended December 31:
Tarconord A/S (Tarconord)
Prior to its acquisition in May 2000, the Company held a 50% equity
interest in Tarconord.
Equity Income Dividends Received
(In millions)
2000 $0.9 $0.0
KSA Limited Partnership (KSA)
The Company holds a 50% investment in KSA, a concrete crosstie operation
located in Portsmouth, Ohio.
Equity Income Dividends Received
(In millions)
2002 $0.6 $0.8
2001 0.6 0.9
2000 0.9 0.8
Koppers (China) Carbon & Chemical Co. Ltd. (Koppers China)
The Company holds a 60% ownership interest in Koppers China but accounts
for this investment under the equity method as described below.
Equity Loss Dividends Received
(In millions)
2002 $(0.6) $0.0
F-10
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2001 (0.3) 0.0
In 1999 the Company entered into a joint venture agreement with Tangshan
Iron & Steel Co. ("TISCO") to rehabilitate and operate a tar distillation
facility in China. The joint venture agreement also includes a tar supply
contract with TISCO, which serves to ensure a long-term supply of coal tar
products in its Australasian markets. Koppers has participated in the
international marketing of carbon pitch products for the joint venture. The
joint venture, Koppers (China) Carbon and Chemical Co., Limited ("Koppers
China") is 60% owned by the Company and began production of coal tar products in
2001. Contributions of cash, engineering services and acquisition costs for the
joint venture total $10.5 million to date.
In June 2001 the Company entered into an agreement with TISCO whereby TISCO
assumed control of Koppers China through December 31, 2003. During this period
TISCO bears all responsibility for the operations and management of the
facility, as well as the net income or loss, except for Koppers' pro rata share
of depreciation, amortization and income taxes for the joint venture.
Accordingly, the Company changed its method of accounting from consolidation to
the equity method effective June 2001 to reflect this change in its ability to
control Koppers China. TISCO has guaranteed a bank loan of Koppers China; the
Company has issued a cross guarantee to TISCO in the amount of approximately
$1.5 million, representing 60% of the loan amount.
Depreciation and Amortization
Buildings, machinery, and equipment are recorded at purchased cost and
depreciated over their estimated useful lives (5 to 20 years) using the
straight-line method.
Accrued Insurance
The Company is insured for property, casualty and workers' compensation
insurance up to various stop loss coverages. Losses are accrued based upon the
Company's estimates of the liability for the related deductibles for claims
incurred using certain actuarial assumptions followed in the insurance industry
and based on Company experience.
Disclosures About Fair Value of Financial Instruments
Cash and short-term investments: The carrying amount approximates fair
value because of the short maturity of those instruments.
Long-term debt: The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
The fair values of the revolving credit facilities and term loans approximate
carrying value due to the variable rate nature of these instruments. The fair
value of the Subordinated Notes at December 31, 2002 and 2001 was $164.5 million
and $175.0 million, respectively.
Research and Development
Research and development costs, which are included in selling, general and
administrative expenses, amounted to $2.9 million for 2002, $2.7 million for
2001 and $2.5 million for 2000.
F-11
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill
Goodwill is the excess of the acquisition cost of businesses over the fair
value of the identifiable net assets acquired. In June 2001 the Financial
Accounting Standards Board issued Statements of Financial Accounting Standards
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill is no longer amortized but is subject to annual impairment
tests in accordance with the Statements. Other intangible assets continue to be
amortized over their useful lives. The Company has applied the new rules on
accounting for goodwill beginning in the first quarter of 2002. Application of
the nonamortization provisions of the Statement resulted in an increase in net
income of approximately $0.8 million for the year ended December 31, 2002. The
effect on basic and diluted earnings per share was $0.70 and $0.23,
respectively. If Statement No. 142 had been adopted January 1, 2000 the increase
to net income, basic earnings per share and diluted earnings per share would
have been $0.8 million, $0.60 and $0.60, respectively, for 2001 and $0.7
million, $0.46 and $0.17, respectively, for 2000. During 2002 the Company
performed the required impairment tests of goodwill as of January 1, 2002 and
October 31, 2002 and has determined that there is no impairment.
Derivatives
The Company economically hedges certain firm commitments denominated in
foreign currencies for periods up to twelve months, depending on the anticipated
settlement dates of the related transactions. Forward exchange contracts are
utilized to hedge these transactions, and all such contracts are marked to
market with the recognition of a gain or loss at each reporting period.
Therefore, at December 31, 2002 and 2001 there were no deferred gains or losses
on hedging of foreign currencies. The fair value of derivatives at December 31,
2002 and 2001 was ($0.3) million and $0.3 million, respectively, and is included
in Other Current Assets and Other Current Liabilities. For the years ended
December 31, 2002 and 2001 $0.0 million and $0.2 million, respectively, of gains
on forward exchange contracts are included in cost of sales.
Environmental Liabilities
The Company accrues for environmental liabilities when a determination can
be made that they are probable and reasonably estimable. Total environmental
reserves at December 31, 2002 and 2001 were approximately $12.3 million and
$12.6 million, respectively, which includes provisions for fines, soil
remediation and the cleaning and disposal of residues from tanks and tank cars.
Stock-Based Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and,
accordingly, recognizes no compensation expense for stock option grants since
all options granted had an exercise price equal to the fair value of the
underlying stock on the date of grant. The following table illustrates the
impact on earnings and earnings per share if the Company had accounted for all
outstanding option grants according to the fair value recognition provisions of
Statement No. 123, Accounting for Stock-Based Compensation:
Years Ended December 31,
2002 2001 2000
(In millions except per share figures)
Net income, as reported $ 16.5 $ 13.3 $14.7
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects 0.1 0.1 --
------ ------ -----
F-12
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma net income $ 16.4 $ 13.2 $ 14.7
Earnings per share:
Basic--as reported $8.61 $3.15 $10.64
Basic--pro forma 8.53 3.10 10.64
Diluted--as reported $4.72 $3.15 $3.83
Diluted--pro forma 4.70 3.10 3.83
The fair values for options granted in 2002 and 2000 were estimated at each
respective grant date using a Black-Scholes option pricing model with the
following weighted-average assumptions for 2002 and 2000, respectively:
risk-free interest rate of 5.00% and 5.56%, dividend yield of 5.0% and 0.0%,
volatility factor of .22 and .20 and an expected option life of 5 and 10 years.
The option grants in 2002 and 2000 were for incentive stock options, while all
previous grants were for non-qualified options.
Reclassification
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current year presentation. Such
reclassification had no effect on net income.
Impact of Other Recently Issued Accounting Standards
In July 2001 the Financial Accounting Standards Board issued Statement No.
143, Accounting for Asset Retirement Obligations, effective for fiscal years
beginning after June 15, 2002. The Statement provides accounting requirements
for retirement obligations associated with tangible long-lived assets. The
obligations affected are those for which there is a legal obligation to settle
as a result of existing or enacted law. The Company believes the adoption of
this statement will result in a cumulative effect adjustment to net income in
the first quarter of 2003 ranging from $15 million to $25 million.
In October 2001 the Financial Accounting Standards Board issued Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
effective for fiscal years beginning after December 15, 2001. The new rules on
asset impairment supersede FASB Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and provide a
single accounting model for long-lived assets to be disposed of. The Company has
performed an analysis and determined that the adoption of this Statement had no
effect on the earnings or financial position of the Company.
In April 2002 the Financial Accounting Standards Board issued Statement No.
145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, effective for fiscal years beginning after
June 15, 2002. For most companies, Statement No. 145 will require gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under Statement No. 4. Extraordinary treatment will be required for certain
extinguishments as provided in APB Opinion No. 30. Statement No. 145 also amends
Statement No. 13 to require certain modifications to capital leases be treated
as a sale-leaseback and modifies the accounting for sub-leases when the original
lessee remains a secondary obligor (or guarantor). In addition, the FASB
rescinded Statement No. 44, which addressed the accounting for intangible assets
of motor carriers and made numerous technical corrections. The Company has not
yet determined the effect, if any, of the adoption of this Statement.
In December 2002 the Financial Accounting Standards Board issued Statement
No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure,
effective for fiscal years ending after December 15, 2002. Statement No. 148
amends Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition to Statement No. 123's fair value method of
accounting for stock-based
F-13
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
employee compensation. Statement No. 148 also amends the disclosure provisions
of Statement No. 123 and APB Opinion No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. The Company has adopted Statement No. 148 as of December
31, 2002 and has complied with the new disclosure requirements.
In November 2002 the Financial Accounting Standards Board issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN No.
45"). FIN No. 45 clarifies and expands on existing disclosure requirements for
guarantees, including loan guarantees. It also would require that, at the
inception of a guarantee, the Company must recognize a liability for the fair
value of its obligation under that guarantee. The initial fair value recognition
and measurement provisions will be applied on a prospective basis to certain
guarantees issued or modified after December 31, 2002. The disclosure provisions
are effective for financial statements of periods ending after December 15,
2002. No additional matters were identified for disclosure. The Company does not
expect that the adoption of FIN No. 45 will have a material impact on its
financial position, cash flows or results of operations.
In January 2003 the Financial Accounting Standards Board issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 ("FIN No. 46"). FIN No. 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. The Company does not expect that the adoption of FIN No. 46 will have a
material impact on its financial position, cash flows or results of operations.
2. Restructuring Charges
In February 2001 the Company's Board of Directors approved the closure of
the utility pole facility and adjacent cogeneration facility located in Feather
River, California ("Feather River") effective March 31, 2001. The closure
resulted in total charges to earnings in 2001 of $4.6 million, which included
$1.3 million of operating expenses. Expenditures of approximately $3.3 million
during 2002 and 2001 were primarily for dismantling costs. At December 31, 2002
the dismantling and closure has been completed, the land has been sold, and
there are no remaining reserves.
3. Debt
December 31,
2002 2001
(In millions)
Revolving credit $33.2 $10.2
Term loans 53.5 72.7
Senior Subordinated Notes due 2007 175.0 175.0
Senior Notes due 2004 -- 11.1
------ ------
$261.7 $269.0
====== ======
F-14
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unscheduled Term Debt Repayments
In 2002, 2001 and 2000 the Company made unscheduled term debt repayments
totaling $6.9 million, $6.8 million and $9.2 million, respectively.
Monessen Transaction
As part of the Monessen Transaction (as defined and described in Note 6),
the Company executed a $5.0 million loan that is scheduled to be repaid at an
interest rate of 9% based on the cash flows of the coke operations. The
outstanding balance on this loan at December 31, 2002 amounted to $4.1 million.
Credit Facilities
The Company has credit facilities of $275.0 million with UBS Warburg and
Mellon Bank, N.A. that are syndicated among several lenders. The credit
facilities provide for term loans totaling $135.0 million and revolving credit
facilities of $140.0 million (the "Revolving Credit Facility"), subject to
sublimits of $20.0 million aggregate for standby and trade letters of credit and
up to $40.0 million and $20.0 million for the Australian Term Letter of Credit
(as defined below) and the Australian Revolving Letter of Credit (as defined
below), respectively. National Australia Bank, Limited provided an Australian
dollar ("A$") denominated term loan to Koppers Australia and certain of its
subsidiaries in an aggregate principal amount equivalent to US$40 million. An A$
denominated letter of credit (the "Australian Term Letter of Credit") was issued
under the Revolving Credit Facility to such Australian lender in the amount of
A$59.3 million. National Australia Bank, Limited provided an A$ denominated
revolving loan facility for the benefit of Koppers Australia and certain of its
subsidiaries with availability of up to the equivalent of US$10 million. An A$
denominated letter of credit (the "Australian Revolving Letter of Credit") was
issued under the Revolving Credit Facility to such Australian lender currently
in the amount of A$33.9 million. To the extent that currency fluctuations cause
the face amount of the Australian Term Letter of Credit or the Australian
Revolving Letter of Credit to exceed on a US$ equivalent basis their respective
subfacility limits, availability will be correspondingly reduced under the
Revolving Credit Facility. Commitment fees ranging from 0.2% to 0.5% per annum
are required on the undrawn portions of the Revolving Credit Facility and the
term loans.
The credit facilities provide for a $70.0 million Term Loan A, $7.3 million
of which was outstanding at December 31, 2002 and a $65.0 million Term Loan B,
$41.4 million of which was outstanding at December 31, 2002. In addition, $0.7
million was outstanding on the A$ denominated term loan at December 31, 2002.
The term loans and the Revolving Credit Facility under the credit
facilities provide for interest at variable rates. At December 31, 2002 the
effective rates on the term loans were 2.92% for Term Loan A, 3.38% for Term
Loan B and 4.91% for the Australian term loan. The Revolving Credit Facility,
Term Loan A and the Australian term loan expire November 30, 2003, and Term Loan
B expires November 30, 2004.
The Company is currently in the process of negotiating with various
financial institutions to obtain new financing for the expiring portions of its
bank debt during 2003.
Substantially all of the Company's assets, including the assets of
significant subsidiaries other than the Danish operations of Koppers Europe, are
pledged as collateral for the credit facilities. The credit facilities contain
certain covenants that limit capital expenditures by the Company and restrict
its ability to incur additional indebtedness, create liens on its assets, enter
into leases, pay dividends and make investments or acquisitions. In addition,
such covenants give rise to events of default upon the failure by the Company to
meet certain financial ratios.
F-15
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Senior Subordinated Notes Due 2007 and Senior Notes Due 2004
The Company has $175.0 million of Senior Subordinated Notes Due 2007 (the
"Subordinated Notes"). The Subordinated Notes bear interest at 9 7/8% per annum,
with interest payable on June 1 and December 1 of each year. The Subordinated
Notes are unsecured and rank junior to all existing and future senior debt of
the Company, and are effectively subordinated to all secured obligations to the
extent of the assets securing such obligations.
The Subordinated Notes are redeemable, at the Company's option, at any time
on or after December 1, 2002 and prior to maturity, at redemption prices ranging
from 104.938% of the principal amount in 2002 to 100.0% of the principal amount
in 2005. The Company also had $11.1 million of 8.5% Senior Notes due 2004 which
were called at par in October 2002.
At December 31, 2002 the aggregate debt maturities for the next five years
are as follows (in millions):
2003 $ 53.1
2004 33.6
2005 --
2006 --
2007 175.0
At December 31, 2002 the Company had $12.7 million of standby letters of
credit outstanding, with terms ranging from one to two years.
Deferred financing costs associated with the credit facilities and the
issuance of the Subordinated Notes totaled approximately $16.0 million and are
being amortized over the life of the related debt. Deferred financing costs (net
of accumulated amortization of $10.0 million at December 31, 2002, $8.2 million
at December 31, 2001 and $6.2 million at December 31, 2000) were $6.5 million,
$8.4 million and $10.4 million at December 31, 2002, 2001 and 2000,
respectively, and are included in other assets.
4. Stock Activity
The terms and conditions of stock ownership, including voting rights and
dividends, are governed by the Restated Articles of Incorporation of the Company
and the stockholders' agreement by and among the Company, Saratoga Partners III,
L.P. ("Saratoga") and the directors, officers, and current and former employees
who own shares of common stock (as amended, the "Stockholders' Agreement"). The
Stockholders' Agreement provides for annual stock redemptions at the Company's
option, provided that all relevant covenants with the Company's lenders and note
holders are met.
The Company has an advisory services agreement with Saratoga pursuant to
which the Company pays a management fee of $150,000 per quarter to Saratoga in
lieu of Director's fees to the Saratoga director. In addition, Saratoga may
provide the Company with advisory services in connection with significant
business transactions, such as acquisitions, for which the Company will pay
Saratoga compensation comparable to compensation paid for such services by
similarly situated companies.
Common Stock Subject to Redemption
The Stockholders' Agreement requires the Company, subject to cash payment
limitations under the terms of existing debt covenants, to redeem certain shares
of common stock owned by members of management upon a "termination event"
relative to a management employee. A termination event is defined as retirement,
death, disability or resignation. At December 31, 2002 and 2001 the maximum
redemptions that could be paid under the Stockholders' Agreement, subject to
existing debt covenants, were $23.1 million and $22.3 million, respectively. The
value of shares subject to redemption under the terms of the Stockholders'
Agreement is segregated from other common stock on the face of the balance
sheet. There were approximately 1.1 million
F-16
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares of Common Stock at December 31, 2002 subject to the redemption provisions
of the Stockholders' Agreement.
In each of 2002 and 2001 the Company redeemed 25% of a Director's shares at
the respective fair values for a total of approximately $0.7 million each year,
with the remainder scheduled to be redeemed in an equal amount of shares (at
each year's current fair value) in 2003 and 2004. In 2000, a former Director
resigned from the Company's Board of Directors. The Company has redeemed 75% of
the Director's shares for a total of approximately $5.1 million, with the
remainder scheduled to be redeemed at fair value in 2003.
In October 1999, a Director of the Company purchased 55,294 shares of
common stock of the Company for $0.9 million; 35,294 of the shares were financed
through an interest-free loan from the Company in the amount of $0.6 million due
in 2009. The shares related to the loan are restricted and vest at a rate of 20%
per year. At December 31, 2002 7,059 of such shares were restricted. In the
event that the Director no longer serves on the Board of Directors, the loan
must be repaid.
The aggregate redemption amounts under the Stockholders' Agreement for the
next five years based on termination events of which the Company is aware, based
on the current share price, are as follows:
2003 $4.0 million
2004 $2.0 million
2005 $0.5 million
2006 $0.5 million
2007 $ --
Senior Convertible Preferred Stock
The senior convertible preferred stock ("preferred stock") has voting
rights (except as noted below) and dividend rights equal to common stock, and
has a liquidation preference equal to par value ($.01 per share). The preferred
stock is convertible into common stock at any time on a one-for-one basis. The
holders of the preferred stock vote as a separate series from all other classes
of stock, and are entitled to elect a majority of the Board of Directors of the
Company.
Dividends
In 2002 and 2001 the Company paid dividends of $2.85 and $4.00 per share,
respectively, to common and preferred shareholders. The Company is limited by
its current lending covenants regarding the payment of dividends. For 2003 under
existing credit agreements this limitation is approximately $5 million.
5. Pension and Other Postretirement Benefit Plans
Pension Benefits Other Benefits
2002 2001 2002 2001
(In millions) (In millions)
Change in benefit obligation:
Benefit obligation at beginning of year $ 123.6 $ 116.8 $ 11.9 $ 11.3
Service cost 5.3 5.1 0.2 0.2
Interest cost 8.5 7.9 0.7 0.8
Plan participants' contributions (0.3) (0.3) -- --
Amendments 0.7 0.9 -- --
F-17
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Actuarial (gains) losses 3.2 (0.9) (1.7) 0.5
Benefits paid (7.0) (5.9) (0.9) (0.9)
-------- ------- ------- -------
Benefit obligation at end of year $ 134.0 $ 123.6 $ 10.2 $ 11.9
Change in plan assets:
Fair value of plan assets at beginning of year $ 92.4 $ 103.3 $ -- $ --
Actual return on plan assets (7.1) (9.3) -- --
Employer contribution 6.8 4.0 0.9 0.9
Plan participants' contributions 0.3 0.3 -- --
Benefits paid (7.0) (5.9) (0.9) (0.9)
-------- ------- ------- -------
Fair value of plan assets at end of year $ 85.4 $ 92.4 $ 0.0 $ 0.0
-------- ------- ------- -------
Funded status of the plan $(48.6) $(31.2) $ (10.2) $ (11.9)
Unrecognized transitional (asset)/obligation (3.1) (3.2) -- --
Unrecognized actuarial (gain) loss 35.5 18.1 (2.8) (3.7)
Unrecognized prior service cost 2.3 2.1 (2.1) (2.3)
-------- ------- ------- -------
Net amount recognized $ (13.9) $ (14.2) $ (15.1) $ (17.9)
-------- ------- ------- -------
Disclosures:
Amounts recognized in the statement of financial position consist of:
Prepaid pension benefit $ -- $ 1.5 $ -- $ --
Accrued benefit liability (35.5) (24.3) (15.1) (17.9)
Intangible asset 1.4 1.8 -- --
Minimum pension liability adjustment--reduction of
shareholders' equity 20.2 6.8 -- --
-------- ------- ------- -------
Net amount recognized $ (13.9) $ (14.2) $ (15.1) $ (17.9)
-------- ------- ------- -------
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $128.4 million, $115.0 million and $80.3 million,
respectively, as of December 31, 2002, and $61.6 million, $57.7 million and
$42.6 million, respectively, as of December 31, 2001.
Pension Benefits Other Benefits
2002 2001 2002 2001
Weighted-average assumptions as of December 31:
Discount rate 6.75% 7.00% 7.00% 7.00%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 4.00% 4.00%
Initial medical trend rate 8.00% 8.50%
The 2002 initial medical trend rate was assumed to decrease gradually to
5.0% in 2009 and remain at that level thereafter.
Pension Benefits Other Benefits
2002 2001 2002 2001
(In millions) (In millions)
Components of net periodic benefit cost:
Service cost $5.3 $5.2 $0.2 $0.2
Interest cost 8.5 7.9 0.7 0.8
Expected return on plan assets (7.8) (8.2) -- --
Amortization of prior service cost 0.5 -- (0.9) (1.0)
----- ----- ----- -----
F-18
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net periodic benefit cost $6.5 $4.9 $-- $--
==== ==== === ===
The Company has two nonpension postretirement benefit plans. The
contributions for health benefits are adjusted annually; the life insurance plan
is noncontributory. The accounting for the health care plan anticipates future
cost-sharing changes to the written plan that are consistent with the Company's
expressed intent to increase retiree contributions each year by 50%-100% of any
increases in premium costs.
The Company recognizes a minimum pension liability for under funded plans.
The minimum liability is equal to the excess of the accumulated benefit
obligation over plan assets. A corresponding amount is recognized either as an
intangible asset, to the extent of previously unrecognized prior service cost,
or a reduction of shareholders' equity. The Company recorded additional
liabilities of $21.6 million and $8.6 million as of December 31, 2002 and 2001,
respectively. Intangible assets of $1.4 million and $1.8 million and
stockholders' equity reductions, net of income taxes, of $12.4 million and $4.1
million, were recorded as of December 31, 2002 and 2001, respectively.
The assumed health care cost trend rate has a significant effect on the
amounts reported. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:
1% Increase 1% Decrease
Effect on total of service and interest cost components in 2002 $0.1 $(0.1)
Effect on postretirement benefit obligation as of December 31, 2002 $0.4 $(0.4)
Incentive Plan--The Company has established management incentive plans
based on established target award levels for each participant if certain Company
performance and individual goals are met. The charge to operating expense for
this plan was $2.2 million in 2002, $2.0 million in 2001 and $2.5 million in
2000.
Employee Savings Plan--The Company has established an employee savings plan
for all eligible salaried employees that conforms to Section 401(k) of the
Internal Revenue Code. Under the plan, participating employees can elect to
contribute up to 16% of their salaries with a regular Company matching
contribution equivalent to 50% of the first 6% of contributions. Prior to 2002
the matching contribution was 100% of the first 1% plus 50% of the next 2% of
contributions.
The Company's regular contributions amounted to $0.9 million in 2002, $0.5
million in 2001 and $0.6 million in 2000. The Company also made supplemental
contributions at the end of 2001 and 2000 approved by the Board of Directors.
Supplemental contributions will no longer be made in lieu of the increased
regular contribution percentages.
6. Income Taxes
Monessen Transaction
In December 1999 the Company entered into an agreement to transfer
substantially all future non-conventional fuel tax credits generated as a result
of the production and sale of coke at the coke facility in Monessen,
Pennsylvania (the "Monessen Facility") to a third party (the "Monessen
Transaction"). For the years ended December 31, 2002, 2001 and 2000 the Company
received $9.8 million, $8.2 million and $8.6 million, respectively, for the
transfer of tax credits, which is recorded as other income. The tax credits
expired at the end of 2002, and it has not yet been determined whether these
credits will be renewed by the United States Congress. Prior to the Monessen
Transaction, the Company earned these credits.
F-19
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Components of the Company's income tax provision are as follows:
Years Ended December 31,
2002 2001 2000
(In millions)
Current:
Federal $ 0.1 $ 0.4 $ 1.8
State 0.1 -- --
Foreign 7.4 6.9 7.9
------- ------- -------
Total current tax provision 7.6 7.3 9.7
Deferred:
Federal 6.1 5.0 6.7
State 0.1 (0.1) 0.3
Foreign -- (0.1) (0.1)
------- ------- -------
Total deferred tax provision 6.2 4.8 6.9
------- ------- -------
Total income tax provision $ 13.8 $ 12.1 $ 16.6
======= ======= =======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
December 31,
2002 2001
(In millions)
Deferred tax assets:
Alternative minimum tax credits $ 12.3 $ 13.6
Other postretirement benefits obligation 17.0 13.2
Reserves, including insurance and product warranty 11.5 11.9
Book/tax inventory accounting 2.8 2.8
Accrued vacation 2.5 2.3
Excess tax basis on Koppers Australia assets 11.2 12.5
Monessen Transaction 2.2 3.1
Other 4.1 3.0
------- ------
Total deferred tax assets 63.6 62.4
------- ------
Deferred tax liabilities:
Tax over book depreciation and amortization 18.4 16.4
Other 4.9 4.5
------- ------
Total deferred tax liabilities 23.3 20.9
------- ------
Net deferred tax assets $ 40.3 $ 41.5
======= ========
Income before income taxes for 2002, 2001 and 2000 included $23.5 million,
$21.2 million and $21.4 million, respectively, from foreign operations.
The provision for income taxes is reconciled with the federal statutory
rate as follows:
Years Ended December 31,
2002 2001 2000
Federal 35.0% 35.0% 35.0%
State, net of federal tax benefit 0.4 (0.6) 0.5
Equity in earnings of foreign affiliates -- -- (0.9)
Foreign taxes 10.0 12.6 12.6
Section 29 credits (0.4) (0.4) (0.3)
Non-deductible environmental fines 0.1 -- 5.2
F-20
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other (0.9) (0.6) (0.4)
------ ------ ------
44.2% 46.0% 51.7%
====== ====== ======
Based on the Company's earnings history, along with the implementation of
various tax planning strategies, the Company believes the deferred tax assets on
the Consolidated Balance Sheet at December 31, 2002 are realizable.
The Company has not provided any United States tax on undistributed
earnings of foreign subsidiaries or joint ventures that are reinvested
indefinitely. At December 31, 2002 consolidated retained earnings of the Company
included approximately $10 million of undistributed earnings from these
investments. The Company has an alternative minimum tax credit carryforward of
approximately $12.3 million. The credit has no expiration date.
7. Earnings Per Share
Basic earnings per common share are based on the weighted average number of
common shares outstanding in each year after preferred stock dividends. Diluted
earnings per common share assume that any dilutive preferred shares outstanding
at the beginning of the year were converted at those dates, with dividend
requirements and outstanding common shares adjusted accordingly. It also assumes
that outstanding common shares were increased by shares issuable upon exercise
of stock options for which fair value exceeds exercise price, and shares that
could have been purchased by the Company with related proceeds. The senior
convertible preferred stock and employee stock options were not included in the
computation of diluted earnings per share for 2001 since it would have resulted
in an antidilutive effect.
The following table sets forth the computation of basic and diluted
earnings per common share:
Years Ended December 31,
2002 2001 2000
(In millions except per share
figures)
Numerator for basic and diluted:
Net income from continuing operations $ 16.5 $ 13.3 $ 14.7
Preferred stock dividend (6.5) (9.1) --
------- ------- -------
Numerator for basic earnings per common share 10.0 4.2 14.7
Denominators:
Weighted-average common shares 1.2 1.3 1.4
Effect of dilutive securities:
Convertible preferred stock 2.3 2.3 2.3
Employee stock options -- 0.1 0.1
------- ------- -------
Dilutive potential common shares 2.3 2.4 2.4
Denominators for diluted earnings per common share-adjusted weighted-average 3.5 3.7 3.8
shares and assumed conversions
Net income per common share:
Basic earnings per common share $8.61 $3.15 $10.64
Diluted earnings per common share $4.72 $3.15 $3.83
8. Stock Options
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, recognizes no compensation expense for stock option
grants. In 2002, 2001 and 2000 the Company recognized $0.2 million, $0.3 million
and $0.3 million, respectively, of expense related to the redemption of
F-21
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stock options by terminated employees. Included in capital in excess of par
value, the Company also recorded tax benefits of approximately $0.1 million,
$1.4 million and $0.6 million for stock option exercises in 2002, 2001 and 2000,
respectively, for active employees.
Approximately 0.3 million options were outstanding at December 31, 2002 to
purchase shares of common stock to certain key executives at various exercise
prices. All options granted have 10-year terms; all vest and become fully
exercisable ratably over a period of five years of continued employment, except
for options granted before 1997, which have a vesting period of three years.
A summary of the Company's stock option activity and related information
for the years ended December 31 follows:
2002 2001 2000
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
Outstanding at beginning of year 235 $ 16 470 $ 13 510 $ 10
Granted 67 25 -- -- 55 23
Exercised (38) 11 (233) 9 (95) 4
Forfeited (6) 17 (2) 20 -- --
------- ------- -------
Outstanding at end of year 258 $ 19 235 $ 16 470 $ 13
======= ======== ======= ======== ======= ========
Exercisable at end of year 133 $ 16 151 $ 14 321 $ 10
======= ======== ======= ======== ======= ========
Weighted-average fair value of options
granted during the year $ 3.62 -- $6.90
Exercise prices for options outstanding as of December 31, 2002 ranged from
$10.56 to $28.00, and the weighted-average remaining contractual life of those
options was approximately seven years. The following table indicates the number
of options outstanding for each respective exercise price (options in
thousands):
Exercise Price Options
outstanding at
December 31, 2002
$ 10.56 16
14.00 34
17.00 77
17.25 17
23.00 44
28.00 3
25.15 67
---
Total options 258
===
9. Commitments and Contingencies
General
From time to time lawsuits, claims and proceedings are asserted against the
Company relating to the conduct of its business, including those pertaining to
product liability, warranties, employment and employee benefits. While the
outcome of litigation cannot be predicted with certainty, and some of these
lawsuits, claims or proceedings may be determined adversely to the Company,
management does not believe that the disposition of any such pending matters is
likely to have a material adverse effect on the Company's financial condition or
F-22
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations and cash flows for that period.
Legal Proceedings
Government Investigation
On December 4, 2002 European Commission representatives visited the offices
of the Company's subsidiaries located in Nyborg, Denmark and Scunthorpe, England
and obtained documents pursuant to legal process as part of an investigation of
industry competitive practices concerning tar pitch, creosote and naphthalene.
The United States Department of Justice also served a subpoena for similar
documents at the Company's headquarters in Pittsburgh, Pennsylvania. The
investigation is continuing and the Company is cooperating with both the
European Commission and the United States Department of Justice. As a result of
such cooperation, in February 2003 the European Commission granted the Company's
request for exemption from penalties for any infringement that the Commission
may find as a result of its investigation concerning tar pitch. The exemption
from the Commission was granted upon certain conditions, including the continued
cooperation of the Company with the Commission. The Company is currently unable
to determine the outcome of the investigation. There can be no assurance that
the outcome of this matter will not have a material adverse effect on the
business, financial condition, cash flows and results of operations of the
Company.
Environmental and Other Matters
The Company is subject to federal, state, local and foreign laws and
regulations and potential liabilities relating to, among other things, the
treatment, storage and disposal of wastes, the discharge of effluent into
waterways, the emission of substances into the air and various health and safety
matters. The Company expects to incur substantial costs for ongoing compliance
with such laws and regulations. The Company may also face governmental or third
party claims for cleanup or for injuries resulting from contamination at sites
associated with past and present operations. The Company accrues for
environmental liabilities when a determination can be made that they are
probable and reasonably estimable.
Environmental and Other Liabilities Retained or Assumed by Others
The Company has agreements with former owners of certain of its operating
locations under which the former owners retained or assumed and agreed to
indemnify the Company against certain environmental and other liabilities. The
most significant of these agreements was entered into at the Company's inception
on December 28, 1988 (the "Acquisition"). Under the related asset purchase
agreement between the Company and Beazer East, Inc. ("Beazer East"), Beazer East
assumed the responsibility for and agreed to indemnify the Company against
certain liabilities, damages, losses and costs, to the extent attributable to
acts or omissions occurring prior to the Acquisition, including, with certain
limited exceptions, liabilities and costs of compliance with environmental laws
(the "Indemnity"). Beazer Limited unconditionally guaranteed Beazer East's
performance of the Indemnity pursuant to a guarantee (the "Guarantee"). Beazer
Limited became a wholly owned indirect subsidiary of Hanson PLC on December 4,
1991. In 1998 Hanson PLC purchased an insurance policy under which the funding
and risk of certain environmental liabilities relating to the former Koppers
Company, Inc. operations of Beazer East (which includes locations purchased from
Beazer East by the Company) are underwritten by subsidiaries of two of the
world's largest reinsurance companies, Centre Solutions (a member of the Zurich
Group) and Swiss Re.
The Indemnity provides different mechanisms by which Beazer East is to
indemnify Koppers with regard to environmental claims or environmental cleanup
liabilities and imposes certain conditions on the
F-23
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company before receiving such indemnification. The Company believes that it has
taken appropriate steps to satisfy all of such conditions, but Beazer East may
challenge the Company's compliance with such conditions.
Five sites owned and/or operated by Koppers are listed on the National
Priorities List ("NPL") promulgated under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). The
sites include the recently closed Feather River; the Gainesville, Florida wood
treating facility; the Galesburg, Illinois wood treating facility; the Florence,
South Carolina wood treating facility; and the Follansbee, West Virginia carbon
materials and chemicals facility. In addition, many Koppers sites are or have
been operated under Resource Conservation and Recovery Act ("RCRA") permits, and
RCRA remedial and closure activities are being conducted on several of these
sites. Currently, at the properties acquired from Beazer East (which include all
of the NPL sites and all but one of the RCRA-permitted sites), substantially all
investigative, cleanup and closure activities are being conducted and paid for
by Beazer East pursuant to the terms of the Indemnity.
To date, the parties that retained, assumed or agreed to indemnify the
Company against the liabilities referred to above have performed their
obligations in all material respects. However, disputes have arisen with such
parties as to the obligation of such parties to indemnify in certain cases. The
Company believes that for the last three years amounts paid by Beazer East that
are the subject of the environmental remediation portion of the Indemnity have
averaged approximately $8 million per year. If for any reason (including
disputed coverage or financial incapability) one or more of such parties fails
to perform their obligations and the Company is held liable for or otherwise
required to pay all or part of such liabilities without reimbursement, the
imposition of such liabilities on the Company could have a material adverse
effect on the Company's business, financial condition, cash flows and results of
operations. In addition, if the Company were required to record a liability with
respect to all or a portion of such matters on its balance sheet, the amount of
its total liabilities could exceed the book value of its assets by an amount
that could be significant.
Green Spring
The Company was named as a defendant in a toxic tort action, along with
Beazer East and CSX Transportation, Inc. ("CSX"), arising from the operation of
the Company's wood treating facility in Green Spring, West Virginia ("Green
Spring"). A trial of the claims of eight "test" plaintiffs began on March 11,
2002. As a result of the Company's motion for summary judgment filed before the
commencement of the trial and the Company's motion for a directed verdict during
the trial, the court found the claims against the Company to be without merit
and dismissed all such claims. The Court entered final judgment for the Company
on June 25, 2002. The court also ruled, among other things, that the Company was
not the successor company to Beazer East and that the plaintiffs could introduce
no evidence against the Company for events that occurred before the creation of
the Company on December 29, 1988. The final judgment in favor of the Company was
not appealed by the eight "test" plaintiffs.
Although the claims of the eight "test" plaintiffs against the Company were
dismissed, the trial continued against Beazer East and CSX. In April 2002 the
jury returned its verdict in the trial of the claims of the eight "test"
plaintiffs. The jury found in favor of Beazer East and CSX with respect to the
claims of four of the eight "test" plaintiffs relating to medical monitoring.
With regard to the remaining four plaintiffs, the jury awarded damages against
Beazer East and CSX totaling $825,000. Plaintiffs, Beazer East and CSX filed
various post-trial motions in connection with the trial, and the presiding judge
denied all motions other than that Beazer East and CSX had operated the facility
as a joint venture. The parties have the right to appeal these rulings. In
addition, the plaintiffs have asked the judge to certify certain of her rulings
to the West Virginia Supreme Court for an appeal.
F-24
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The claims of the remaining plaintiffs (approximately 85) against the
Company, Beazer East and CSX were stayed by the judge during the pendency of the
trial of the claims of the eight "test" plaintiffs. In January 2003 the Court
ordered a trial of the claims of the remaining plaintiffs on certain liability
issues. The trial is scheduled for July 2003. Plaintiffs are current and former
employees of Green Spring, family members of such employees and residents from
the communities surrounding Green Spring. Plaintiffs' allegations against the
defendants include personal injuries and property damage related to the
operation of Green Spring from the mid-1940's through 1992. As a result of
previous litigation among CSX, Beazer East and the Company, CSX has assumed a
portion of Beazer East's obligations to the Company under the Indemnity in
connection with the litigation involving Green Spring. There can be no assurance
that an unfavorable resolution of this matter will not have a material adverse
effect on the business, financial condition, cash flows and results of
operations of the Company.
North Little Rock
The Company and other defendants were also sued in a toxic tort action
arising from the operation of the Company's wood treating facility in North
Little Rock, Arkansas ("North Little Rock"). Plaintiffs' allegations included
personal injuries and property damage relating to the operation of North Little
Rock. The trial began on January 29, 2002 and continued until February 9, 2002,
at which time the case was settled by the Company for an amount substantially
below plaintiffs' pre-trial settlement demand and was expensed in the first
quarter of 2002. The settlement included a release of all claims pending by the
plaintiffs against the Company in connection with the operation of North Little
Rock.
Grenada
The Company and other defendants including Beazer East, Illinois Central
Railroad and Heatcraft, Inc. have been named in four toxic tort lawsuits in the
state of Mississippi arising from the operation of the Company's wood treating
facility in Grenada, Mississippi ("Grenada") and an adjacent manufacturing
facility operated by Heatcraft. The Complaints allege that plaintiffs were
exposed to harmful levels of various toxic chemicals, including creosote and
pentachlorophenol, as a result of soil, surface water, groundwater and air
emissions from Grenada and the Heatcraft facility. Plaintiffs seek compensatory
and punitive damages for, among other things, personal injuries. Although the
Company intends to vigorously defend this case, there can be no assurance that
an unfavorable resolution of this matter will not have a material adverse effect
on the business, financial condition, cash flows and results of operations of
the Company.
Other Environmental Matters
In October 1996 the Company received a Clean Water Act information request
from the United States Environmental Protection Agency ("EPA"). This information
request asked for comprehensive information on discharge permits, applications
for discharge permits, discharge monitoring reports, and the analytical data in
support of the reports and applications. EPA subsequently alleged that the
Company violated various provisions of the Clean Water Act. In July 2000 the
Company received a settlement demand from EPA requesting $4.5 million in
settlement of alleged civil violations of the Clean Water Act. EPA and the
Company subsequently agreed, among other things, to a $2.9 million settlement,
payable over three years. If the terms of the civil settlement agreement change,
there can be no assurance that this would not have a material adverse effect on
the business, financial condition, cash flows and results of operations of the
Company.
Additionally, during a Company-initiated investigation at Woodward Coke
prior to its closure in January 1998, it was discovered that certain
environmental records and reports related to the discharge of treated process
water contained incomplete and inaccurate information. Corrected reports were
submitted to the State of Alabama and EPA. The government and the Company
subsequently entered into a plea agreement which
F-25
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
provides, among other things, for the payment by the Company of a $2.1 million
fine payable to EPA over three years and $0.9 million in restitution payable to
the Black Warrior-Cahaba Rivers Land Trust over three years. The Company's plea
was entered in August 2002 and the sentencing of the Company occurred in
December 2002. At the sentencing, the Court, among other things, approved the
terms of the plea agreement previously negotiated between the Company and EPA,
including the payments set forth above. The first payments, totaling $1.0
million, were made in December 2002.
The required settlements related to the Clean Water Act and the Woodward
Coke investigation have been accrued by the Company as of December 31, 2002.
Rents
Rent expense including operating leases for 2002, 2001 and 2000 was $25.2
million, $24.4 million and $19.9 million, respectively. Commitments during the
next five years under operating leases aggregate to approximately $64 million,
ranging from $21.1 million in 2003 to $6.5 million in 2007.
10. Operations By Business Segment
Description of the Types of Products and Services From Which Each
Reportable Segment Derives Its Revenues.
The Company's Carbon Materials & Chemicals division is a supplier of a)
carbon pitch, which is used primarily by the aluminum industry as a binder in
the manufacture of anodes; b) PAA, used in the manufacture of plasticizers,
unsaturated polyester resins, alkyd resins and dye making; c) creosote and
chemicals, used in the protection of timber against termites, fungal decay and
weathering; d) carbon black (and carbon black feedstock), used in the production
of rubber tires; and e) furnace coke, used in the manufacture of steel.
The Company's Railroad & Utility Products division a) provides various
products and services to railroads, including crossties (both wood and
concrete), track and switch pre-assemblies, and disposal services; b) supplies
treated wood poles to electric and telephone utilities; and c) provides products
to, and performs various wood treating services for, vineyards, construction and
other commercial applications.
Measurement of Segment Profit or Loss and Segment Assets.
The Company evaluates performance and allocates resources based on profit
or loss from operations before interest and income taxes. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.
Factors Management Used to Identify the Company's Reportable Segments.
The Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because they
manufacture and distribute distinct products with different production
processes. The business units have been aggregated into two reportable segments
since management believes the long-term financial performance of these
reportable segments is affected by similar economic conditions.
F-26
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business Segments
Carbon Railroad
Materials & Utility All
& Chemicals Products Other Total
(In millions)
Year ended December 31, 2002:
Revenues from external customers $403.0 $327.3 $-- $730.3
Intersegment revenues 23.4 -- -- 23.4
Depreciation and amortization 19.1 7.5 2.1 28.7
Operating profit (loss) 29.4 16.9 (2.0) 44.3
Segment assets 284.6 127.7 51.5 463.8
Capital expenditures 12.9 6.6 0.2 19.7
Year ended December 31, 2001:
Revenues from external customers $419.7 $287.9 $-- $707.6
Intersegment revenues 18.9 -- -- 18.9
Depreciation and amortization 20.3 8.0 2.1 30.4
Operating profit (loss) 32.3 11.7 (1.7) 42.3
Segment assets 278.6 126.2 50.4 455.2
Capital expenditures 15.6 5.0 0.4 21.0
Year ended December 31, 2000:
Revenues from external customers $421.3 $302.2 $-- $723.5
Intersegment revenues 16.9 -- -- 16.9
Depreciation and amortization 19.8 8.0 2.2 30.0
Operating profit (loss) 36.3 13.9 (0.9) 49.3
Years Ended
December 31,
2002 2001 2000
(In millions)
Profit or Loss
Operating profit for reportable segments $46.3 $44.0 $50.2
Corporate depreciation and amortization (2.1) (2.1) (2.2)
Equity in earnings of affiliates -- 0.3 2.2
Other including Section 29 tax credits 9.9 8.6 9.9
------ ------ -----
Income before interest expense, income tax provision and minority
interest $54.1 $50.8 $60.1
====== ====== =====
Assets
Total assets for reportable segments $412.3 $404.8
Deferred financing 6.5 8.4
Deferred taxes 40.3 41.5
Fixed assets 1.5 1.7
Other, including equity investments 16.8 13.8
Cash and short-term investments 1.2 1.2
Elimination of intercompany receivables (14.8) (16.2)
------ ------
Total consolidated assets $463.8 $455.2
====== ======
Geographic Information
United States:
Revenues from external customers $511.4 $502.1
Long-lived assets 189.2 191.0
Australia and Pacific Rim:
Revenues from external customers $118.9 $107.9
Long-lived assets 38.5 42.9
Europe:
Revenues from external customers $100.0 $97.6
Long-lived assets 16.5 15.4
F-27
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Financial Information for Subsidiary Guarantors
The Company's payment obligations under the 9 7/8% Senior Subordinated
Notes due 2007 (the "Notes") are fully and unconditionally guaranteed on a joint
and several basis by Koppers Industries, Inc. (parent), Koppers Australia Pty.
Limited, and Koppers Industries of Delaware, Inc. (collectively, the "Guarantor
Subsidiaries"). The Notes have not been guaranteed by KHC Assurance, Inc.,
Koppers Europe, and KSA Limited Partnership (collectively, the "Non-Guarantor
Subsidiaries"). The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
Summarized Condensed Financial Information
For the Year Ended December 31, 2002
(In millions)
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Current assets $158.3 $116.6 $198.7 $(254.0) $219.6
Non-current assets 261.5 50.9 121.3 (189.5) 244.2
Current liabilities 290.3 19.1 100.0 (253.3) 156.1
Non-current liabilities 256.7 2.2 21.1 -- 280.0
Net sales 471.5 129.7 170.7 (41.6) 730.3
Gross profit (after depreciation and amortization) 46.3 43.2 10.5 (11.7) 88.3
Net income (loss) 1.3 19.9 4.3 (9.0) 16.5
Summarized Condensed Financial Information
For the Year Ended December 31, 2001
(In millions)
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Current assets $160.5 $100.4 $192.4 $(247.4) $205.9
Non-current assets 264.3 47.2 125.9 (188.1) 249.3
Current liabilities 239.1 24.5 101.6 (248.5) 116.7
Non-current liabilities 289.6 4.9 19.1 (0.2) 313.4
Net sales 466.7 118.6 163.2 (40.9) 707.6
Gross profit (after depreciation and
amortization) 51.0 41.3 14.8 (18.5) 88.6
Net income (loss) 1.7 18.3 9.0 (15.7) 13.3
F-28
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized Condensed Financial Information
For the Year Ended December 31, 2000
(In millions)
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Current assets $170.3 $107.3 $170.5 $(226.2) $221.9
Non-current assets 267.5 46.7 49.1 (101.3) 262.0
Current liabilities 219.9 28.7 92.5 (226.6) 114.5
Non-current liabilities 244.1 18.0 76.0 (3.3) 334.8
Net sales 526.7 127.4 93.5 (24.1) 723.5
Gross profit (after depreciation, amortization
and restructuring) 51.3 45.2 9.6 (11.4) 94.7
Net income (loss) (3.5) 20.4 6.5 (8.7) 14.7
12. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the
years ended December 31, 2002 and 2001:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2002 2001 2002 2001 2002 2001 2002 2001
(In millions, except per share figures)
Net sales $165.3 $174.7 $191.6 $189.3 $198.2 $176.7 $175.2 $166.9
Operating profit $6.2 $4.0 $13.1 $15.0 $14.5 $12.9 $10.5 $10.4
Net income $1.8 $0.6 $5.6 $5.7 $6.5 $4.6 $2.6 $2.4
Net income (loss) to common
stock $(4.7) $0.6 $5.6 $(3.4) $6.5 $4.6 $2.6 $2.4
Earnings (loss) per share of
common stock:
Basic earnings (loss) per $(3.74) $0.45 $4.79 $(2.61) $5.77 $3.42 $2.40 $1.80
share
Diluted earnings (loss) per $(3.74) $0.16 $1.60 $(2.61) $1.87 $1.25 $0.76 $0.65
share
See accompanying notes.
F-29
KOPPERS INDUSTRIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2002, 2001 and 2000
(In millions)
Balance at Additions Balance at
beginning of charged to close of
year Expense Deductions year
------------ ---------- ---------- ----------
2002
Allowance for doubtful accounts............................... $1.0 $0.1 $0.2 $0.9
2001
Allowance for doubtful accounts............................... $0.9 $2.3 $2.2 $1.0
2000
Allowance for doubtful accounts............................... $1.1 $3.3 $3.5 $0.9
- ---------------------------------------------------------------------------------------------------------------
F-30
KOPPERS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In millions except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(Unaudited) (Unaudited)
Net sales .......................................................... $ 202.5 $ 198.2 $ 590.0 $ 555.1
Operating expenses:
Cost of sales ............................................. 169.5 164.8 495.5 468.1
Depreciation and amortization ............................. 8.3 7.2 25.3 21.2
Selling, general and administrative ....................... 12.8 11.7 40.5 32.0
Restructuring charges ..................................... 1.3 -- 1.3 --
---------- --------- --------- ---------
Total operating expenses ......................... 191.9 183.7 562.6 521.3
---------- --------- --------- ---------
Operating profit ................................................... 10.6 14.5 27.4 33.8
Other income (expense) ............................................. -- 2.5 (0.1) 7.6
---------- --------- --------- ---------
Income before interest expense, income taxes and minority
interest ....................................................... 10.6 17.0 27.3 41.4
Interest expense ................................................... 5.5 5.7 16.0 17.4
---------- --------- --------- ---------
Income before income taxes and minority interest ................... 5.1 11.3 11.3 24.0
Income tax provision ............................................... 4.6 4.6 7.5 9.5
Minority interest .................................................. 0.5 0.2 1.2 0.6
---------- --------- --------- ---------
Income before cumulative effect of accounting change ............... -- 6.5 2.6 13.9
Cumulative effect of accounting change:
Asset retirement obligations, net of tax of $11.7 ......... -- -- (18.1) --
---------- --------- --------- ---------
Net income (loss) .................................................. $ -- $ 6.5 $ (15.5) $ 13.9
========== ========= ========= =========
Earnings (loss) per share of common stock:
Basic earnings per share before cumulative effect of
accounting change .............................................. $ 0.06 $ 5.77 $ 0.38 $ 6.23
Cumulative effect of accounting change ............................. -- -- (20.02) --
---------- --------- --------- ---------
Basic earnings (loss) per share .................................... $ 0.06 $ 5.77 $(19.64) $ 6.23
========== ========= ========= =========
Diluted earnings per share before cumulative effect of
accounting change .............................................. $ 0.02 $ 1.87 $ 0.38 $ 3.95
Cumulative effect of accounting change ............................. -- -- (20.02) --
---------- --------- --------- ---------
Diluted earnings (loss) per share .................................. $ 0.02 $ 1.87 $(19.64) $ 3.95
========== ========= ========= =========
See accompanying notes.
F-31
KOPPERS INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
September 30, December 31,
2003 2002
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 13.2 $ 9.5
Accounts receivable less allowance for doubtful accounts of $1.1 in
2003 and $0.9 in 2002..................................................... 104.4 95.9
Inventories:
Raw materials ............................................................ 54.1 54.4
Work in process .......................................................... 4.5 4.8
Finished goods ........................................................... 62.3 54.8
LIFO reserve ............................................................. (12.3) (10.4)
----------- -----------
Total inventories ................................................... 108.6 103.6
Deferred tax benefit ..................................................... 5.2 5.1
Other .................................................................... 4.1 5.5
----------- -----------
Total current assets ................................................ 235.5 219.6
Equity investments ................................................................ 10.4 11.3
Fixed assets ...................................................................... 456.0 417.4
Less: accumulated depreciation .................................................... (304.0) (262.1)
----------- -----------
Net fixed assets ......................................................... 152.0 155.3
Goodwill .......................................................................... 32.2 29.2
Deferred tax benefit .............................................................. 48.5 35.2
Other assets ...................................................................... 14.1 13.2
----------- -----------
Total assets ........................................................ $ 492.7 $ 463.8
=========== ===========
See accompanying notes.
F-32
KOPPERS INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions except per share amounts)
September 30, December 31,
2003 2002
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 50.7 $ 67.8
Accrued liabilities ...................................................... 55.0 35.2
Revolving credit ......................................................... 25.0 31.3
Current portion of term loans ............................................ 12.2 21.8
---------- ----------
Total current liabilities ........................................... 142.9 156.1
Long-term debt:
Revolving credit ......................................................... 2.2 1.9
Term loans ............................................................... 64.1 31.7
Senior Subordinated Notes due 2007 ....................................... 175.0 175.0
---------- ----------
Total long-term debt ................................................ 241.3 208.6
Other long-term reserves ......................................................... 94.5 71.4
---------- ----------
Total liabilities ................................................... 478.7 436.1
Common stock subject to redemption ............................................... 21.6 23.1
Minority interest ................................................................ 5.6 5.4
Senior Convertible Preferred Stock, $.01 par value per share; 10.0 shares
authorized; 2.3 shares issued in 2003 and 2002 ................................ -- --
Common stock, $.01 par value per share; 37.0 shares authorized, 2.8 shares
issued in 2003 and 2002 ....................................................... -- --
Capital in excess of par value ................................................... 13.0 12.9
Receivable from Director for purchase of common stock ............................ (0.6) (0.6)
Retained earnings ................................................................ 29.6 46.5
Accumulated other comprehensive loss:
Foreign currency translation adjustment .................................. (1.0) (14.6)
Minimum pension liability, net of tax .................................... (12.4) (12.4)
---------- ----------
Total accumulated other comprehensive loss .......................... (13.4) (27.0)
Treasury stock, at cost, 2.0 shares in 2003 and 1.7 shares in 2002 ............... (41.8) (32.6)
---------- ----------
Total liabilities and stockholders' equity .......................... $ 492.7 $ 463.8
========== ==========
See accompanying notes.
F-33
KOPPERS INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
Nine Months Ended
September 30,
2003 2002
(Unaudited)
Cash provided by operating activities ............................................. $ 11.4 $ 30.8
Cash provided by (used in) investing activities:
Capital expenditures ..................................................... (9.9) (12.7)
Other..................................................................... 0.7 1.4
----------- -----------
Net cash (used in) investing activities ............................. (9.2) (11.3)
Cash provided by (used in) financing activities:
Borrowings from revolving credit ......................................... 230.0 178.0
Repayments of revolving credit ........................................... (236.4) (167.0)
Borrowings from long-term debt ........................................... 75.0 -
Repayment of long-term debt .............................................. (52.3) (11.4)
Payment of deferred financing costs....................................... (3.8) -
Dividends paid ........................................................... (3.1) (9.8)
Purchases of common stock ................................................ (9.1) (5.7)
----------- -----------
Net cash provided by (used in) financing activities ................. 0.3 (15.9)
Effect of exchange rates on cash .................................................. 1.2 0.3
----------- -----------
Net increase in cash .............................................................. 3.7 3.9
Cash and cash equivalents at beginning of period .................................. 9.5 5.2
----------- -----------
Cash and cash equivalents at end of period ........................................ $ 13.2 $ 9.1
=========== ===========
See accompanying notes.
F-34
KOPPERS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) The accompanying unaudited consolidated financial statements and
related disclosures have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of
management, all adjustments considered necessary for a fair presentation of
Koppers Inc. and its subsidiaries' ("Koppers" or the "Company") financial
position and interim results as of and for the periods presented have been
included. Because Koppers' business is seasonal, results for interim periods are
not necessarily indicative of those that may be expected for a full year. The
Condensed Consolidated Balance Sheet for December 31, 2002 has been summarized
from the audited fiscal year 2002 balance sheet.
The financial information included herein should be read in conjunction
with the Company's consolidated financial statements and related notes in its
2002 Annual Report on Form 10-K.
(2) Plant Closure. In September 2003 the Company closed its utility pole
treating facility in Logansport, Louisiana ("Logansport") due to deteriorating
market conditions. The closure resulted in a restructuring charge of $1.3
million, including $0.1 million of cash charges primarily for severance costs.
Severance charges relate to three salaried and eleven hourly employees. In
addition, $1.6 million of dismantling costs were charged to cost of sales as an
adjustment to asset retirement obligations liabilities.
(3) October 2003 Refinancing. In October 2003 the Company issued $320
million of 9 7/8% Senior Secured Notes due 2013 (the "New Notes"), incurring
fees and expenses of approximately $12 million. The proceeds from the New Notes
were used to provide for (i) the repurchase of the existing $175 million 9 7/8%
Senior Subordinated Notes due 2007 (the "Old Notes"), including accrued interest
of $8.6 million and a call premium of $5.8 million; (ii) $88.6 million of bank
debt repayment and associated fees and accrued interest; (iii) $8.9 million of
underwriting fees; and (iv) $0.6 million of legal fees related to the
refinancing. The October refinancing also included an amendment to the existing
credit agreement, providing for a reduction in the term loan to $10.0 million,
due in quarterly installments through November 2004. As a result of the
refinancing, approximately $5 million of deferred financing costs associated
with the Old Notes will be written off when the Old Notes are called, currently
expected to be effective December 1, 2003.
(4) May 2003 Refinancing. In May 2003 the Company refinanced substantially
all of its bank debt, incurring fees and expenses of approximately $3.8 million.
The new credit facilities provided for term loans of $75 million and a revolving
credit facility of up to $100 million. The credit agreement is for a period of
four years, and the loans are secured by substantially all the assets of the
Company, with revolving credit availability based on receivables and inventory
as well as the attainment of certain ratios and covenants. As a result of the
refinancing, $0.4 million of deferred financing costs associated with the
previous loans were written off.
(5) Dividends and Stock Redemption. On October 16, 2003 the Company's Board
of Directors declared a dividend of $45 million to shareholders of record
November 1, which was paid on or about November 4, 2003 in the amount of $14.46
per share. On May 28, 2003 the Company declared a dividend of $1.00 per share,
totaling $3.1 million, for common and preferred stock to shareholders of record
June 2, which was paid on or about June 4. On May 16, 2003 the Company redeemed
all shares of Koppers common stock from the Company's 401(k) plans for $5.2
million.
(6) Asset Retirement Obligations. Effective January 1, 2003 the Company
changed its method of accounting for asset retirement obligations in accordance
with FASB Statement No. 143, Accounting for Asset Retirement Obligations.
Previously, the Company had not been recognizing amounts related to asset
retirement obligations. Under the new accounting method, the Company now
recognizes asset retirement obligations in the period in which they are incurred
if a reasonable estimate of a fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset.
F-35
The cumulative effect of the change on prior years resulted in a charge to
income of $18.1 million, net of income taxes of $11.7 million ($20.02 per share
for both basic and diluted for the nine months ended September 30, 2003). The
effect of the change on the three months ended September 30, 2003 was to
decrease income by $0.1 million ($0.19 per share and $0.05 per share for basic
and diluted, respectively) and the effect of the change on the nine months ended
September 30, 2003 was to increase income before the cumulative effect of the
accounting change by $0.2 million ($0.17 per share and $0.47 per share for basic
and diluted, respectively). The pro forma effects of the application of
Statement No. 143 as if the Statement had been adopted on January 1, 2002
(rather than January 1, 2003) are presented below:
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Pro forma amounts assuming the accounting change is applied retroactively
net-of-tax:
Net income (millions) ............................ $ -- $ 6.2 $ 2.6 $ 12.8
Basic earnings per share ......................... 0.06 5.54 0.38 5.25
Diluted earnings per share ....................... 0.02 1.79 0.38 1.81
The Company recognizes asset retirement obligations for (i) storage tank
inspections and the removal and disposal of residues: (ii) dismantling of
certain tanks required by governmental authorities; (iii) inspection, cleaning
and dismantling costs for owned rail cars; and (iv) inspection and cleaning
costs for leased rail cars and barges. The following table describes changes to
the Company's asset retirement obligation liability at September 30, 2003 (in
millions):
Asset retirement obligation at beginning of year ................ $ --
Liability recognized in transition ..................... 33.4
Accretion expense ...................................... 1.8
Depreciation expense ................................... 0.8
Plant closing adjustment ............................... 1.6
Expenses incurred ...................................... (4.7)
----------
Asset retirement obligation at September 30, 2003 ...... $ 32.9
The pro forma asset retirement obligation liability balances as if
Statement No. 143 had been adopted on January 1, 2002 (rather than January 1,
2003) are as follows:
September 30,
2003 2002
(In millions)
Pro forma amounts of liability for asset retirement obligation at
beginning of year ......................................................... $ 33.4 $ 31.2
Pro forma amounts of liability for asset retirement obligation at end of
quarter ................................................................... 32.9 31.8
F-36
(7) Impact of Recently Issued Accounting Standards
In May 2003 the Financial Accounting Standards Board issued Statement No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, effective for the fiscal period beginning after December
15, 2003 for nonpublic entities as defined by the Statement. Statement No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
adoption of Statement No. 150 will require the Company to classify common stock
subject to redemption as a liability as of January 1, 2004.
In April 2003 the Financial Accounting Standards Board issued Statement No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, effective for contracts entered into or modified after June 30,
2003, and hedging relationships designated after June 30, 2003. Statement No.
149 clarifies the definition of a derivative, and is intended to result in more
consistent reporting of contracts as either freestanding derivative instruments
subject to Statement No. 133 in its entirety, or as hybrid instruments with debt
host contracts and embedded derivative features. The Company has adopted
Statement No. 149 and the effect of the adoption was not material.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for periods beginning
after December 15, 2003. The Company has not yet determined the effect, if any,
of the adoption of this Statement.
In December 2002 the Financial Accounting Standards Board issued Statement
No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure,
effective for fiscal years ending after December 15, 2002. Statement 148 amends
Statement No. 123. Accounting for Stock-Based Compensation, to provide
alternative methods of transition to Statement 123's fair value method of
accounting for stock-based employee compensation. Statement 148 also amends the
disclosure provisions of Statement 123 and APB Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. For the nine months ended September
30, 2003 the effect of expensing stock options was not material to net income
and earnings per share.
In November 2002 the Financial Accounting Standards Board issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Guarantees of Indebtedness of Others ("FIN 45"). FIN 45
clarifies and expands on existing disclosure requirements for guarantees,
including loan guarantees. It also requires that, at the inception of a
guarantee, the Company must recognize a liability for the fair value of the
obligation under that guarantee. The initial fair value recognition and
measurement provisions will be applied on a prospective basis to certain
guarantees issued or modified after December 31, 2002. The Company has adopted
FIN 45 and the effect of the adoption was not material.
In July 2002 the Financial Accounting Standards Board issued Statement No.
146, Accounting for Costs Associated with Exit or Disposal Activities, to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. The standard requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operation, plant closing,
or other exit or disposal activity. Effective January 1, 2003 the Company
adopted the provisions of Statement No. 146, and the related provisions have
been applied to the closure of the Company's Logansport, Louisiana wood treating
facility on September 30, 2003.
F-37
In April 2002 the Financial Accounting Standards Board issued Statement No.
145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, effective for fiscal years beginning after
June 15, 2002. For most companies, Statement No. 145 will require gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under Statement No. 4. Extraordinary treatment will be required for certain
extinguishments as provided in APB Opinion No. 30. Statement No. 145 also amends
Statement No. 13 to require certain modifications to capital leases be treated
as a sale-leaseback and modifies the accounting for subleases when the original
lessee remains a secondary obligor (or guarantor). In addition, the FASB
rescinded Statement No. 44, which addressed the accounting for intangible assets
of motor carriers and made numerous technical corrections. The adoption of
Statement No. 145 by the Company resulted in charges during 2003 of $0.4 million
to income from continuing operations for costs related to extinguishment of debt
rather than as an extraordinary item.
(8) Legal Proceedings
Government Investigation
On December 4, 2002 European Commission ("EC") representatives visited the
offices of the Company's subsidiaries located in Nyborg, Denmark and Scunthorpe,
England and obtained documents pursuant to legal process as part of an
investigation of industry competitive practices concerning pitch, creosote and
naphthalene. The United States Department of Justice ("DOJ") also served a
subpoena for similar documents at the Company's headquarters in Pittsburgh,
Pennsylvania. The investigation is continuing and the Company is cooperating
with both the EC and the DOJ. The Company is also cooperating with the Canadian
Competition Bureau ("CCB"). As a result of such cooperation. (i) in February
2003 the EC granted the Company's request for exemption from penalties for any
infringement the Commission may find as a result of its investigation concerning
pitch; (ii) in April 2003 DOJ granted the Company's request for exemption from
penalties for any infringement the DOJ may find as a result of imports of pitch,
creosote and naphthalene, or the purchase for export of coal tar used to produce
these products; and (iii) in April 2003 the CCB granted the Company a
provisional guarantee of immunity from prosecution under the Canadian
Competition Act in respect of the supply and sale of tar pitch, naphthalene,
creosote oil and carbon black feedstock prior to 2001. These exemptions were
granted upon certain conditions, including the continued cooperation of the
Company. The Company is currently unable to determine the outcome of the
investigations. There can be no assurance that the outcome of these matters will
not have a material adverse effect on the business, financial condition. cash
flows and results of operations of the Company.
(9) Environmental and Other Matters
The Company is subject to federal, state, local and foreign laws and
regulations and potential liabilities relating to the protection of the
environment and human health and safety including, among other things, the
cleanup of contaminated sites, the treatment, storage and disposal of wastes,
the discharge of effluent into waterways, the emission of substances into the
air and various health and safety matters. The Company expects to incur
substantial costs for ongoing compliance with such laws and regulations. The
Company may also face governmental or third party claims, or otherwise incur
costs, relating to cleanup of, or for injuries resulting from, contamination at
sites associated with past and present operations. The Company accrues for
environmental liabilities when a determination can be made that they are
probable and reasonably estimable.
F-38
Environmental and Other Liabilities Retained or Assumed by Others
The Company has agreements with former owners of certain of its operating
locations under which the former owners retained or assumed and agreed to
indemnify the Company against certain environmental and other liabilities. The
most significant of these agreements was entered into at the Company's formation
on December 28, 1988 (the "Acquisition"). Under the related Asset Purchase
Agreement between the Company and Beazer East, subject to certain limitations,
Beazer East assumed the responsibility for and agreed to indemnify the Company
against certain liabilities, damages, losses and costs, including, with certain
limited exceptions, liabilities under and costs to comply with environmental
laws to the extent attributable to acts or omissions occurring prior to the
Acquisition (the "Indemnity"). Beazer Limited unconditionally guaranteed Beazer
East's performance of the Indemnity pursuant to a guarantee (the "Guarantee").
Beazer Limited became a wholly owned subsidiary of Hanson PLC on December 4,
1991. In 1998 Hanson PLC purchased an insurance policy under which the funding
and risk of certain environmental liabilities relating to the former Koppers
Company, Inc. operations of Beazer East (which includes locations purchased from
Beazer East by the Company) are underwritten by subsidiaries of Centre Solutions
(a member of the Zurich Group) and Swiss Re.
The Indemnity provides different mechanisms, subject to certain
limitations, by which Beazer East is obligated to indemnify Koppers with regard
to certain environmental claims or environmental cleanup liabilities and imposes
certain conditions on the Company before receiving such indemnification. The
Company believes that it has taken appropriate steps to satisfy all of such
conditions, but Beazer East has in the past and may in the future elect to
challenge the Company's compliance with such conditions. For example, Beazer
East's obligations under the Indemnity are subject to certain limitations
regarding the time period within which claims for indemnification can be
brought. These limitations include certain conditions that the Company was
required to meet by the twelfth anniversary of the closing date, which occurred
in December 2000. Since that time, there has been an ongoing dispute between the
Company and Beazer East regarding the interpretation and our satisfaction of
those conditions, and the extent of Beazer East's ongoing obligations to
indemnify the Company after that date, with respect to certain matters. While
Koppers and Beazer East have been working cooperatively toward an acceptable
resolution to this dispute, the failure to reach such a resolution, or a
resolution under terms acceptable to Koppers, could have a material adverse
effect on the Company's business, financial condition, cash flow and results of
operations.
Contamination has been identified at many of the Company's sites. Four
sites owned and/or operated by Koppers in the United States, as well as one
former site the Company recently sold, are listed on the National Priorities
List ("NPL") promulgated under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"). The sites include
the Gainesville, Florida wood treating facility; the Galesburg, Illinois wood
treating facility; the Florence, South Carolina wood treating facility; the
Follansbee, West Virginia carbon materials and chemicals facility; and the
Company's former Feather River, California facility, which has been sold.
Currently, at the properties acquired from Beazer East (which include all of the
NPL sites and all but one of the RCRA-permitted sites), substantially all
investigative, cleanup and closure activities are being conducted and paid for
by Beazer East pursuant to the terms of the Indemnity. In addition, many Koppers
sites are or have been operated under Resource Conservation and Recovery Act
("RCRA") permits, and RCRA remedial and closure activities are being conducted
thereunder at several of these sites.
To date, the parties that retained, assumed or agreed to indemnify the
Company against the liabilities referred to above have performed their
obligations in all material respects. However, disputes have arisen with such
parties as to the obligation of such parties to indemnify in certain cases, such
as the dispute with Beazer East described above. The Company believes that for
the last three years amounts paid by Beazer East that are the subject of the
environmental remediation portion of the Indemnity have averaged approximately
$8 million per year. If for any reason (including disputed coverage or financial
incapability) one or more of such parties fails to perform their obligations and
the Company is held liable for or otherwise required to pay all or part of
F-39
such liabilities without reimbursement, the imposition of such liabilities on
the Company could have a material adverse effect on the Company's business,
financial condition, cash flow and results of operations. In addition, if the
Company were required to record a liability with respect to all or a portion of
such matters on its balance sheet, the amount of its total liabilities could
exceed the book value of its assets by an additional amount that could be
significant.
Also, contamination has been detected at certain of our Australian
facilities. These sites include our wood preservation chemicals facility in
Trentham, Victoria, Australia, which has been listed on the Victorian register
of contaminated sites.
Green Spring
The Company was named as a defendant in a toxic tort action, along with
Beazer East and CSX Transportation, Inc. ("CSX") arising from the operation of
the Company's wood treating facility in Green Spring, West Virginia ("Green
Spring"). A trial of the claims of eight "test" plaintiffs began on March 11,
2002. As a result of the Company's motion for summary judgment filed before the
commencement of the trial and the Company's motion for a directed verdict during
the trial, the court found the claims of the eight "test" plaintiffs against the
Company to be without merit and dismissed all such claims. The Court entered
judgment for the Company on June 25, 2002. The court also ruled, among other
things, that the Company was not the successor company to Beazer East and that
the plaintiffs could introduce no evidence against the Company for events that
occurred before the creation of the Company on December 29, 1988. The final
judgment in the Company's favor was not appealed by the eight "test" plaintiffs.
Although the claims of the eight "test" plaintiffs against the Company were
dismissed, the trial continued against Beazer East and CSX. In April 2002, the
jury found in favor of Beazer East and CSX with respect to the claims of four of
the eight "test" plaintiffs which related to medical monitoring. With regard to
the remaining four "test" plaintiffs, the jury awarded damages against Beazer
East and CSX totaling $825,000. Plaintiffs, Beazer East and CSX filed various
post-trial motions in connection with the trial, all but one of which was
denied.
In June 2003 the court approved an amendment to plaintiffs' Complaint to
add approximately 20 plaintiffs. The claims of the remaining plaintiffs
(approximately 105) against the Company, Beazer East and CSX were stayed by the
judge during the pendency of the trial of the claims of the eight "test"
plaintiffs. In January 2003 the Court ordered a trial of the claims of the
remaining plaintiffs on certain liability issues. The trial was initially
scheduled for July 2003 but was postponed to July 2004. The remaining plaintiffs
are former employees of Green Spring, family members of such employees and
residents of the communities surrounding Green Spring. Plaintiffs' allegations
against the defendants include personal injuries and property damage related to
the operation of Green Spring over a lengthy period of time, including a period
of time after the Acquisition. Defendants have negotiated a tentative settlement
with the plaintiffs that would result in the dismissal with prejudice of all
claims against Beazer, CSX and Koppers. The tentative settlement would require
no contribution from Koppers. Counsel for the parties are in the process of
preparing formal documentation of the settlement. If, for any reason, the
settlement is not consummated, this case will continue and there can be no
assurance that an unfavorable resolution of this case will not have a material
adverse effect on the business, financial condition, cash flow and results of
operations of the Company.
Grenada
The Company and other defendants including Beazer East, Illinois Central
Railroad and Heatcraft, Inc. have been named in four toxic tort lawsuits
involving numerous plaintiffs in the state of Mississippi and one such case in
federal court arising from the operation of the Company's wood treating facility
in Grenada, Mississippi ("Grenada") and an adjacent manufacturing facility
operated by Heatcraft. The Complaints allege
F-40
that plaintiffs were exposed to harmful levels of various toxic chemicals,
including creosote and pentachlorophenol, as a result of soil, surface water and
groundwater contamination and air emissions from Grenada and the Heatcraft
facility. Plaintiffs seek compensatory and punitive damages for, among other
things. personal injuries. Discovery is continuing in both the federal and state
cases. In addition, Koppers is seeking to transfer the venue of the state court
cases to Grenada County, Mississippi. Although the Company intends to vigorously
defend these cases, there can be no assurance that an unfavorable resolution of
this matter will not have a material adverse effect on the business, financial
condition, cash flow and results of operations of the Company.
Other Environmental Matters
In October 1996 the Company received a Clean Water Act information request
from the United States Environmental Protection Agency ("EPA"). This information
request asked for comprehensive information on discharge permits, applications
for discharge permits, discharge monitoring reports, and the analytical data in
support of the reports and applications. EPA subsequently alleged that the
Company violated various provisions of the Clean Water Act. In July 2000 the
Company received a settlement demand from EPA requesting $4.5 million in
settlement of alleged civil violations of the Clean Water Act. EPA and the
Company subsequently agreed, among other things, to a $2.9 million settlement,
payable over two years. The first payment in the amount of $1.0 million was made
in April 2003.
Additionally, during a Company-initiated investigation at Woodward Coke
prior to its closure in January 1998, it was discovered that certain
environmental records and reports related to the discharge of treated process
water contained incomplete and inaccurate information. Corrected reports were
submitted to the State of Alabama and EPA, which resulted in a complaint against
Koppers by EPA alleging certain civil and criminal violations of applicable
environmental laws. The government and the Company subsequently entered into a
plea agreement which provides, among other things, for the payment by the
Company of a $2.1 million fine payable to EPA over two years and two years of
probation. The Company's plea was entered in August 2002 and the sentencing of
the Company occurred in December 2002. At the sentencing, the court, among other
things, approved the terms of the plea agreement previously negotiated between
the Company and EPA. The first payments, totaling $1.0 million, were made in
December 2002. A failure on the Company's part to comply with the terms of the
compliance agreement, plea agreement and probation could lead to significant
additional costs and sanctions, including the potential for the Company's
suspension or debarment from governmental contracts.
(10) Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(In millions except per share amounts)
Numerators for basic and diluted:
Income before cumulative effect of accounting
change ........................................ $ -- $ 6.5 $ 2.6 $ 13.9
Preferred stock dividend ......................... -- -- (2.3) (6.5)
---------- ---------- ---------- ----------
Income to common stockholders before effect of
accounting change ............................. -- 6.5 0.3 7.4
Cumulative effect of accounting change ........... -- -- (18.1) --
---------- ---------- ---------- ----------
F-41
Net income (loss) to common stockholders ......... $ -- $ 6.5 $ (17.8) $ 7.4
Denominators:
Weighted-average common shares ................... 0.9 1.1 0.9 1.2
Effect of dilutive securities:
Senior convertible preferred stock ............... 2.3 2.3 2.3 2.3
Employee stock options ........................... -- -- -- --
---------- ---------- ---------- ----------
Dilutive potential common shares ...................... 2.3 2.3 2.3 2.3
Denominators for diluted earnings per
share-adjusted weighted-average shares and
assumed conversions................................ 3.2 3.4 3.2 3.5
Income before cumulative effect of
accounting change:
Basic earnings per share ......................... $ 0.06 $ 5.77 $ 0.38 $ 6.23
Diluted earnings per share ....................... $ 0.02 $ 1.87 $ 0.38 $ 3.95
Cumulative effect of accounting change:
Basic (loss) per share ........................... $ -- $ -- $ (20.02) $ --
Diluted (loss) per share ......................... $ -- $ -- $ (20.02) $ --
Net income (loss):
Basic earnings (loss) per share .................. $ 0.06 $ 5.77 $ (19.64) $ 6.23
Diluted earnings (loss) per share ................ $ 0.02 $ 1.87 $ (19.64) $ 3.95
The senior convertible preferred stock and employee stock options were not
included in the computation of diluted earnings per share for the nine months
ended September 30, 2003 since it would have resulted in an antidilutive effect.
F-42
(11) Comprehensive Income
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(In millions) (In millions)
Net income ................................................ $ -- $ 6.5 $ 2.6 $ 13.9
Other comprehensive income:
Unrealized currency translation gain .............. 1.6 (1.6) 13.6 5.6
-------- -------- -------- --------
Total comprehensive income ............... $ 1.6 $ 4.9 $ 16.2 $ 19.5
(12) Financial Information for Subsidiary Guarantors
The Company's payment obligations under the 9 7/8% Senior Subordinated
Notes due 2007 (the "Old Notes") are fully and unconditionally guaranteed on a
joint and several basis by Koppers Inc. (parent), Koppers Australia Pty.
Limited, and Koppers Industries of Delaware, Inc. (collectively, the "Guarantor
Subsidiaries"). The Old Notes have not been guaranteed by KHC Assurance, Inc.,
Koppers Europe, and KSA Limited Partnership (collectively, the "Non-Guarantor
Subsidiaries"). The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
Summarized Condensed Financial Information
For the Nine Months Ended September 30, 2003
(In millions)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Current assets ......................... $ 182.3 $ 123.1 $ 236.5 $ (306.4) $ 235.5
Non-current assets ..................... 229.9 52.8 92.1 (117.6) 257.2
Current liabilities .................... 281.7 12.7 154.6 (306.1) 142.9
Non-current liabilities ................ 299.5 0.2 36.2 (0.1) 335.8
Net sales .............................. 389.3 85.1 148.8 (33.2) 590.0
Gross profit (after depreciation and
amortization) ....................... 29.4 24.3 30.6 (15.1) 69.2
Income before cumulative effect of
accounting change ................... (11.4) 15.1 12.9 (14.0) 2.6
Net income (loss) ...................... (29.5) 15.1 12.9 (14.0) (15.5)
F-43
Summarized Condensed Financial Information
For the Nine Months Ended September 30, 2002
(In millions)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Net sales ...................................... 375.6 75.7 134.6 (30.8) 555.1
Gross profit (after depreciation
and amortization) ............................ 31.0 21.2 18.3 (4.7) 65.8
Net income (loss) .............................. (11.4) 17.7 9.3 (1.7) 13.9
Summarized Condensed Financial Information
For the Three Months Ended September 30, 2003
(In millions)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Net sales ...................................... 138.1 28.7 47.2 (11.5) 202.5
Gross profit (after depreciation
and amortization) ............................ 12.6 8.5 8.2 (4.6) 24.7
Net income (loss) .............................. (2.8) 5.3 1.4 (3.9) --
Summarized Condensed Financial Information
For the Three Months Ended September 30, 2002
(In millions)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Net sales ..................................... 133.2 28.2 47.2 (10.4) 198.2
Gross profit (after depreciation
and amortization) ........................... 12.6 4.7 9.9 (1.0) 26.2
Net income (loss) ............................. (3.3) 6.7 3.2 (0.1) 6.5
Summarized Condensed Financial Information
For the Year Ended December 31, 2002
(In millions)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Current assets ... $ 158.3 $ 116.6 $ 198.7 $ (254.0) $ 219.6
Non-current assets ........ 261.5 50.9 121.3 (189.5) 244.2
Current liabilities ....... 290.3 19.1 100.0 (253.3) 156.1
Non-current liabilities ... 256.7 2.2 21.1 -- 280.0
(13) Segment Information
The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for the Company's businesses for the periods
indicated. Intersegment revenues for the quarters ended September 30, 2003 and
2002 were $7.2 million and $6.3 million, respectively. Intersegment revenues for
the nine months ended September 30, 2003 and 2002 were $20.3 million and $16.9
million, respectively.
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(Dollars in millions)
Net sales:
Carbon Materials & Chemicals .............................. $ 109.7 $ 110.8 $ 329.9 $ 306.8
Railroad & Utility Products ............................... 92.8 87.4 260.1 248.3
--------- --------- --------- ---------
Total ................................................. $ 202.5 $ 198.2 $ 590.0 $ 555.1
Percentage of net sales:
Carbon Materials & Chemicals .............................. 54.2% 55.9% 55.9% 55.3%
Railroad & Utility Products ............................... 45.8% 44.1% 44.1% 44.7%
--------- --------- --------- ---------
Total ................................................. 100.0% 100.0% 100.0% 100.0%
Gross margin (after depreciation and amortization):
Carbon Materials & Chemicals .............................. 15.9% 15.7% 14.2% 14.1%
Railroad & Utility Products ............................... 8.6% 10.6% 9.3% 9.5%
--------- --------- --------- ---------
Total ................................................. 12.2% 13.2% 11.7% 11.9%
Operating profit:
Carbon Materials & Chemicals .............................. $ 8.6 $ 9.4 $ 18.8 $ 21.7
Railroad & Utility Products ............................... 2.6 5.6 10.5 13.3
All Other ................................................. (0.6) (0.5) (1.9) (1.2)
--------- --------- --------- ---------
Total ................................................. $ 10.6 $ 14.5 $ 27.4 $ 33.8
F-44
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1741 and 1742 of the Pennsylvania Business Corporations Law
("BCL") provide that a business corporation shall have the power to indemnify
any person who was or is a party, or is threatened to be made a party, to any
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director, officer, employee or agent of
the corporation, or is or was servicing at the request of the corporation as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. In the case of an
action by or in the right of the corporation, such indemnification is limited to
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action, except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person has been adjudged to be liable to the corporation unless, and
only to the extent that, a court determines upon application that, despite the
adjudication of liability but in view of all the circumstances, such person is
fairly and reasonably entitled to indemnity for the expenses that the court
deems proper.
BCL Section 1744 provides that, unless ordered by a court, any
indemnification referred to above shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct. Such determination shall be made: (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to the proceeding; or (2) if such a quorum is not obtainable, or if
obtainable and a majority vote of a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion; or (3) by the
shareholders.
Notwithstanding of the above, BCL Section 1743 provides that to the extent
that a director, officer, employee or agent of a business corporation is
successful on the merits or otherwise in defense of any proceeding referred to
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
BCL Section 1745 provides that expenses (including attorney's fees)
incurred by an officer, director, employee or agent of a business corporation in
defending any proceeding may be paid by the corporation in advance of the final
deposition of the proceeding upon receipt of an undertaking to repay the amount
advanced if it is ultimately determined that the indemnitee is not entitled to
be indemnified by the corporation.
BCL Section 1746 provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, the foregoing provisions are not
exclusive of any other rights to which a person seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise, and that indemnification may be granted under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise for any action
taken or any failure to take any action whether or not the corporation would
have the power to indemnify the person under any other provision of law and
whether or not the indemnified liability arises or arose from any action by or
in the right of the corporation, provided, however, that no indemnification is
determined by a court to have constituted willful misconduct or recklessness.
BCL Section 1747 permits a Pennsylvania business corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or
II-1
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other enterprise, against any
liability asserted against such person and incurred by him in any such capacity,
or arising out of his status as such, whether or not the corporation would have
the power to indemnify the person against such liability under the provisions
described above.
Our Articles of Incorporation and Bylaws provide for (i) indemnification of
our directors, officers, employees and agents and our subsidiaries and (ii) the
elimination of a director's liability for monetary damages, to the maximum
extent permitted by the BCL. We also maintain directors' and officers' liability
insurance covering our directors and officers with respect to liabilities,
including liabilities under the Securities Act of 1933, as amended, which they
may incur in connection with their serving as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
Exhibit No. Exhibit
3.1 Restated and Amended Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 4.1 of the Company's Form S-8
Registration Statement filed December 22, 1997).
3.2 Restated and Amended Bylaws of the Company (Incorporated by reference
to Exhibit 4.2 of the Company's Form S-8 Registration Statement filed
December 22, 1997).
4.1 Indenture, by and among the Company, the Guarantors named therein and
JPMorgan Chase Bank as Trustee, dated as of October 15, 2003
(Incorporated by reference to Exhibit 10.43 to the Company's Form 10-Q
filed November 12, 2003).
4.2 Form of Note (Included in Exhibit 4.1 hereto).
4.3 Registration Rights Agreement by and among the Company, the Guarantors
named therein and the Initial Purchasers named therein, dated as of
September 30, 2003 (Incorporated by reference to Exhibit 10.44 to the
Company's Form 10-Q filed November 12, 2003).
5.1+ Opinion of Cahill Gordon & Reindel LLP regarding the legality of the
securities being registered.
5.2+ Opinion of Reed Smith LLP regarding the legality of the securities
being registered.
5.3+ Opinion of Baker & McKenzie regarding the legality of the securities
being registered.
10.1 Asset Purchase Agreement by and between the Company and Koppers
Company, Inc., dated as of December 28, 1988 (Incorporated by
reference to respective exhibits to the Company's Prospectus filed
February 7, 1994).
10.2 Asset Purchase Agreement Guarantee provided by Beazer PLC, dated as of
December 28, 1988 (Incorporated by reference to respective exhibits to
the Company's Prospectus filed February 7, 1994).
10.3 Stockholders' Agreement by and among the Company, Saratoga Partners
III, L.P. and the Management Investors referred to therein, dated as
of December 1, 1997 (Incorporated by reference to Exhibit 4.3 of the
Company's Form S-8 Registration Statement filed December 22, 1997).
10.4 Stock Subscription Agreement, dated as of December 26, 1988
(Incorporated by reference to respective exhibits to the Company's
Prospectus filed February 7, 1994 pursuant to Rule 424(b) of the
Securities Act of 1933, as amended).
10.5 Advisory Services Agreement by and between the Company and Saratoga
Partners III, L.P., dated as of December 1, 1997 (Incorporated by
reference to Exhibit 10.29 to the Company's Form S -4 Registration
Statement filed December 22, 1997).
II-2
10.6 Indenture by and between the Company and PNC Bank, National
Association, as Trustee, dated as of December 1, 1997 (Incorporated by
reference to Exhibit 4.2 of the Company's Form S-4 Registration
Statement filed December 23, 1997).
10.7 Credit Agreement by and among the Company, the Guarantors party
hereto, the Banks party hereto, PNC Bank, National Association, as
Administrative Agent, National City Bank of Pennsylvania, as
Syndication Agent, and Citizens Bank of Pennsylvania, Fleet National
Bank and Wachovia Bank, National Association, as Co-Documentation
Agents, dated as of May 12, 2003 (Incorporated by reference to Exhibit
10.40 to the Company's Form 10-Q filed August 4, 2003).
10.8 Amendment to the Credit Agreement by and among the Company, the
Guarantors party hereto, the Banks party hereto, PNC Bank, National
Association, as Administrative Agent, National City Bank of
Pennsylvania, as Syndication Agent, and Citizens Bank of Pennsylvania,
Fleet National Bank and Wachovia Bank, National Association, as
Co-Documentation Agents, dated as of October 15, 2003 (Incorporated by
reference to Exhibit 10.42 to the Company's Form 10-Q filed November
12, 2003).
10.9* Intercreditor Agreement by and among PNC Bank, National Association,
as Credit Agent, JPMorgan Chase Bank, as Trustee, the Company and the
Guarantors named therein, dated as of October 15, 2003. 10.10
Employment agreement with Steven R. Lacy dated April 5, 2002
(Incorporated by reference to Exhibit 10.35 of the Company's Form 10-K
filed March 5, 2003).
10.11 Employment agreement with David Whittle dated August 18, 2000
(Incorporated by reference to Exhibit 10.35 of the Company's Form 10-K
filed March 5, 2003).
10.12 Employment agreement with Robert H. Wombles dated August 1, 2001
Incorporated by reference to Exhibit 10.35 of the Company's Form 10-K
filed March 5, 2003).
12.1* Computation of Ratio of Earnings to Fixed Charges.
21.1* List of subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP.
23.2+ Consent of Cahill Gordon & Reindel LLP (included in exhibit 5.1
hereto).
23.3+ Consent of Reed Smith LLP (included in exhibit 5.2 hereto).
23.4+ Consent of Baker & McKenzie (included in exhibit 5.3 hereto).
24.1* Powers of Attorney authorizing execution of Registration Statement on
Form S-4 on behalf of certain officers and directors of the Company
(included on the signature pages hereto).
25.1* Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 on Form T-1 of JPMorgan Chase Bank as Trustee under the
Indenture.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
* Exhibits filed herewith.
+ Exhibit to be filed by amendment.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, State of
Pennsylvania, on January 12, 2004.
KOPPERS INC.
BY: /s/ W. W. Turner
--------------------------------------
Name: Walter W. Turner
Title: President and Chief Executive
Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Walter W. Turner and Brian H. McCurrie, or either of
them, his attorneys-in-fact and agents, each with full power of substitution and
resubstitution for him in any and all capacities, to sign any or all amendments
or post-effective amendments to this registration statement, including without
limitation amendments pursuant to Rule 462(b) under the Securities Act, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Commission, granting unto each of such attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
required and necessary in connection with such matters and hereby ratifying and
confirming all that each of such attorneys-in-fact and agents or his substitute
or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ W. W. Turner President and Chief Executive Officer and January 12, 2004
- ----------------------------- Director
Walter W. Turner
/s/ Brian H. McCurrie Vice President and Chief Financial Officer January 12, 2004
- -----------------------------
Brian H. McCurrie
/s/ Robert Cizik Director January 12, 2004
- -----------------------------
Robert Cizik
/s/ Clayton A. Sweeney Director January 12, 2004
- -----------------------------
Clayton A. Sweeney
/s/ Christian L. Oberbeck Director January 12, 2004
- -----------------------------
Christian L. Oberbeck
/s/ David M. Hillenbrand Director January 12, 2004
- -----------------------------
David M. Hillenbrand
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, State of
Pennsylvania, on January 6, 2004.
Koppers Concrete Products, Inc.
By: /s/ Thomas D. Loadman
-------------------------------
Name: Thomas D. Loadman
Title: President and Director
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints THOMAS D. LOADMAN and RANDALL D. COLLINS, or either of
them, his attorneys-in-fact and agents, each with full power of substitution and
resubstitution for him in any and all capacities, to sign any or all amendments
or post-effective amendments to this registration statement, including without
limitation amendments pursuant to Rule 462(b) under the Securities Act, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Commission, granting unto each of such attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
required and necessary in connection with such matters and hereby ratifying and
confirming all that each of such attorneys-in-fact and agents or his substitute
or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ Thomas D. Loadman President and Director January 6, 2004
- --------------------------------
Thomas D. Loadman
/s/ R. D. Collins Secretary and Director January 6, 2004
- --------------------------------
Randall D. Collins
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilmington, State of
Delaware, on January 12, 2004.
Koppers Industries of Delaware, Inc.
By: /s/ Frank S. Zagar
--------------------------------------------
Name: Frank S. Zagar
Title: President, Assistant Secretary and
Director
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Frank S. Zagar and M. Claire Schaming, or either of
them, his or her attorneys-in-fact and agents, each with full power of
substitution and resubstitution for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this registration
statement, including without limitation amendments pursuant to Rule 462(b) under
the Securities Act, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing required and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his or her substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ Frank S. Zagar President, Assistant Secretary January 12, 2004
- -------------------------- and Director
Frank S. Zagar
/s/ M. Claire Schaming Secretary and Treasurer January 12, 2004
- --------------------------
M. Claire Schaming
/s/ Joseph P. DiBianca Assistant Secretary and Director January 12, 2004
- --------------------------
Joseph P. DiBianca
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, State of
Pennsylvania, on January 6, 2004.
Concrete Partners, Inc.
By: /s/ Thomas D. Loadman
------------------------------------
Name: Thomas D. Loadman
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Thomas D. Loadman and Randall D. Collins, or either of
them, his attorneys-in-fact and agents, each with full power of substitution and
resubstitution for him in any and all capacities, to sign any or all amendments
or post-effective amendments to this registration statement, including without
limitation amendments pursuant to Rule 462(b) under the Securities Act, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Commission, granting unto each of such attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
required and necessary in connection with such matters and hereby ratifying and
confirming all that each of such attorneys-in-fact and agents or his substitute
or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ Thomas D. Loadman President and Director January 6, 2004
- ------------------------------
Thomas D. Loadman
/s/ R. D. Collins Secretary and Director January 6, 2004
- ------------------------------
Randall D. Collins
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, State of
Pennsylvania, on January 12, 2004.
World-Wide Ventures Corporation
By: /s/ W. W. Turner
-----------------------------------
Name: Walter W. Turner
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Walter W. Turner and M. Claire Schaming, or either of
them, his or her attorneys-in-fact and agents, each with full power of
substitution and resubstitution for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this registration
statement, including without limitation amendments pursuant to Rule 462(b) under
the Securities Act, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing required and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his or her substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ W. W. Turner President and Director January 12, 2004
- -----------------------
Walter W. Turner
/s/ M. Claire Schaming Vice President January 12, 2004
- -----------------------
M. Claire Schaming
/s/ Barbara M. Morris Treasurer January 6, 2004
- -----------------------
Barbara M. Morris
/s/ R. D. Collins Assistant Secretary January 12, 2004
- -----------------------
Randall D. Collins
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, State of
Pennsylvania, on January 12, 2004.
Koppers Redemption, Inc.
By: /s/ R. D. Collins
---------------------------------
Name: Randall D. Collins
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Randall D. Collins and M. Claire Schaming, or either of
them, his or her attorneys-in-fact and agents, each with full power of
substitution and resubstitution for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this registration
statement, including without limitation amendments pursuant to Rule 462(b) under
the Securities Act, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing required and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his or her substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ R. D. Collins Secretary January 12, 2004
- -----------------------
Randall D. Collins
/s/ M. Claire Schaming Treasurer and Assistant January 12, 2004
- ----------------------- Secretary
M. Claire Schaming
/s/ W. W. Turner Director January 12, 2004
- -----------------------
Walter W. Turner
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Syndey, Country of
Australia, on January 12, 2004.
Koppers Australia Holding Company Pty ltd
By: /s/ A. Cherry
-----------------------------------
Name: Anne B. Cherry
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints AnnE B. Cherry and Ernest S. BRYON, or either of them,
his or her attorneys-in-fact and agents, each with full power of substitution
and resubstitution for him or her in any and all capacities, to sign any or all
amendments or post-effective amendments to this registration statement,
including without limitation amendments pursuant to Rule 462(b) under the
Securities Act, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing required and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ A. Cherry Secretary January 12, 2004
- -------------------------
Anne B. Cherry
/s/ E. S. Bryon Managing Director January 12, 2004
- ------------------------- and Director
Ernest S. Bryon
/s/ W. W. Turner Director January 12, 2004
- -------------------------
Walter W. Turner
/s/ Steven R. Lacy Director January 12, 2004
- -------------------------
Steven R. Lacy
/s/ Brian H. McCurrie Director January 12, 2004
- -------------------------
Brian H. McCurrie
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Syndey, Country of
Australia, on January 12, 2004.
Koppers Australia Pty ltd
By: /s/ A. Cherry
--------------------------------
Name: Anne B. Cherry
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints AnnE B. Cherry and ERNEST S. BRYON, or either of them,
his or her attorneys-in-fact and agents, each with full power of substitution
and resubstitution for him or her in any and all capacities, to sign any or all
amendments or post-effective amendments to this registration statement,
including without limitation amendments pursuant to Rule 462(b) under the
Securities Act, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing required and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ A. Cherry Secretary January 12, 2004
- -----------------------
Anne B. Cherry
/s/ Brian H. McCurrie Director January 12, 2004
- -----------------------
Brian H. McCurrie
/s/ E. S. Bryon Director January 12, 2004
- -----------------------
Ernest S. Bryon
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Syndey, Country of
Australia, on January 12, 2004.
Koppers CARBON Materials & Chemicals pty ltd
By: /s/ A. Cherry
-----------------------------------
Name: Anne B. Cherry
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints ERNEST S. BRYON and Anne B. Cherry, or either of them,
his or her attorneys-in-fact and agents, each with full power of substitution
and resubstitution for him or her in any and all capacities, to sign any or all
amendments or post-effective amendments to this registration statement,
including without limitation amendments pursuant to Rule 462(b) under the
Securities Act, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing required and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ John D. Lowcock General Manager January 12, 2004
- -------------------------
John D. Lowcock
/s/ A. Cherry Secretary January 12, 2004
- -------------------------
Anne B. Cherry
/s/ E. S. Bryon Director January 12, 2004
- -------------------------
Ernest S. Bryon
/s/ Brian H. McCurrie Director January 12, 2004
- -------------------------
Brian H. McCurrie
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Syndey, Country of
Australia, on January 12, 2004.
KOPPERS WOOD PRODUCTS PTY LTD
By: /s/ A. Cherry
---------------------------------
Name: Anne B. Cherry
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints ERNEST S. BRYON and Anne B. Cherry, or either of them,
his or her attorneys-in-fact and agents, each with full power of substitution
and resubstitution for him or her in any and all capacities, to sign any or all
amendments or post-effective amendments to this registration statement,
including without limitation amendments pursuant to Rule 462(b) under the
Securities Act, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing required and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ Mark R. Boyle General Manager January 12, 2004
- -------------------------
Mark R. Boyle
/s/ A. Cherry Secretary January 12, 2004
- -------------------------
Anne B. Cherry
/s/ E. S. Bryon Director January 12, 2004
- -------------------------
Ernest S. Bryon
/s/ Brian H. McCurrie Director January 12, 2004
- -------------------------
Brian H. McCurrie
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Syndey, Country of
Australia, on January 12, 2004.
KOPPERS SHIPPING PTY LTD
By: /s/ A. Cherry
------------------------------------
Name: Anne B. Cherry
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Anne B. Cherry and Ernest S. BRYON, or either of them,
his or her attorneys-in-fact and agents, each with full power of substitution
and resubstitution for him or her in any and all capacities, to sign any or all
amendments or post-effective amendments to this registration statement,
including without limitation amendments pursuant to Rule 462(b) under the
Securities Act, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing required and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ A. Cherry Secretary January 12, 2004
- ------------------------
Anne B. Cherry
/s/ E. S. Bryon Director January 12, 2004
- ------------------------
Ernest S. Bryon
/s/ Brian H. McCurrie Director January 12, 2004
- ------------------------
Brian H. McCurrie
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Syndey, Country of
Australia, on January 12, 2004.
CONTINENTAL CARBON AUSTRALIA PTY LTD
By: /s/ A. Cherry
---------------------------------
Name: Anne B. Cherry
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints ERNEST S. BRYON and Anne B. Cherry, or either of them,
his or her attorneys-in-fact and agents, each with full power of substitution
and resubstitution for him or her in any and all capacities, to sign any or all
amendments or post-effective amendments to this registration statement,
including without limitation amendments pursuant to Rule 462(b) under the
Securities Act, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing required and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ R. Lyons General Manager January 12, 2004
- ------------------------
Richard Lyons
/s/ A. Cherry Secretary January 12, 2004
- ------------------------
Anne B. Cherry
/s/ E. S. Bryon Director January 12, 2004
- ------------------------
Ernest S. Bryon
/s/ Brian H. McCurrie Director January 12, 2004
- ------------------------
Brian H. McCurrie
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Syndey, Country of
Australia, on January 12, 2004.
KOPPERS INVESTMENT SUBSIDIARY PTY LTD
By: /s/ A. Cherry
----------------------------------
Name: Anne B. Cherry
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Anne B. Cherry and Ernest S. BRYON, or either of them,
his or her attorneys-in-fact and agents, each with full power of substitution
and resubstitution for him or her in any and all capacities, to sign any or all
amendments or post-effective amendments to this registration statement,
including without limitation amendments pursuant to Rule 462(b) under the
Securities Act, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing required and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ A. Cherry Secretary January 12, 2004
- -----------------------
Anne B. Cherry
/s/ E. S. Bryon Director January 12, 2004
- -----------------------
Ernest S. Bryon
/s/ W. W. Turner Director January 12, 2004
- -----------------------
Walter W. Turner
/s/ Brian H. McCurrie Director January 12, 2004
- -----------------------
Brian H. McCurrie
II-16