As filed with the Securities and Exchange Commission on October 8, 2004.
Registration Statement No. 333-
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CROMPTON CORPORATION
*And the Subsidiary Guarantors listed below
(Exact name of registrant as specified in its charter)
--------------------------------------
DELAWARE 2820 52-2183153
- ------------------------- ----------------------- ----------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
199 BENSON ROAD
MIDDLEBURY, CT 06749
(203) 573-2000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------------------------------------
LYNN A. SCHEFSKY
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
CROMPTON CORPORATION
199 BENSON ROAD
MIDDLEBURY, CT 06749
(203) 573-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------------------
COPIES OF ALL COMMUNICATIONS TO:
PHYLLIS G. KORFF, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
4 TIMES SQUARE
NEW YORK, NEW YORK 10036
(212) 735-3000
(212) 735-2000 (FACSIMILE)
----------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS
REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------------------------------
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. /_/
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. /_/
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT PRICE (1) FEE
- -----------------------------------------------------------------------------------------------------------------------
9 7/8% Senior Notes due 2012............. $375,000,000 100% $375,000,000 $47,512.50
- -----------------------------------------------------------------------------------------------------------------------
Senior Floating Rate Notes due 2010...... $225,000,000 100% $225,000,000 $28,507.50
- -----------------------------------------------------------------------------------------------------------------------
Guarantees related to the 9 1/2 Senior
Secured Notes due 2011................... N/A N/A N/A N/A(2)
- -----------------------------------------------------------------------------------------------------------------------
Guarantees related to the 9 1/2 Senior
Secured Notes due 2011................... N/A N/A N/A N/A(2)
=======================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) promulgated under the Securities Act of
1933, as amended.
(2) No separate consideration is received for the guarantees, and,
therefore, no additional fee is required.
The Registrants hereby amend this registration statement on such date
or dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a) may determine.
===============================================================================
TABLE OF ADDITIONAL REGISTRANTS
PRIMARY
STANDARD I.R.S.
STATE OR OTHER INDUSTRIAL EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME OF ADDITIONAL REGISTRANT* INCORPORATION NUMBER NUMBER
------------------------------ ------------- ------ ------
CNK Chemical Realty Corporation Pennsylvania 2820 25-1885340
Crompton Colors Incorporated Delaware 2820 06-1413341
Crompton Holding Corporation Delaware 2820 06-1413342
Crompton Europe Financial Services Company Delaware 2820 06-1440671
Crompton Monochem, Inc. Louisiana 2820 62-1873574
Crompton Sales Company, Inc. Delaware 2820 06-1582826
Davis-Standard Corporation Delaware 2820 06-1413340
GT Seed International Company Texas 2820 75-2295890
GT Seed Treatment, Inc. Minnesota 2820 41-0795292
Kem Manufacturing Corporation Georgia 2820 58-0620603
Monochem, Inc. Louisiana 2820 72-0545612
Naugatuck Treatment Company Connecticut 2820 06-0902035
Uniroyal Chemical Company Limited (Delaware) Bahamas/Delaware ** 2820 98-0159910
Uniroyal Chemical Company, Inc. Delaware 2820 06-1582841
Uniroyal Chemical Company, Inc. New Jersey 2820 06-1148490
Uniroyal Chemical Export Limited Delaware 2820 06-1431523
Uniroyal Chemical Leasing Company, Inc. Delaware 2820 06-1464298
Weber City Road LLC Louisiana 2820 62-1864381
- --------------------------------------------------------------------------------
* Addresses and telephone numbers of principal executive offices are the same as
those of Crompton Corporation.
** Uniroyal Chemical Company Limited (Delaware) is incorporated in the Bahamas,
and has been domesticated under the laws of the State of Delaware as a Delaware
corporation.
ii
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 8, 2004
PROSPECTUS
CROMPTON CORPORATION
OFFER TO EXCHANGE (I) $375.0 MILLION AGGREGATE PRINCIPAL AMOUNT OF 9 7/8%
SENIOR NOTES DUE 2012 (WHICH WE REFER TO AS THE OLD SENIOR NOTES) FOR $375.0
MILLION AGGREGATE PRINCIPAL AMOUNT OF 9 7/8% SENIOR NOTES DUE 2012 (WHICH WE
REFER TO AS THE NEW SENIOR NOTES) WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND FULLY AND UNCONDITIONALLY GUARANTEED BY
THE SUBSIDIARY GUARANTORS, AND (II) $225.0 MILLION AGGREGATE PRINCIPAL AMOUNT OF
SENIOR FLOATING RATE NOTES DUE 2010 (WHICH WE REFER TO AS THE OLD FLOATING RATE
NOTES) FOR $225.0 MILLION AGGREGATE PRINCIPAL AMOUNT OF SENIOR FLOATING RATE
NOTES DUE 2010 (WHICH WE REFER TO AS THE NEW FLOATING RATE NOTES) WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND FULLY AND
UNCONDITIONALLY GUARANTEED BY THE SUBSIDIARY GUARANTORS. WE REFER TO THE OLD
SENIOR NOTES AND THE OLD FLOATING RATE NOTES TOGETHER AS THE OLD NOTES, AND TO
THE NEW SENIOR NOTES AND THE NEW FLOATING RATE NOTES AS THE NEW NOTES.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 2004, UNLESS WE EXTEND THE EXCHANGE OFFER IN OUR SOLE AND
ABSOLUTE DISCRETION.
Terms of the exchange offer:
We will exchange new notes for all outstanding old notes that are validly
tendered and not withdrawn prior to the expiration or termination of the
exchange offer.
You may withdraw tenders of old notes at any time prior to the expiration
or termination of the exchange offer.
The terms of the new notes are substantially identical to those of the
outstanding old notes, except that the transfer restrictions and
registration rights relating to the old notes do not apply to the new
notes.
The exchange of old notes for new notes will not be a taxable transaction
for U.S. federal income tax purposes, but you should see the discussion
under the caption "Certain United States Federal Income Tax Considerations"
for more information.
We will not receive any proceeds from the exchange offer.
We issued the old notes in a transaction not requiring registration under
the Securities Act, and as a result, their transfer is restricted. We are
making the exchange offer to satisfy your registration rights, as a holder
of the old notes.
There is no established trading market for the new notes or the old
notes.
Each broker-dealer that receives new 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 new 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. 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 new 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,
starting on the expiration date (as defined herein) and ending on the close of
business 90 days after the expiration date, we will make this prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF RISKS YOU
SHOULD CONSIDER PRIOR TO TENDERING YOUR OUTSTANDING OLD NOTES FOR EXCHANGE.
Neither the Securities and Exchange Commission, or SEC, nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is , 2004.
TABLE OF CONTENTS
Page
SUMMARY......................................................................1
SUMMARY DESCRIPTION OF THE EXCHANGE OFFER....................................5
CONSEQUENCES OF NOT EXCHANGING OLD NOTES.....................................9
SUMMARY DESCRIPTION OF THE NEW NOTES........................................10
RISK FACTORS................................................................13
USE OF PROCEEDS.............................................................23
RATIO OF EARNINGS TO FIXED CHARGES..........................................23
UNAUDITED PRO FORMA FINANCIAL INFORMATION...................................24
SELECTED HISTORICAL FINANCIAL DATA..........................................28
THE EXCHANGE OFFER..........................................................30
DESCRIPTION OF THE NEW NOTES................................................35
PLAN OF DISTRIBUTION........................................................71
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.....................72
LEGAL MATTERS...............................................................73
EXPERTS.....................................................................73
AVAILABLE INFORMATION.......................................................73
INCORPORATION BY REFERENCE..................................................73
INDEX TO FINANCIAL STATEMENTS..............................................F-1
This prospectus incorporates by reference important business and
financial information about us that is not included in or delivered with this
document. Copies of this information are available without charge to any person
to whom this prospectus is delivered, upon written or oral request. Written
requests should be sent to:
Crompton Corporation
199 Benson Road
Middlebury, Connecticut 06749
Attention: Corporate Communications
Oral requests should be made by telephoning Crompton Investor Relations
at (203) 573-2000.
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO
LATER THAN , 2004, WHICH IS FIVE BUSINESS DAYS BEFORE THE EXPIRATION
DATE OF THE EXCHANGE OFFER.
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These
forward-looking statements are identified by terms and phrases such as
"anticipate," "believe," "intend," "estimate," "expect," "continue," "should,"
"could," "may," "plan," "project," "predict," "will," and similar expressions,
and include references to assumptions and relate to our future prospects,
developments, and business strategies.
Factors that could cause our actual results to differ materially from
those expressed or implied in such forward-looking statements include, but are
not limited to:
o general economic and competitive conditions;
o the outcome and timing of antitrust investigations and related
lawsuits to which we are subject;
o our ability to obtain selling price increases;
o our ability to obtain and the timing of new financing;
o pension and other post-retirement benefit plan assumptions;
o energy and raw material prices and availability;
o production capacity;
o changes in interest rates and foreign currency exchange rates;
o changes in technology;
o market demand and customer requirements;
o the enactment of more stringent environmental laws and regulations;
o our ability to realize expected cost savings under our cost
reduction initiatives;
o the amount of any additional earn-out payments from General Electric
Company; and
o other risks and uncertainties detailed throughout this prospectus.
These forward-looking statements are based on our estimates and
assumptions, and on currently available information. The forward-looking
statements include information concerning our possible or assumed future results
of operations, and our actual results may differ significantly from the results
discussed in this prospectus. Forward-looking information is intended to reflect
opinions as of the date of this prospectus and we undertake no obligation to
revise the forward-looking statements included or incorporated by reference in
this prospectus to reflect any future events or circumstances. Factors that
could cause or contribute to such differences are discussed in the section
entitled "Risk Factors" included in this prospectus.
ii
SUMMARY
The following summary contains basic information about us and this
prospectus. It likely does not contain all of the information that is important
to you. For a more complete understanding of this prospectus, we encourage you
to read this entire document and the documents we have referred you to. Except
as otherwise specified in this prospectus, "the Company," "we," "us," and "our"
refer to Crompton Corporation and its consolidated subsidiaries.
CROMPTON CORPORATION
COMPANY OVERVIEW
We are a global diversified producer of specialty chemicals (including
agricultural chemicals), polymer products, and polymer processing equipment. Our
products are used in a wide variety of end-use markets, principally including
automotive, transportation, construction, packaging, agriculture, lubricants,
plastics for durable and non-durable goods, and personal care products. Most of
our chemical products are sold to industrial manufacturing customers for use as
additives, ingredients, or intermediates that add value to their end products.
We manufacture and sell more than 5,000 products and formulations. Of our 2003
net sales, 53% were to customers in the United States and Canada, 27% to Europe
and Africa, 13% to Asia/Pacific, and 7% to Latin America.
We are a market leader in many of our key product lines, including
polyvinyl chloride ("PVC") additives, aluminum alkyl catalysts, high-performance
castable urethanes, and single-screw extrusion equipment. For the year ended
December 31, 2003 and the six months ended June 30, 2004, we generated net sales
of $2.2 billion and $1.3 billion, respectively.
Our businesses are grouped into the following two units and five
reporting segments:
Polymer Products
Polymer Additives
Polymer Additives, our largest business segment, supplies specialty
additives used to manufacture plastic, rubber, urethane, and petroleum products.
We believe our product offerings, which we develop using our application
expertise, enable our customers to solve their complex engineering and process
challenges. Our additives are used to impart specific qualities in our
customers' products, such as strength, durability, heat resistance, or
flexibility. We often work with our customers to develop and formulate polymer
additives to meet specific manufacturing requirements. Our products are sold to
formulators, compounders, and fabricators of vinyl, olefins, styrenics, rubber,
polyurethanes, and high performance lubricants, and are ultimately used in the
automotive, transportation, packaging, construction, durable and non-durable
goods, and telecom industries. For the year ended December 31, 2003 and the six
months ended June 30, 2004, our Polymer Additives business generated sales of
$1,232.0 million and $733.1 million, respectively.
Polymers
Our Polymers business is a leading supplier of high-performance
castable urethanes and ethylene-propylene-diene-monomer ("EPDM"). Our castable
urethane products are abrasion-resistant and durable, and our customers use
these customized products to fabricate parts such as solid industrial tires,
industrial rollers, mining equipment, and recreational equipment (e.g., skate
wheels and golf ball covers). EPDM (sometimes referred to as "crackless rubber")
is a material that retains its elasticity despite its exposure to elements such
as sunlight and ozone. Over 40% of our EPDM is used in new and replacement
automotive parts, including tires, hoses, belts, weather-stripping, brake
components, and seals and gaskets. Other applications range from high density,
long-lasting commercial roofing membranes to low density, liquified viscosity
modifiers for better performing lubricants. For the year ended December 31, 2003
and the six months ended June 30, 2004, our Polymers business generated sales of
$285.7 million and $164.4 million, respectively.
Polymer Processing Equipment
Davis-Standard, our Polymer Processing Equipment business, is a global
leader in the manufacture of integrated polymer processing systems, including
rubber and plastic single-screw extrusion equipment and industrial blow-molding
machines. We also provide installation, training, and maintenance services for
our equipment, and we refurbish and upgrade polymer processing equipment
manufactured by others. Integrated polymer processing systems, which include
extruders in
combination with other equipment, are used to process polymers into various
products such as plastic sheets, extruded shapes, and cast and blown film. For
the year ended December 31, 2003 and the six months ended June 30, 2004, our
Polymer Processing Equipment business generated sales of $166.5 million and
$84.4 million, respectively.
Specialty Products
Crop Protection
Our Crop Protection business focuses on specific niches in four major
product lines: fungicides, miticides and other insecticides, growth regulants,
and herbicides. We have primarily developed our products for use on high-value
cash crops, such as ornamentals, nuts, turf, citrus, and tree and vine fruits,
and secondarily for commodity crops, such as soybeans and corn. Our fungicides
and insecticides are also used to coat seeds in order to protect the seed during
germination and during its initial growth phases. Our dedicated Crop Protection
sales force works with growers and distributors to coordinate the use of our
products throughout a crop's growth cycle and to address selective regional,
climate, and growth challenges. We sell registered crop protection products in
more than 100 countries, which lessens our dependence on any one market. Our
experience with registering products is a valuable asset, as registration is a
significant barrier to entry, particularly in developed countries. Registration
of products is a complex process in which we have developed a proficiency over
time. We develop and sell our own products, and we also sell and register
products manufactured by others on a licensed basis. For the year ended December
31, 2003 and the six months ended June 30, 2004, our Crop Protection business
generated sales of $270.9 million and $162.7 million, respectively.
Refined Products
Our Refined Products business supplies a wide range of high-purity
hydrocarbon products, including white oils, petrolatums, specialty waxes, and
other refined products. Our products are used as emollients and moisture
barriers in personal care products, such as baby oils and cosmetics; as
lubricants in refrigerators and air conditioners; and as plasticizers and
carriers in plastic products such as PVC pipe and protective barriers for copper
telecommunications cables. For the year ended December 31, 2003 and the six
months ended June 30, 2004, our Refined Products business generated sales of
$243.2 million and $134.2 million, respectively.
COMPETITIVE STRENGTHS
Broad Product Portfolio and Global Reach. We produce a broad range of
products for a wide variety of end-use markets, principally including
automotive, transportation, construction, packaging, agriculture, lubricants,
plastics for durable and non-durable goods, and personal care products. The
breadth of our product offering provides multiple channels for growth and
lessens our dependence on any one product market. We sell our products in more
than 100 countries, and this worldwide presence further reduces our exposure to
any one country's or region's economy. In 2003, approximately 51% of our net
sales were generated outside of the United States.
Extensive Customer Base and Collaborative Customer Relations. We have a
broad client base of over 13,000 customers. We believe that our products, many
of which we customize for the specific needs of our customers, allow us to
enhance customer loyalty and attract customers that value product innovation and
reliable supply. In our Polymer Processing Equipment business, for example, we
tailor applications for niche markets and specific operations. Our dedicated
Crop Protection sales force works with growers and distributors to coordinate
the use of our products throughout a crop's growth cycle and to address
selective regional, climate, and growth challenges.
Technological Expertise. To enhance the functionality of our product
offerings for specific markets, we conduct research and development at
facilities world-wide and in cooperation with private research institutions and
universities. We believe that our customer-driven approach helps us discover new
products and applications while facilitating continual technical refinement of
our existing product offerings. We believe our technical expertise also enhances
our relationships with our customers as we help them satisfy evolving demands on
their products as a result of regulatory and market conditions. Efforts by our
research and development personnel of over 500 people in the aggregate have
resulted in over 2,500 patents and pending applications.
New Management Team Focused on Improving Operations. Over the past
year, we have made significant changes to our senior management, including a new
president, chief executive officer, and chairman of the Board of Directors;
executive vice president and chief financial officer; senior vice president and
general counsel; senior vice president, Strategy and New Business Development;
executive vice president, Specialty Chemicals; and vice president, Human
Resources. We have assembled an executive team with extensive experience in the
chemicals industry and with a record of building efficient
2
operating platforms and practicing fiscal discipline. Since its appointment, our
management team has been evaluating our business, operational, and financial
challenges, and in response to those challenges, is refining our strategy and
pursuing initiatives to improve our operating flexibility and profitability.
BUSINESS STRATEGY
Improve our Margins. Our new management team is continuing a
comprehensive review of our business and operations. This review includes
initiatives to improve top line growth and operating efficiencies. For example,
in the last three months of 2003, we initiated a program to improve margins by
increasing prices on selected products and implemented cost saving initiatives,
including facility consolidation, head count reductions, and Six Sigma
initiatives. In July 2004, we announced an activity-based restructuring
initiative to restructure our operations in a more cost-effective manner, which
is expected to yield at least $50.0 million of pre-tax cost savings in 2005. In
July 2003, we announced a cost savings initiative, which we currently believe
will produce approximately $50.0 million of pre-tax cost savings in 2004.
Management will continue to pursue opportunities to reduce our operating costs
and increase our revenues through selective price increases, the implementation
of internally developed best practices, and investments in technology, process
controls, and equipment.
Focus Portfolio on High Margin Products. We are identifying markets and
customers which value our mix of products and services and will concentrate our
resources, including our research and development efforts, on these markets and
customers. We are also assessing our customers on a margin basis so that we can
enhance our profitability. We will continue to evaluate our non-core businesses
and will consider selling specific businesses to enhance our focus and
strengthen our financial position.
Resolve Legal Issues. We will seek cost effective resolutions to the
various pending and threatened legal proceedings and governmental investigations
regarding our operations. We believe our recent settlement of the investigations
by the United States Department of Justice ("DOJ") and Canadian Commissioner of
Competition relating to our rubber chemicals operations exemplifies our
commitment to this goal.
REFINANCING
The old notes were offered as part of a refinancing intended to provide
enhanced liquidity and extend our debt maturities. The refinancing included (i)
a new $220.0 million Revolving Credit Facility including a $120.0 million
revolving credit facility and a $100.0 million pre-funded revolving loan and
letter of credit facility, (ii) a three-year extension of our accounts
receivable securitization program with an ability to sell up to $125.0 million
of domestic accounts receivable, which represents an increase of $10.0 million
from our previous ability to sell up to $115.0 million of domestic accounts
receivable, and (iii) the simultaneous consent solicitation and tender offer for
any and all of the aggregate principal amount of our outstanding 8.50% Senior
Notes due 2005 and 6.125% Senior Notes due 2006. We refer to these prior
transactions collectively as the "Refinancing." When we issued the old notes in
August 2004, we entered into a registration rights agreement with the initial
purchasers of the old notes. Under the terms of the registration rights
agreement, we agreed to file with the SEC and cause to become effective, a
registration statement relating to an offer to exchange the old notes for the
new notes.
RECENT DEVELOPMENTS
Declaration of Dividend
On July 20, 2004, our Board of Directors declared a regular quarterly
dividend of five cents per share on our common stock, which was paid on August
27, 2004 to shareholders of record on August 6, 2004.
Class Action Settlement Agreement
On August 11, 2004, we and plaintiff class representatives entered into
a Settlement Agreement that resolves with respect to us a previously disclosed
consolidated direct purchaser class action lawsuit filed in the United States
District Court, Eastern District of Pennsylvania against us and other companies.
The lawsuit was filed by the plaintiff class representatives on behalf of
themselves and a class consisting of all persons and entities who purchased
plastics additives in the United States directly from any of the defendants or
from any predecessors, parents, subsidiaries, or affiliates at any time during
the period from January 1, 1990 through January 31, 2003 (also known as the
Class Period). Under the Settlement Agreement, we will pay to a settlement fund
an amount equal to $5,000,000 in exchange for the final dismissal with prejudice
of the lawsuit as to us and a complete release of all claims against us set
forth in the lawsuit. The Settlement Agreement is subject to final approval by
the court. In addition, if the sales of plastics additives made during the Class
Period to entities requesting
3
exclusion from the class are equal to or greater than 10% of the total dollar
amount of sales of plastics additives made by all of the defendants during the
Class Period, we may in our discretion withdraw from the Settlement Agreement.
Chemical Production
On August 20, 2004, we announced that we are reducing capacity by
year-end of two chemicals used in the production of tires in order to improve
the overall profitability of our rubber chemicals business. We are reducing
production of Flexzone(R), an antiozonant used in tire production to prevent
rubber from cracking, by 20,000 metric tons, by closing certain Asia Pacific
facilities by the end of 2004 and reducing capacity in other regions. We will
continue to have Flexzone(R) manufacturing plants in the Americas, Europe and
Asia Pacific. In addition, we will reduce production of a Flexzone(R)
intermediate (called 4-APDA) by 13,000 metric tons, at our Geismar, Louisiana
facility by year-end. We are evaluating the financial impact of these actions,
including the amount of any potential impairment or other charges. On August 30,
2004, we announced that we are implementing price increases for all of our
Flexzone(R) anti-detergent products to offset dramatic raw material and energy
cost increases and improve the profitability of this business.
Cost Reduction Programs
We are in the process of developing an activity-based restructuring
initiative intended to determine how to structure our operations in a more cost
effective manner. On June 29, 2004, we initiated a voluntary severance program
offered to U.S. based employees intended to facilitate the implementation of the
activity-based restructuring initiative by decreasing the number of involuntary
separations that may otherwise be required once the organizational design phase
of the activity-based restructuring initiative is completed. Eligible employees
who chose to voluntarily terminate their employment under this program were
separated on August 31, 2004 (unless otherwise requested by the Company), and
will be eligible to receive severance pay in accordance with the program. Once
the activity-based restructuring analysis is complete and the participation from
the voluntary severance program is assessed, we will determine to what extent
further actions may be required to support full implementation of the
activity-based restructuring initiative. Although the specific actions and the
number of headcount reductions associated with this initiative have not yet been
identified, we expect at least 10% of our 5,400 person worldwide workforce to be
affected. As a result of this initiative, we expect to implement restructuring
actions during the third and fourth quarters of 2004 designed to yield annual
pre-tax savings of at least $50.0 million with the savings to be achieved in
2005. To achieve these savings, we expect to incur one-time restructuring
charges that we believe will not exceed $50 million. It is expected that the
bulk of the savings will come from streamlining our organization and our work
processes.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 199 Benson Road,
Middlebury, Connecticut 06749 and our telephone number at that address is (203)
573-2000. Our website is located at www.cromptoncorp.com. The information on our
website is not part of this prospectus.
4
SUMMARY DESCRIPTION OF THE EXCHANGE OFFER
Old Notes............................................ $375,000,000 principal amount of 9 7/8% Senior Notes due 2012,
$225,000,000 principal amount of Senior Floating Rate Notes due
2010, each of which have been unconditionally guaranteed by most
of our domestic subsidiaries.
New Notes............................................ $375,000,000 principal amount of 9 7/8% Senior Notes due 2012,
$225,000,000 principal amount of Senior Floating Rate Notes due
2010, each of which have been unconditionally guaranteed by most
of our domestic subsidiaries, the issuance of which has been
registered under the Securities Act of 1933. The form and terms
of the new notes are identical in all material respects to those
of the old notes, except that the transfer restrictions and
registration rights relating to the old notes do not apply to
the new notes.
Exchange Offer....................................... We are offering to issue up to $375,000,000 principal amount of
new senior notes and related subsidiary gurarantees and
$225,000,000 principal amount of new floating rate notes and
related subsidiary gurarantees, in exchange for a like principal
amount of the old senior notes and related subsidiary
gurarantees and old floating rate notes and related subsidiary
gurarantees, to satisfy our obligations under the registration
rights agreement that we entered into when the old notes were
issued in transactions in reliance upon the exemption from
registration provided by Rule 144A and Regulation S of the
Securities Act.
Expiration Date; Tenders............................. The exchange offer will expire at 5:00 p.m., New York City time,
on , 2004, unless extended in our sole and absolute
discretion. We refer to this as the "expiration date." By
tendering your old notes, you represent to us that:
o any new notes you receive in the exchange offer are
being acquired by you in the ordinary course of your
business;
o at the time of commencement of the exchange offer,
neither you nor anyone receiving new notes from you, has
any arrangement or understanding with any person to
participate in the distribution, as defined in the
Securities Act, of the new notes in violation of the
Securities Act;
o you are not our "affiliate," as defined in Rule 405
under the Securities Act;
o you are holding old notes that have, or are reasonably
likely to have, the status of an unsold allotment in the
initial offering;
o if you are not a participating broker-dealer, you are
not engaged in, and do not intend to engage in, a
distribution of the new notes, as defined in the
Securities Act; and
o if you are a broker-dealer, you will receive the new
notes for your own account in exchange for old notes
that
5
were acquired by you as a result of your market-making or
other trading activities and that you will deliver a
prospectus in connection with any resale of the new notes
you receive. For further information regarding resales of
the new notes by participating broker-dealers, see the
discussion under the caption "Plan of Distribution."
Withdrawal; Non-Acceptance........................... You may withdraw any old notes tendered in the exchange offer at
any time prior to 5:00 p.m., New York City time, on ,
2004. If we decide for any reason not to accept any old notes
tendered for exchange, any withdrawn or unaccepted old notes
will be credited to the tendering holder's account at The Depository
Trust Company, or DTC. For further information regarding the withdrawal
of tendered old notes, see the "The Exchange Offer--Terms of the
Exchange Offer; Period for Tendering Old Notes" and the "The Exchange
Offer--Withdrawal Rights."
Conditions to the Exchange Offer..................... The exchange offer is subject to customary conditions, which we
may waive. See the discussion below under the caption "The
Exchange Offer--Conditions to the Exchange Offer" for more
information regarding the conditions to the exchange offer.
Procedures for Tendering Old Notes................... Except as described in the section titled "The Exchange
Offer--Procedures for Tendering Old Notes", a tendering holder
must, on or prior to the expiration date transmit an agent's
message to the exchange agent at the address listed in this
prospectus. In order for your tender to be considered valid,
the exchange agent must receive a confirmation of book entry
transfer of your old notes into the exchange agent's account at
DTC prior to the expiration or termination of the exchange offer.
Special Procedures for Beneficial Owners............. If you are a beneficial owner whose old notes are registered in
the name of the broker, dealer, commercial bank, trust company
or other nominee and you wish to tender your old notes in the
exchange offer, you should promptly contact the person in whose
name the old notes are registered and instruct that person to
tender on your behalf. Any registered holder that is a
participant in DTC's book-entry transfer facility system may
make book-entry delivery of the old notes by causing DTC to
transfer the old notes into the exchange agent's account.
Certain Federal Income Tax Considerations............ The exchange of the old notes for new notes in the exchange
offer will not be a taxable transaction for United States
federal income tax purposes. See the discussion under the
caption "Certain United States Federal Income Tax
Considerations" for more information regarding the tax
consequences to you of the exchange offer.
Use of Proceeds...................................... We will not receive any proceeds from the exchange offer.
Exchange Agent....................................... Deutsche Bank Trust Company Americas is the exchange agent for
the exchange offer. You can find the address and telephone number
of the exchange agent below under the caption "The Exchange Offer
-- Exchange Agent."
Resales.............................................. Based on interpretations by the staff of the SEC, as set forth
in no action letters issued to third parties, we believe that
the new notes
6
you receive in the exchange offer may be offered for resale,
resold or otherwise transferred without compliance with the
registration and prospectus delivery provisions of the
Securities Act. However, you will not be able to freely
transfer the new notes if:
o you are our "affiliate," as defined in Rule 405 under
the Securities Act;
o you are not acquiring the new notes in the exchange
offer in the ordinary course of your business;
o you have an arrangement or understanding with any person
to participate in the distribution, as defined in the
Securities Act, of the new notes, you will receive in
the exchange offer;
o you are a participating broker-dealer that received new
notes for its own account in the exchange offer in
exchange for old notes that were acquired as a result of
market making or other trading activities; or
o you are holding old notes that have, or are reasonably
likely to have, the status of an unsold allotment in the
initial offering.
If you fall within one of the exceptions listed above, you must
comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction
involving the new notes. See the discussion below under the
caption "The Exchange Offer -- Procedures for Tendering Old
Notes" for more information.
Broker-Dealer........................................ Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of new
notes. By so acknowledging 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. 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 new notes received in exchange for old notes which were
received by such broker-dealer as a result of market making
activities or other trading activities. We have agreed that for
a period of up to 90 days after the expiration date, as defined
in this prospectus, we will make this prospectus available to
any broker-dealer for use in connection with any such resale.
See "Plan of Distribution" for more information.
Registration Rights Agreement........................ When we issued the old notes in August 2004, we entered into a
registration rights agreement with the initial purchasers of the
old notes. Under the terms of the registration rights
agreement, we agreed to file with the SEC and cause to become
effective, a registration statement relating to an offer to
exchange the old notes for the new notes.
If we do not complete the exchange offer within 210 days of the
date that we sold the old notes (August 17, 2004), the interest
rate
7
borne by the old notes will be increased at a rate of 0.25%
per annum every 90 days (but shall not exceed 1.0% per annum)
until the exchange offer is completed, or until the old notes
are freely transferable under Rule 144 of the Securities Act.
Under some circumstances set forth in the registration rights
agreement, holders of old notes, including holders who are not
permitted to participate in the exchange offer or who may not
freely sell new notes received in the exchange offer, may
require us to file and cause to become effective, a shelf
registration statement covering resales of the old notes by
these holders.
A copy of the registration rights agreement is incorporated
by reference as an exhibit to the registration statement of
which this prospectus is a part. See "Description of the New
Notes -- Registration Rights and Additional Interest."
8
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your old notes in the exchange offer, your old
notes will continue to be subject to the restrictions on transfer described in
the legend on the certificate for your old notes. In general, you may offer or
sell your old notes only:
o if they are registered under the Securities Act and applicable state
securities laws;
o if they are offered or sold under an exemption from registration
under the Securities Act and applicable state securities laws; or
o if they are offered or sold in a transaction not subject to the
Securities Act and applicable state securities laws.
We do not currently intend to register the old notes under the
Securities Act. Under some circumstances, however, holders of the old notes,
including holders who are not permitted to participate in the exchange offer or
who may not freely resell new notes received in the exchange offer, may require
us to file, and to cause to become effective, a shelf registration statement
covering resales of old notes by these holders. For more information regarding
the consequences of not tendering your old notes and our obligation to file a
shelf registration statement, see "The Exchange Offer -- Consequences of
Exchanging or Failing to Exchange Old Notes."
9
SUMMARY DESCRIPTION OF THE NEW NOTES
The summary below describes the principal terms of the new notes.
Certain of the terms and conditions described below are subject to important
limitations and exceptions. The "Description of the New Notes" section of this
prospectus contains a more detailed description of the terms and conditions of
the new notes.
Issuer.............................. Crompton Corporation.
Securities.......................... Up to $375,000,000 aggregate
principal amount of 9 7/8% Senior
Notes due 2012, and up to
$225,000,000 aggregate principal
amount of Senior Floating Rate
Notes due 2010.
Maturity............................ The new senior notes will mature
on August 1, 2012.
The new floating rate notes will
mature on August 1, 2010.
Interest Rate....................... The new senior notes will bear
interest at a rate of 9 7/8% per
annum.
The new floating rate notes will bear
interest at a rate per annum equal to
LIBOR plus 5.75%. Interest on the new
floating rate notes will be reset
quarterly.
Interest Payment Dates.............. We will pay interest on the new
notes on August 1 and February 1,
commencing February 1, 2005.
Interest on the new notes will
accrue from August 16, 2004, and
the first interest payment date
will be February 1, 2005.
Ranking............................. The new notes will be our senior
unsecured obligations and will
rank equally with all of our
existing and future senior
unsecured debt and senior to our
future subordinated debt. The new
notes will be effectively
subordinated to any existing or
future secured indebtedness,
including our new Revolving
Credit Facility, and our 7.75%
Debentures due 2023 and 6.875%
Debentures due 2026 to the extent
of the assets securing such debt
and structurally subordinated to
any debt or other liabilities of
our subsidiaries which are not
guarantors.
Guarantees.......................... Most of our wholly-owned domestic
subsidiaries unconditionally
guarantee the new notes.
Optional Redemption................. Except as set forth below, we
cannot redeem the new senior
notes until August 1, 2008, and
the new floating rate notes until
August 1, 2007. Thereafter, in
each case, we may redeem some or
all of the new notes at the
redemption prices listed in the
"Description of the New Notes"
section under the heading
"Optional Redemption," plus
accrued interest to the date of
redemption.
We may redeem the new senior
notes at any time prior to
August 1, 2008, and the new
floating rate notes at any time
prior to August 1, 2007, at a
specified "make-whole" premium.
Optional Redemption
After Equity Offerings............ At any time (i) prior to August
1, 2007, we may redeem up to 35%
of the aggregate principal amount
of the new senior notes
outstanding at a redemption price
equal to 109.875% of the
principal amount thereof and (ii)
prior to August 1, 2007, we may
10
redeem up to 35% of the aggregate
principal amount of the new
floating rate notes outstanding
at a redemption price equal to
100% of the principal amount
thereof plus a premium equal to
the rate per annum on the new
floating rate notes applicable on
the date on which notice of
redemption is given, with money
that we raise in one or more
equity offerings, as long as:
o we redeem the applicable
notes within 180 days of
completing the equity
offering; and
o at least 65% of the
aggregate principal
amount of the new notes
issued of the applicable
series remains
outstanding after the
redemption of the
applicable notes.
Change of Control Offer............. If a change in control occurs, we
must give holders of the new
notes the opportunity to sell us
their notes at 101% of their face
amount, plus accrued interest.
We might not be able to pay you the
required price for new notes you
present to us at the time of a change
of control, because:
o we might not have enough
funds at that time; or
o the terms of our other
indebtedness may prevent
us from making such
payment.
Asset Sale Proceeds................. If we or our subsidiaries engage
in certain asset sales, we
generally must either invest the
net cash proceeds from such sales
in our business within a period
of time, prepay senior debt or
make an offer to purchase a
principal amount of the new notes
equal to the excess net cash
proceeds. However, we may, under
certain circumstances, use the
proceeds of certain asset sales
towards the payment of litigation
settlements and/or judgments and
related liabilities, and pension
related liabilities. The purchase
price of the new notes will be
100% of their principal amount,
plus accrued interest.
Certain Indenture
Provisions........................ The new notes are governed by the
same indentures as those
governing the old notes, and
contain covenants limiting our
(and most or all of our
subsidiaries') ability to:
o incur additional debt;
o pay dividends or distributions
on our capital stock or
repurchase our capital stock;
o issue stock of subsidiaries;
o make certain investments;
o create liens on our assets
to secure debt;
o enter into transactions
with affiliates;
o merge or consolidate with
another company; and
o transfer and sell assets.
11
These covenants are subject to a
number of important limitations
and exceptions. In addition,
during any period that a series
of new notes are assigned an
investment grade rating by
Standard & Poor's and Moody's
Investment Service, Inc., our
obligation to comply with some of
those covenants with respect to
such series of notes will be
suspended.
Risk Factors........................ Investing in the new notes
involves substantial risks. See
"Risk Factors" for a description
of certain of the risks you
should consider before investing
in the new notes.
12
RISK FACTORS
Participating in the exchange offer involves a number of risks. You
should carefully consider all of the risks described below, together with the
other information contained or incorporated by reference in this prospectus. Any
of the events or circumstances described as risks below could result in a
significant or material adverse effect on our business, results of operations or
financial condition, and a corresponding decline in the market price of, or our
ability to repay, the new notes.
RISKS RELATING TO OUR BUSINESS
SIGNIFICANT INCREASES IN THE PRICES OF OUR RAW MATERIALS AND ENERGY HAVE
INCREASED OUR OPERATING EXPENSES.
We purchase large amounts of raw materials and energy for our
businesses. The costs of these materials, in the aggregate, represent a
substantial portion of our operating expenses. The prices and availability of
these raw materials vary with market conditions and may be highly volatile. Over
the past few years, we have experienced significant cost increases in our
purchases of petrochemicals, natural gas, tin, soybean oil, and other raw
materials. While we may attempt to match our raw material price increases with
corresponding product price increases, we may not be able to immediately raise
product prices, if at all. Ultimately, our ability to pass on increases in the
cost of raw materials to our customers is greatly dependent upon market
conditions. There have been in the past, and will likely be in the future,
periods of time during which we are unable to pass raw material price increases
on to our customers, in whole or in part. In addition, some of our contracts
include price protection provisions which restrict our ability to pass on these
costs to our customers. This may increase our operating expenses and negatively
affect our results of operations.
SIGNIFICANT COMPETITION MAY FORCE US TO REDUCE PRICES, WHICH MAY ADVERSELY
IMPACT OUR RESULTS OF OPERATIONS.
We face significant competition in the markets in which we operate.
Although competition in specialty chemicals is based upon a number of
considerations, such as product innovation, product range and quality,
relationships with customers, reliability of delivery, technical support, and
distribution capability, price competition does exist in our operating markets
due to factors such as industry overcapacity and low-cost competition. As a
result of the trends toward global expansion and consolidation by competitors,
we anticipate that we will continue to face new competitive challenges as well
as additional risks inherent in international operations in developing regions.
We also expect increased competition from the further use and introduction of
generic and alternative products by our competitors. This increased competition
could cause us to reduce our prices and take other steps to compete effectively,
which could negatively affect our results of operations. In addition, even if we
raise our prices, our competitors' reactions to such price increases could cause
us to reevaluate and perhaps reverse such price increases.
THE CYCLICALITY OF THE CHEMICAL INDUSTRY MAY CAUSE SIGNIFICANT FLUCTUATIONS IN
OUR OPERATING RESULTS AND CASH FLOW.
Our historical operating results reflect the cyclical and volatile
nature of the supply and demand balance of the chemical industry. The chemical
industry has experienced alternating periods of inadequate capacity and tight
supply, causing prices and profit margins to increase, followed by periods when
substantial capacity is added, resulting in oversupply, declining capacity and
utilization rates, and declining prices and profit margins. The cyclicality of
the markets in which we operate, such as EPDM, may result in volatile operating
results and cash flow over the business cycle.
Currently there is over-capacity in rubber chemicals and some excess
capacity in vinyl additives. There can be no assurance that future growth in
product demand will be sufficient to utilize this additional, or current,
capacity. Excess capacity has depressed and may continue to depress our volumes
and margins on some products. As a result of excess industry capacity, rising
energy costs, and rising raw materials costs, our results may be volatile.
ANY DISRUPTION IN THE AVAILABILITY OR PRICE, OR DETERIORATION IN THE QUALITY, OF
THE RAW MATERIALS AVAILABLE FOR OUR PRODUCTS MAY HAVE A MATERIAL ADVERSE EFFECT
ON OUR RESULTS OF OPERATIONS.
Chemicals, steel, castings, parts, machine components, and other raw
materials required in the manufacture of our products are generally available
from a number of sources, some of which are foreign. We use significant amounts
of petrochemical feedstocks in many of our chemical manufacturing processes. We
are not dependent on any one supplier for a material amount of our raw material
requirements, except for one supplier who provides us with approximately 8 to
10% of
13
diverse raw materials sourced from the supplier's multiple manufacturing/
processing locations. While raw materials are currently readily available,
temporary shortages of raw materials used by our businesses may occur
occasionally. Additionally, their continuing availability and price are subject
to domestic and world market and political conditions and regulations.
Disruptions in these markets or changes in regulations could affect our ability
to procure raw materials on a cost-efficient basis.
CURRENT AND FUTURE LITIGATION, GOVERNMENT INVESTIGATIONS AND ADMINISTRATIVE
CLAIMS, INCLUDING ANTITRUST-RELATED GOVERNMENTAL INVESTIGATIONS AND LAWSUITS,
COULD HARM OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS.
We are currently involved in a number of governmental investigations,
administrative claims, and civil lawsuits, which number could increase in the
future. In particular, we are subject to certain antitrust governmental
investigations and civil lawsuits relating to the sale and marketing of certain
of our products. We have incurred and may continue to incur significant expense
in connection with the antitrust-related matters, including expenses related to
our cooperation with governmental authorities and defense of the related civil
lawsuits.
On May 27, 2004, we pled guilty and were fined $50.0 million in
connection with an antitrust investigation by the DOJ related to rubber
chemicals. On May 28, 2004, we pled guilty and were fined CDN $9.0 million
(approximately U.S. $7.0 million) in connection with an antitrust investigation
by the Canadian Commissioner of Competition involving rubber chemicals. We
recorded pre-tax charges of $77.7 million for antitrust related costs in our
consolidated statement of operations at December 31, 2003. This amount included
a $45.2 million charge to reserve for the payment of these U.S. and Canadian
fines, which represented the present value of the total of $57.0 million in
payments, which are payable in six annual installments beginning in 2004.
We and certain of our subsidiaries continue to be the subject of a
coordinated civil investigation by the European Commission ("EC") with respect
to the sale and marketing of rubber chemicals. We are not able to predict the
timing or outcome of this investigation, including the amount of any fine that
may be imposed by the EC. In addition, we, certain of our subsidiaries and
certain of our officers and directors are defendants in certain U.S. federal
direct purchaser and state direct and indirect purchaser lawsuits, a federal
securities class action lawsuit and a shareholder derivative lawsuit, each
relating to certain alleged antitrust violations. Additionally, we, our
subsidiary Crompton Co./Cie and other companies are defendants in two motions
for authorization to institute a class action filed in May 2004 in Quebec,
Canada on behalf of persons and entities that purchased rubber chemicals
directly or indirectly from the parties respondent during various periods
commencing in July 1995. While we will seek cost-effective resolutions to the
various pending and threatened legal proceedings regarding our operations, we
cannot predict their outcome. The resolution of the EC investigation and any
civil claims now pending or hereafter asserted against us or any of our
subsidiaries could require us to pay substantial fines and/or damages, which
could have a material adverse effect on our financial condition, results of
operations, and cash flows.
We are also involved in several significant lawsuits and claims
relating to environmental matters. In addition, we are routinely subject to
other civil claims, litigation and arbitration, and regulatory investigations,
arising in the ordinary course of our present business as well as in respect of
our divested businesses. Some of these claims and litigations relate to product
liability claims, including claims related to our current products and
asbestos-related claims concerning premises and historic products of our
corporate affiliates and predecessors. These claims have not had a material
impact on us to date. We believe that we have strong defenses to these claims
and the likelihood that a future material adverse outcome will result from these
claims is remote. However, we cannot be certain that an adverse outcome of one
or more of these claims would not have a material adverse effect on our business
or results of operations.
For further information regarding the governmental investigations,
administrative claims and civil lawsuits to which we are subject, see "Legal
Proceedings" in our annual report on Form 10-K for the year ended December 31,
2003, and quarterly reports on Form 10-Q for the quarters ended March 31, 2004
and June 30, 2004, as well as our other public filings with the SEC incorporated
by reference into this prospectus.
ENVIRONMENTAL, HEALTH, AND SAFETY REGULATION MATTERS COULD HAVE A SUBSTANTIAL
NEGATIVE IMPACT ON OUR BUSINESS.
We are subject to extensive federal, state, local and foreign
environmental, safety and health laws, and regulations concerning, among other
things, emissions to the air, discharges to land and water, and the generation,
handling, treatment, and disposal of hazardous waste and other materials. Our
operations entail the risk of violations of those laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
Although it is our policy to
14
comply with such laws and regulations, we cannot assure you that we have been or
will be at all times in compliance with all of these requirements.
In addition, these requirements, and enforcement of these requirements,
may become more stringent in the future. Although we cannot predict the ultimate
cost of compliance with any such requirements, the costs could be material.
Non-compliance could subject us to material liabilities, such as government
fines or orders, third-party lawsuits, remediations, and settlements, or the
suspension of non-compliant operations. We may also be required to make
significant site or operational modifications at substantial cost. Future
developments could also restrict or eliminate the use of or require us to make
modifications to our products, packaging, manufacturing processes and
technology, which could have a significant negative impact on our cash flow and
results of operations.
At any given time, we are involved in claims, litigation,
administrative proceedings, settlements, and investigations of various types in
a number of jurisdictions involving potential environmental liabilities,
including clean-up costs associated with hazardous waste disposal sites, natural
resource damages, property damage, personal injury, and regulatory compliance or
noncompliance. We evaluate and review estimates for future remediation and
operation and management costs directly related to remediation, to determine
appropriate environmental reserve amounts. For each site, a determination is
made of the specific measures that are believed to be required to remediate the
site, the estimated total cost to carry out the remediation plan, the portion of
the total remediation costs to be borne by us, and the anticipated time frame
over which payments toward the remediation plan will occur. We cannot assure you
that the resolution of these environmental matters will not have a material
adverse effect on our results of operations or cash flow.
OUR PRODUCTION FACILITIES ARE SUBJECT TO OPERATING RISKS THAT MAY ADVERSELY
AFFECT OUR OPERATIONS.
We are dependent on the continued operation of our production
facilities. These production facilities are subject to hazards associated with
the manufacturing, handling, storage, and transportation of chemical materials
and products, including pipeline leaks and ruptures, explosions, fires,
inclement weather and natural disasters, mechanical failure, unscheduled
downtime, labor difficulties, transportation interruptions, remediation
complications, chemical spills, discharges or releases of toxic or hazardous
substances or gases, storage tank leaks, and other environmental risks. These
hazards can cause personal injury and loss of life, severe damage to, or
destruction of, property and equipment and environmental damage, fines, and
liabilities and could have a material adverse effect on our business, financial
condition, or results of operations.
WE ARE AN INTERNATIONAL COMPANY AND ARE EXPOSED TO RISKS IN THE COUNTRIES IN
WHICH WE HAVE SIGNIFICANT OPERATIONS OR INTERESTS.
We are dependent, in large part, on the economies of the countries in
which we manufacture and market our products. The economies of these countries
are in different stages of socioeconomic development. Consequently, we are
exposed to risks from changes in foreign currency exchange rates, interest
rates, inflation, governmental spending, social instability and other political,
economic or social developments that may materially reduce our net income. We
may also face difficulties managing and administering an internationally
dispersed business. In particular, the management of our personnel across
offices in several countries can present logistical and managerial challenges.
Additionally, international operations present challenges related to operating
under different business cultures and languages; we may have to comply with
unexpected changes in foreign laws and regulatory requirements which could
negatively impact our operations and ability to manage our global financial
resources; export controls or other regulatory restrictions could prevent us
from shipping our products into and from some markets; we may not be able to
adequately protect our trademarks and other intellectual property overseas due
to uncertainty of laws and enforcement in a number of countries relating to the
protection of intellectual property rights; and changes in tax regulation and
international tax treaties could significantly reduce the financial performance
of our foreign operations or the magnitude of their contributions to our overall
financial performance.
WE HAVE UNFUNDED PENSION PLANS AND POST-RETIREMENT HEALTH CARE PLANS, WHICH
COULD RESULT IN CLAIMS AGAINST OUR ASSETS.
We have substantial unfunded obligations under our domestic
tax-qualified defined benefit pension plans, totaling approximately $155.0
million on a projected benefit obligation basis as of December 31, 2003. A
significant decline in the value of plan investments in the future or
unfavorable changes in laws or regulations that govern pension plan funding
could materially change the timing and amount of required pension funding. We
also sponsor foreign and non-qualified pension plans under which we have
substantial unfunded liabilities, totaling approximately $181.8 million on a
projected benefit obligation basis as of December 31, 2003. In addition, we
sponsor post-retirement health care plans under which we have
15
substantial unfunded liabilities, totaling approximately $202.9 million on a
projected benefit obligation basis as of December 31, 2003. Mandatory funding
contributions with respect to our tax-qualified pension plans and potential
unfunded benefit liability claims could have a material adverse effect on our
financial condition, results of operations and cash flows.
OUR RESULTS OF OPERATIONS ARE SUBJECT TO EXCHANGE RATE AND OTHER CURRENCY RISKS.
A significant portion of our business is conducted in currencies other
than the U.S. dollar, which is our reporting currency. We recognize foreign
currency gains or losses arising from our operations in the period incurred. As
a result, currency fluctuations among the U.S. dollar and the currencies in
which we do business have caused and will continue to cause foreign currency
transaction gains and losses, which could be material. We cannot predict the
effects of exchange rate fluctuations upon our future operating results because
of the number of currencies involved, the variability of currency exposures, and
the potential volatility of currency exchange rates. We take actions to manage
our balance sheet foreign currency exposure, such as entering into hedging
arrangements designed to limit our exposure to potential currency exchange rate
volatility and projected profit and loss exposures, where available, but we
cannot assure you that our strategies will adequately protect our operating
results from the effects of exchange rate fluctuations.
We also face risks arising from the imposition of exchange controls and
currency devaluations. Exchange controls may limit our ability to convert
foreign currencies into U.S. dollars or to remit dividends and other payments by
our foreign subsidiaries or businesses located in or conducted within a country
imposing controls. Currency devaluations result in diminished value of funds
denominated in the currency of the country instituting a devaluation. Actions of
this nature could adversely affect our earnings or cash flow.
OUR BUSINESS DEPENDS UPON MANY PROPRIETARY TECHNOLOGIES, INCLUDING PATENTS AND
LICENSES. OUR COMPETITIVE POSITION COULD BE ADVERSELY AFFECTED IF WE FAIL TO
PROTECT OUR PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS, OR IF WE BECOME
SUBJECT TO CLAIMS THAT WE ARE INFRINGING UPON THE RIGHTS OF OTHERS.
We have over 2,500 United States and foreign patents and pending
applications and have over 3,000 trademark registrations for product names
world-wide. Patents, trademarks, trade secrets in the nature of know-how,
formulations, and manufacturing techniques assist us in maintaining the
competitive position of certain of our products. Our intellectual property is of
particular importance to a number of specialty chemicals we manufacture and
sell, and patents and know-how are also significant in the manufacture of
certain wire insulating and polymer processing equipment product lines. We are
licensed to use certain patents and technology owned by other companies,
including some foreign companies, to manufacture products complementary to our
own products, for which we pay royalties in amounts not considered material, in
the aggregate, to our consolidated results. We cannot assure you that any of our
trademarks or the patents we own or license will not be challenged, nor can we
predict the outcome of any such challenge.
We also rely on unpatented proprietary know-how and continuing
technological innovation and other trade secrets to develop and maintain our
competitive position. While it is our policy to enter into confidentiality
agreements with our employees and third parties to restrict the use and
disclosure of our trade secrets and proprietary know-how, those confidentiality
agreements may be breached or may not provide meaningful protection. In
addition, adequate remedies may not be available in the event of an unauthorized
use or disclosure of such trade secrets and know-how, and others could obtain
knowledge of such trade secrets through independent development or other access
by legal means. The failure of our patents, trademarks or confidentiality
agreements to protect our processes, apparatuses, technology, trade secrets, or
proprietary know-how could have a material adverse effect on our business,
financial condition, results of operations, or cash flows.
WE CANNOT GUARANTEE THAT OUR PATENTS WILL PROVIDE FULL PROTECTION AGAINST
COMPETING MANUFACTURERS OUTSIDE THE UNITED STATES, THE EUROPEAN UNION COUNTRIES,
AND CERTAIN OTHER DEVELOPED COUNTRIES.
In some of the countries in which we operate, the laws protecting
patent holders are significantly weaker than in the United States, the European
Union, and certain other developed countries. Weaker protection may help
competing manufacturers be or become more competitive in markets where, but for
the weaker protection, they might not otherwise be able to introduce competing
products for a number of years. We therefore tend, in these regions, to rely
more heavily upon trade secret and know-how protection, as applicable, than we
do on patents. In addition, for our crop protection products being sold in
China, we rely on regulatory protection of intellectual property provided by
regulatory agencies that may not provide us with the protection we desire.
16
AN INABILITY TO REMAIN TECHNOLOGICALLY INNOVATIVE AND TO OFFER IMPROVED PRODUCTS
AND SERVICES IN A COST-EFFECTIVE MANNER COULD NEGATIVELY IMPACT OUR OPERATING
RESULTS.
Our operating results are influenced in part by our ability to
introduce new products and services that offer distinct value to our customers.
In many of the markets where we sell our products, the products are subject to a
traditional product life cycle. We devote significant human and financial
resources to develop new technologically advanced products and services and we
may not be successful in our research and development efforts.
THE RESULTS OF OUR CROP PROTECTION BUSINESS ARE DEPENDENT ON WEATHER, DISEASE,
AND PEST CONDITIONS AND CAN BE AFFECTED BY LOCAL AND REGIONAL ECONOMIC
CIRCUMSTANCES.
Sales volumes of our Crop Protection business, as with all agricultural
products, are subject to the sector's dependency on weather, disease, and pest
infestation conditions. Adverse conditions in a particular region could
materially adversely affect our Crop Protection business. Demand for crop
protection products is also influenced by the agricultural policies of
governments and regulatory authorities. Changes in governmental policies or
product registration requirements could have an adverse impact on our ability to
market and sell our products. Also, crop protection products typically are sold
pursuant to contracts with extended payment terms in Latin America and Europe.
Extended payment periods make our Crop Protection business susceptible to losses
from receivables during economic crises and may adversely affect our operating
results.
OUR CUSTOMER ORDER BACKLOG IS REPRESENTED IN FUTURE MACHINERY PRODUCTION
SCHEDULES, WHICH COULD AFFECT OUR INVENTORY STOCKS AND OUR OPERATING RESULTS.
Backlog represents undelivered products or services that our customers
have contractually committed to purchase from us. Because machinery production
schedules range from about 60 days to 10 months, backlog is significant to our
Polymer Processing Equipment (Davis-Standard) business. Our backlog of customer
orders for this business at June 30, 2004 and December 31, 2003 was
approximately $82.0 million and $62.0 million, respectively. It is expected that
our 2003 backlog will be shipped during 2004; however, we cannot assure you that
this will be the case. Cancellations of purchase orders, though infrequent,
could substantially reduce backlog and consequently, future revenues. Our
failure to replace cancelled or reduced backlog could result in lower revenues.
WE MAY FAIL TO REALIZE THE COST SAVINGS AND OTHER BENEFITS THAT WE EXPECT FROM
OUR COST REDUCTIONS AND SIX SIGMA INITIATIVES.
In July 2004, we announced an activity-based restructuring initiative
intended to structure our operations in a more effective manner and yield
expected cost savings. In July 2003, we announced a cost reduction program,
which includes expected savings from Six Sigma and other initiatives. We
practice Six Sigma throughout our company to increase efficiency and capacity
and to reduce waste. As a result of our efforts, we have realized and expect to
realize additional cost reductions. We cannot assure you that we will realize
additional cost savings or other benefits. Moreover, even if we realize the
benefits of our cost saving initiatives, any cash savings that we achieve may be
offset by pressures from our customers to reduce prices or by higher raw
material and other costs. Our failure to realize the anticipated benefits of our
cost reductions and Six Sigma initiatives could have a material adverse effect
on our business, results of operations, and financial condition.
WE ARE DEPENDENT UPON A TRAINED, DEDICATED SALES FORCE, THE LOSS OF WHICH COULD
MATERIALLY AFFECT OUR OPERATIONS.
Our products, including our polymer additives, polymers, polymer
processing equipment, crop protection, and refined products are sold and
supported through dedicated staff and specifically trained personnel. The loss
of this sales force due to market or other conditions could affect our ability
to sell and support our products effectively, which could have an adverse effect
on our results of operations.
WE CANNOT ASSURE YOU THAT MANAGEMENT WILL BE ABLE TO SUCCESSFULLY MANAGE OUR
BUSINESS OR SUCCESSFULLY IMPLEMENT OUR STRATEGIC PLAN. THIS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND THE RESULTS OF OUR OPERATIONS,
FINANCIAL CONDITION AND CASH FLOWS.
We have made many changes to our senior management over the past year.
Our management team has considerable experience in the chemicals industry. The
activity-based restructuring initiative and the voluntary severance program
initiated this year are expected to result in a reduction of ten percent (10%)
of our worldwide workforce. We cannot,
17
however, assure you that our management will be able successfully to manage our
business or successfully implement our strategic business plans. This could have
a material adverse effect on our results of operations, financial condition and
cash flows.
TERRORIST ATTACKS, THE CURRENT MILITARY ACTION IN IRAQ, GENERAL INSTABILITY IN
THE MIDDLE EAST AND OTHER ATTACKS OR ACTS OF WAR IN THE UNITED STATES AND ABROAD
MAY ADVERSELY AFFECT THE MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR
PROFITABILITY.
The attacks of September 11, 2001 and subsequent events, including the
current military action in Iraq, have caused political and financial instability
in the United States and other markets and have led to, and may continue to lead
to, further armed hostilities, prolonged military action in Iraq, or further
acts of terrorism in the United States or abroad, which could cause further
instability in financial markets and reduced consumer confidence. The threat of
terrorist attacks, the current military action in Iraq, and other related
developments may adversely affect economic conditions, which may reduce demand
for our products, decrease the ability of our customers to pay on a timely
basis, if at all, and diminish our ability to sell in certain markets. These
developments would subject us to increased risks, and depending on their
magnitude, could have a material adverse effect on our business.
RISKS RELATED TO THE EXCHANGE OFFER AND HOLDING THE NEW NOTES
HOLDERS WHO FAIL TO EXCHANGE THEIR OLD NOTES WILL CONTINUE TO BE SUBJECT TO
RESTRICTIONS ON TRANSFER.
If you do not exchange your old notes for new notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of your
old notes described in the legend on the certificates for your old notes. The
restrictions on transfer of your old notes arise because we issued the old notes
under exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the old notes if they are registered under
the Securities Act and applicable state securities laws, or offered and sold
under an exemption from these requirements. We do not plan to register the old
notes under the Securities Act. For further information regarding the
consequences of tendering your old notes in the exchange offer, see the
discussions below under the captions "The Exchange Offer -- Consequences of
Exchanging or Failing to Exchange Old Notes" and "Certain United States Federal
Income Tax Considerations."
YOU MUST COMPLY WITH THE EXCHANGE OFFER PROCEDURES IN ORDER TO RECEIVE NEW,
FREELY TRADABLE NEW NOTES.
Delivery of new notes in exchange for old notes tendered and accepted
for exchange pursuant to the exchange offer will be made only after timely
receipt by the exchange agent of a book entry confirmation of a book entry
transfer of old notes into the exchange agent's account at DTC, New York, New
York as depositary, including an Agent's Message (as defined herein). We are not
required to notify you of defects or irregularities in tenders of old notes for
exchange. Old notes that are not tendered or that are tendered but we do not
accept for exchange will, following consummation of the exchange offer, continue
to be subject to the existing transfer restrictions under the Securities Act
and, upon consummation of the exchange offer, certain registration and other
rights under the registration rights agreement will terminate. See "The Exchange
Offer -- Procedures for Tendering Old Notes" and "The Exchange Offer --
Consequences of Exchanging or Failing to Exchange Old Notes."
SOME HOLDERS WHO EXCHANGE THEIR OLD NOTES MAY BE DEEMED TO BE UNDERWRITERS AND
THESE HOLDERS WILL BE REQUIRED TO COMPLY WITH THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS IN CONNECTION WITH ANY RESALE TRANSACTION.
If you exchange your old notes in the exchange offer for the purpose of
participating in a distribution of the new notes, you may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
OUR LEVEL OF INDEBTEDNESS AND OTHER ARRANGEMENTS COULD LIMIT CASH FLOW AVAILABLE
FOR OUR OPERATIONS AND COULD ADVERSELY AFFECT OUR ABILITY TO SERVICE OUR DEBT OR
OBTAIN ADDITIONAL FINANCING, IF NECESSARY.
As of June 30, 2004, on an as adjusted basis after giving effect to the
completion of the Refinancing and the application of the net proceeds therefrom,
our total indebtedness would have been approximately $865.2 million (of which
$597.5 million would have consisted of the new notes and the balance would have
consisted of $267.7 million of other debt). Our level of indebtedness could
restrict our operations and make it more difficult for us to satisfy our
obligations under the
18
new notes. The indentures governing the new notes also allow us to continue to
engage in securitization transactions, and we expect to sell up to approximately
$250.0 million of our domestic and European accounts receivable under these
programs. Among other things, our substantial indebtedness and the covenants
contained therein, may:
o limit our ability to obtain additional financing for working
capital, capital expenditures, research and development,
acquisitions, and general corporate purposes;
o require us to dedicate all or a substantial portion of our cash flow
to service our debt, which will reduce funds available for other
business purposes, such as capital expenditures and research and
development;
o limit our flexibility in planning for or reacting to changes in the
markets in which we compete;
o place us at a disadvantage relative to our competitors with less
indebtedness;
o render us more vulnerable to general adverse economic and industry
conditions; and
o make it more difficult for us to satisfy our financial obligations,
including those relating to the new notes.
In addition, the indentures governing the new notes and our new
Revolving Credit Facility contain financial and other restrictive covenants that
limit our ability to engage in activities that may be in our long-term best
interests. Our failure to comply with those covenants could result in an event
of default which, if not cured or waived, could result in the acceleration of
all of our debt.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE
TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS
ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indentures do not fully prohibit us
or our subsidiaries from doing so. Our new Revolving Credit Facility permits
additional borrowing in a principal amount of up to $220.0 million, consisting
of a $120.0 million revolving credit facility and a $100.0 million pre-funded
revolving loan and letter of credit facility, and all borrowings under the new
Revolving Credit Facility are secured and therefore effectively senior to the
new notes. If new debt is added to our and our subsidiaries' current debt
levels, the related risks that we and they now face could intensify.
THE NEW NOTES AND THE SUBSIDIARY GUARANTEES ARE SUBJECT TO PRIOR CLAIMS OF OUR
SECURED CREDITORS, AND IF A DEFAULT OCCURS, WE MAY NOT HAVE SUFFICIENT FUNDS TO
FULFILL OUR OBLIGATIONS UNDER THE NEW NOTES AND THE SUBSIDIARY GUARANTEES.
Our assets and the assets of our subsidiaries are subject to prior
claims by our secured creditors. As of June 30, 2004, on an as adjusted basis
after giving effect to the Refinancing and the application of the net proceeds
therefrom, we would have had approximately $260.0 million of secured debt
(including the outstanding principal amount of our 7.75% Debentures due 2023 and
6.875% Debentures due 2026), no borrowings under our new Revolving Credit
Facility, and approximately $68.6 million of outstanding letters of credit. In
addition, the indentures permit us to incur additional secured debt, subject to
specified limitations. The indentures also allow us to continue to engage in
securitization transactions, and we expect to sell up to approximately $250.0
million of our domestic and European accounts receivable under these programs.
As a result of our entering into the new Revolving Credit Facility, our 7.75%
Debentures due 2023 and 6.875% Debentures due 2026 became secured on an equal
and ratable basis with certain borrowings under the new Revolving Credit
Facility, and therefore, are effectively senior to the new notes to the
extent of the assets securing such debt.
OUR ABILITY TO SERVICE OUR DEBT AND MEET OUR CASH REQUIREMENTS DEPENDS ON MANY
FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL.
Although there can be no assurances, we believe that the level of
borrowings available to us, including the net proceeds from the Refinancing and
available borrowings under our new Revolving Credit Facility, combined with cash
provided by our operations, will be sufficient to provide for our cash
requirements for the foreseeable future. However, our ability to satisfy our
obligations will depend on our future operating performance and financial
results, which will be subject, in part, to factors beyond our control,
including interest rates, commodity prices, general economic conditions, and
financial and business conditions. Certain of our subsidiaries may become
unrestricted subsidiaries under the indentures, in which case we may not have
access to the cash flows of these subsidiaries which will not be subject to the
restrictive covenants
19
under the indentures governing the new notes. If we are unable to generate
sufficient cash flow to service our debt, we may be required to:
o refinance all or a portion of our debt, including one or more series
of the new notes;
o obtain additional financing;
o sell some of our assets or operations;
o reduce or delay capital expenditures and acquisitions; or
o revise or delay our strategic plans.
If we are required to take any of these actions, it could have a
material adverse effect on our business, financial condition and results of
operations. In addition, we cannot assure you that we would be able to take any
of these actions, that these actions would enable us to continue to satisfy our
capital requirements and financial and other contractual obligations or that
these actions will be permitted under the terms of our various debt instruments,
including our new Revolving Credit Facility and the indentures.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NEW NOTES IS EFFECTIVELY SUBORDINATED TO
THE PRESENT AND FUTURE INDEBTEDNESS OF OUR SUBSIDIARIES THAT DO NOT GUARANTEE
THE NEW NOTES.
The new notes will be our general unsecured obligations. However, each
of our subsidiaries is a distinct legal entity, and our subsidiaries that do not
guarantee the new notes have no legal obligation to make payments on the new
notes or make funds available for those payments, whether by dividends, loans,
or other payments. The new notes, therefore, are structurally subordinated to
the indebtedness and other liabilities of non-guarantor subsidiaries, including
those owed to their trade creditors. In the event of a bankruptcy, liquidation,
reorganization, or similar proceeding with respect to us or any of our
subsidiaries, the assets of our non-guarantor subsidiaries will be available to
us only after all outstanding liabilities of the non-guarantor subsidiaries have
been paid in full. We also cannot assure you that if our non-guarantor
subsidiaries have their debt accelerated under their respective indebtedness or
otherwise that we will be able to repay the new notes. As of and for the year
ended December 31, 2003, our non-guarantor subsidiaries represented 46% of our
total assets before eliminations, and generated $1.2 billion of our revenues
before eliminations. The following expenses have been allocated only to us and
the guarantors: $24.7 million loss on early extinguishment of debt, $77.7
million of antitrust costs, $15.6 million of facility closures, severance and
related costs, and $22.1 million of other expense, net.
THE COVENANTS IN OUR NEW REVOLVING CREDIT FACILITY AND THE INDENTURES GOVERNING
THE NEW NOTES IMPOSE RESTRICTIONS THAT LIMIT OUR ABILITY AND THE ABILITY OF OUR
SUBSIDIARIES TO TAKE CERTAIN ACTIONS.
The covenants in our new Revolving Credit Facility and the indentures
governing the new notes restrict our ability and the ability of our restricted
subsidiaries to, among other things:
o incur additional debt;
o pay dividends and make other restricted payments;
o make certain investments;
o create or permit certain liens;
o issue or sell capital stock of restricted subsidiaries;
o create or permit restrictions on the ability of our restricted
subsidiaries to pay dividends or make other distributions to us;
o enter into transactions with affiliates;
20
o enter into sale and leaseback transactions;
o engage in certain business activities; and
o consolidate or merge or sell all or substantially all of our or
their respective assets.
Our new Revolving Credit Facility also contains other covenants
customary for credit facilities of this nature, including requiring us to meet
specified financial ratios and financial tests. Our ability to borrow under our
new Revolving Credit Facility depends upon satisfaction of these covenants.
Events beyond our control can affect our ability to meet those covenants.
If we are unable to meet the terms of our financial covenants, or if we
breach any of these covenants, a default could occur under one or more of these
agreements. A default, if not waived by our lenders or bondholders as required,
could result in the acceleration of our outstanding indebtedness and cause our
debt to become immediately due and payable. If acceleration occurs, we would not
be able to repay our debt and it is unlikely that we would be able to borrow
sufficient funds to refinance our debt. Even if new financing is made available
to us, it may not be on terms acceptable to us.
WE MAY BE UNABLE TO PURCHASE THE NEW NOTES UPON A CHANGE OF CONTROL.
Upon a change of control, we will be required to offer to purchase all
of the new notes then outstanding for cash at 101% of the principal amount
thereof plus accrued and unpaid interest, if any. If a change of control were to
occur, we may not have sufficient funds to pay the change of control purchase
price, and we may be required to obtain third party financing to do so. We may
not be able to obtain this financing on commercially reasonable terms, or on
terms acceptable to us, or at all. The events that cause a change of control
under the indentures may also result in an event of default under our new
Revolving Credit Facility, which may cause the acceleration of our other
indebtedness, in which case we would be required to pay our senior secured
indebtedness before we repay the new notes. Our future indebtedness may also
contain restrictions on our ability to repurchase the new notes upon certain
events, including transactions that would constitute a change of control under
the indentures. Our failure to repurchase the new notes upon a change of control
would constitute an event of default under the indentures.
The change of control provisions in the indentures may not protect you
in the event we consummate a highly leveraged transaction, reorganization,
restructuring, merger, or other similar transaction, even if such transaction
constitutes a change of control under the indentures. Such a transaction may not
involve a change in voting power or beneficial ownership or, even if it does,
may not involve a change in the magnitude required under the definition of
change of control in the indenture to trigger our obligation to repurchase the
new notes. Except as otherwise described above, the indentures do not contain
provisions that permit the holders of the new notes to require us to repurchase
or redeem the new notes in the event of a takeover, recapitalization, or similar
transaction.
THERE IS NO PUBLIC MARKET FOR ANY SERIES OF NEW NOTES, AND WE DO NOT KNOW IF A
MARKET WILL EVER DEVELOP OR, IF A MARKET DOES DEVELOP, WHETHER IT WILL BE
SUSTAINED.
Each series of new notes is a new issue of securities for which there
is no existing trading market. Accordingly, we cannot assure you that a liquid
market will develop for any series of new notes, that you will be able to sell
your notes at a particular time or that the prices that you receive when you
sell the new notes will be favorable.
We do not intend to apply for listing or quotation of any series of
notes on any securities exchange or stock market. The liquidity of any market
for the new notes will depend on a number of factors, including:
o the number of holders of new notes;
o our operating performance and financial condition;
o our ability to complete the offer to exchange the old notes for the
new notes;
o the market for similar securities;
o the interest of securities dealers in making a market in the new
notes; and
21
o prevailing interest rates.
Historically, the market for non-investment grade debt has been subject
to disruptions that have caused substantial volatility in the prices of these
securities. We cannot assure you that the market for any series of new notes
will be free from similar disruptions. Any such disruptions could have an
adverse effect on holders of the new notes.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM SUBSIDIARY
GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a subsidiary guarantee could be voided, or claims in
respect of a subsidiary guarantee could be subordinated to all other debts of
that subsidiary guarantor if, among other things, the subsidiary guarantor, at
the time it incurred the indebtedness evidenced by its subsidiary guarantee:
o received less than reasonably equivalent value or fair consideration
for the incurrence of such subsidiary guarantee; and
o was insolvent or rendered insolvent by reason of such incurrence; or
o was engaged in a business or transaction for which the subsidiary
guarantor's remaining assets constituted unreasonably small capital;
or
o intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that subsidiary guarantor pursuant to its
subsidiary guarantee could be voided and required to be returned to the
subsidiary guarantor, or to a fund for the benefit of the creditors of the
subsidiary guarantor.
22
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. Any old notes
that are properly tendered and exchanged pursuant to the exchange offer will be
retired and cancelled.
RATIO OF EARNINGS TO FIXED CHARGES
We have calculated the ratio of earnings to fixed charges in the
following table by dividing earnings by fixed charges. For this purpose,
earnings include earnings (loss) from continuing operations before income taxes
and cumulative effect of accounting change, equity income of equity method
investments, amortization of capitalized interest, adjustments for distributed
income of equity investees, plus fixed charges (less capitalized interest).
Fixed charges include interest expense, net of capitalized interest, capitalized
interest, and estimated interest within rental expense.
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ----------------
1999 2000 2001 2002 2003 2003 2004
---- ---- ---- ---- ---- ---- ----
DETERMINATION OF EARNINGS:
Earnings (loss) from continuing operations before
income taxes and cumulative effect of accounting change $(162.9) $ 48.2 $(235.6) $(54.3) $(154.8) $(39.0) $91.2
Equity income of equity method investments........... (10.6) (11.4) (9.2) (7.9) (13.2) (7.8) (9.7)
Fixed charges less capitalized interest.............. 76.7 131.8 120.3 110.9 97.8 56.9 38.4
Amortization of capitalized interest................. 1.8 2.0 2.4 2.6 1.8 0.9 0.9
Adjust for distributed income of equity investees.... 0.0 15.8 4.0 7.0 5.0 0.0 0.0
------ ------ ------- ----- ------ ----- ------
Total earnings (loss), as defined.................... $(95.0) $186.4 $(118.1) $58.3 $(63.4) $11.0 $120.8
====== ====== ======= ===== ====== ===== ======
FIXED CHARGES:
Interest expense, net of capitalized interest (a).... $69.8 $120.4 $109.9 $101.7 $89.7 $52.3 $35.1
Capitalized interest................................. 4.0 3.8 3.6 1.0 0.7 0.4 0.5
Estimate of interest within rental expense (b)....... 6.9 11.4 10.4 9.2 8.1 4.6 3.3
------ ------ ------- ----- ------ ----- ------
Total fixed charges, as defined...................... $80.7 $135.6 $123.9 $111.9 $98.5 $57.3 $38.9
====== ====== ======= ===== ====== ===== ======
Ratio of Earnings to Fixed Charges................... (c) 1.37 (c) (c) (c) (c) 3.11
====== ====== ======= ===== ====== ===== ======
(a) - Interest expense includes amortization of debt discount and expenses.
(b) - Represents 1/3 of rental expense under operating leases which is a
conservative estimate of an interest factor in our leases.
(c) - Total earnings (loss), as defined were less than fixed charges by $175.7
million, $242.0 million, $53.6 million, and $161.9 million in 1999, 2001, 2002
and 2003, respectively, and by $46.3 million for the six months ended June 30,
2003.
23
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives
effect to the sale of the OrganoSilicones business (OSI) and the acquisition of
the Specialty Chemicals Business from General Electric Company (GESC), together
referred to as "the transaction," and the impact of the Refinancing. The pro
forma combined statements of operations give effect to the transaction and the
Refinancing as if they had occurred on the first day of the period presented.
The pro forma combined balance sheet gives effect to the Refinancing as if it
occurred on the last day of the period presented. The information is based upon
the historical financial statements of Crompton and GESC. The information should
be read in conjunction with Crompton's historical financial statements, the
related notes, and other information contained elsewhere or incorporated by
reference in this prospectus. Certain items derived from Crompton's and GESC's
historical financial statements have been reclassified to conform to the
combined presentation.
The unaudited pro forma combined financial information is not
necessarily indicative of what the actual combined financial position or results
of operations would have been had the foregoing transaction been consummated on
the dates set forth therein, nor does it give effect to (i) any transaction
other than the sale of our OrganoSilicones business, acquisition of GESC and the
Refinancing or (ii) any synergies, cost savings, and one-time charges or credits
expected to result from the sale of our OrganoSilicones business and the
acquisition of GESC. Accordingly, the pro forma combined financial information
does not purport to be indicative of the financial position or results of
operations as of the date hereof, as of the effective date of the transaction,
or for any other future date or period.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2003
-------------------------------------------------------------
CROMPTON PRO FORMA PRO FORMA
AS REPORTED GESC ADJUSTMENTS COMBINED
----------- -------- ----------- --------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales.............................................. $ 2,185.0 $ 91.9 -- $ 2,276.9
Cost of products sold.................................. 1,616.0 70.8 -- 1,686.8
Selling, general and administrative.................... 353.0 13.7 -- 366.7
Depreciation and amortization.......................... 115.4 6.0 -- 121.4
Research and development............................... 51.5 1.0 -- 52.5
Equity income.......................................... (13.2) -- -- (13.2)
Facility closures, severance and related costs......... 19.6 -- -- 19.6
Antitrust costs........................................ 77.7 -- -- 77.7
----------- -------- ----------- --------
Operating profit (loss)................................ (35.0) 0.4 -- (34.6)
Interest expense....................................... 89.7 -- 2.0(a) 91.7
Loss on early extinguishment of debt (e)............... 24.7 -- -- 24.7
Other expense, net..................................... 5.4 (0.7) (0.6)(b) 2.1
(2.0)(c)
----------- -------- ----------- --------
Earnings (loss) from continuing operations before income
taxes and cumulative effect of accounting change.... (154.8) 1.1 0.6 (153.1)
Provision for incomes taxes............................ (36.1) 0.4 0.2(d) (35.5)
----------- -------- ----------- --------
Earnings (loss) from continuing operations before
cumulative effect of accounting change............. $ (118.7) $ 0.7 $ 0.4 $ (117.6)
============= ======= ============= ===========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Net earnings (loss) from continuing operations before
cumulative effect of accounting change ............. $ (1.05) $ (1.04)
============= ===========
Basic and diluted weighted average shares outstanding
(in millions)........................................ 112.5 112.5
============= ===========
24
UNAUDITED PRO FORMA COMBINED STATEMENT OF
OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
---------------------------------------------
CROMPTON PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS COMBINED
----------- ----------- --------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales............................................................ $ 1,271.1 $ -- $ 1,271.1
Cost of products sold................................................ 954.9 -- 954.9
Selling, general and administrative.................................. 188.6 -- 188.6
Depreciation and amortization........................................ 61.8 -- 61.8
Research and development............................................. 24.9 -- 24.9
Equity income........................................................ (9.7) -- (9.7)
Facility closures, severance and related costs....................... 5.7 -- 5.7
Antitrust costs...................................................... 8.4 -- 8.4
--------- --------- ---------
Operating profit (loss).............................................. 36.5 -- 36.5
Interest expense..................................................... 35.1 7.6(a) 42.7
Other (income) expense, net.......................................... (89.8) -- (89.8)
--------- --------- ---------
Earnings (loss) from continuing operations before income taxes and
cumulative effect of accounting change............................ 91.2 (7.6) 83.6
Provision for income taxes........................................... 29.2 (2.9)(d) 26.3
--------- --------- ---------
Earnings (loss) from continuing operations before cumulative effect of
accounting change................................................. $ 62.0 $ (4.7) $ 57.3
========= ========= =========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Net earnings (loss) from continuing operations before
cumulative effect of accounting change ........................... $ 0.54 $ 0.50
========= =========
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (in millions):
Basic................................................................ 114.6 114.6
========= =========
Diluted.............................................................. 114.8 114.8
========= =========
25
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2004
--------------------------------------------------------
CROMPTON PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS COMBINED
----------- ----------- --------
($ IN MILLIONS)
ASSETS
CURRENT ASSETS
Cash............................................... $ 55.2 $ 55.1 (f) $ 110.3
Accounts receivable................................ 246.2 -- 246.2
Inventories........................................ 383.3 -- 383.3
Other current assets............................... 147.3 -- 147.3
----------- ----------- ---------
Total current assets............................... 832.0 55.1 887.1
NON-CURRENT ASSETS
Property, plant and equipment...................... 730.5 -- 730.5
Cost in excess of acquired net assets.............. 417.2 -- 417.2
Other assets....................................... 476.5 7.8 (g) 503.1
(0.8) (h)
19.6 (i)
----------- ----------- ---------
$ 2,456.2 $ 81.7 $ 2,537.9
=========== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable...................................... $ 8.1 $ -- (f) $ 8.1
Current portion of long-term debt.................. 349.5 (349.5) (f) --
Accounts payable................................... 213.6 -- 213.6
Accrued expenses................................... 242.7 (13.7) (j) 229.0
Income taxes payable............................... 139.4 -- 139.4
Other current liabilities.......................... 15.3 -- 15.3
----------- ----------- ---------
Total current liabilities.......................... 968.6 (363.2) 605.4
NON-CURRENT LIABILITIES
Long-term debt..................................... 400.0 (140.5) (f) 857.1
597.5 (f)
0.1 (k)
Pension and post-retirement health care liabilities 566.1 -- 566.1
Other liabilities.................................. 193.4 -- 193.4
STOCKHOLDERS' EQUITY
Common stock....................................... 1.2 -- 1.2
Additional paid-in capital......................... 1,033.6 -- 1,033.6
Accumulated deficit................................ (539.6) (12.2) (l) (551.8)
Accumulated other comprehensive loss............... (122.3) -- (122.3)
Treasury stock at cost............................. (44.8) -- (44.8)
----------- ----------- ---------
Total stockholders' equity......................... 328.1 (12.2) 315.9
----------- ----------- ---------
$ 2,456.2 $ 81.7 $ 2,537.9
=========== =========== =========
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(a) Reflects a net increase in interest expense primarily resulting from
interest expense relating to the new notes, partially offset by the
repayment of our 8.50% Senior Notes and the 6.125% Senior Notes, borrowings
under our previous domestic Revolving Credit Facility and other long-term
debt outstanding as of the beginning of the period presented. Interest
expense relating to the new notes was based on a rate of 9 7/8% for the
fixed rate notes, a rate of 7.45% for the floating rate notes, which
represents LIBOR plus 5.75% as of August 3, 2004 and amortization of
initial discount on the fixed rate notes. Savings relating to the long-term
debt repaid were based on actual amounts reported and/or paid, and amounts
relating to our previous Revolving Credit Facility were based on interest
rates which were in effect at the beginning of the pro forma period. A 1/8%
increase or decrease in the rates on the new notes would result in a $0.8
million increase or decrease in interest expense for the year ended
December 31, 2003 and a $0.4 million increase or decrease for the six
months ended June 30, 2004.
(b) Reflects the reduction of fees attributable to the outstanding accounts
receivable securitization program related to OSI that was assumed to be
repaid with the proceeds from the sale of OSI.
(c) Reflects the accretion of the receivable due from GE to its face value.
Such receivable represents the present value of the minimum contingent
quarterly payments of $105.0 million to be received from GE over the
three-year period following the sale of OSI.
(d) Reflects the income tax effect of the pro forma adjustments based on the
applicable statutory tax rates.
(e) The pro forma loss on early extinguishment of debt does not reflect the
impact of the $19.0 million (net of taxes of $7.4 million) premium to
repurchase the 8.50% Senior Notes and 6.125% Senior Notes, the net impact
of the write-off of the deferred transaction costs relating to the 8.50%
Senior Notes and existing domestic Revolving Credit Facility and the
write-off of unamortized discounts relating to the 8.50% Senior Notes and
6.125% Senior Notes.
(f) Reflects the cash proceeds from the issuance of the new notes of $597.5
million, offset by our repayment of the $350.0 million balance of our 8.50%
Senior Notes, the $140.0 million of the $150.0 million balance of our
6.125% Senior Notes, the payment of $19.0 million of premiums
26
relating to the early extinguishment of the 8.50% Senior Notes and the
6.125% Senior Notes, the payment of $20.7 million of costs associated with
the issuance of the new notes and the new Revolving Credit Facility and the
payment of $12.6 million of accrued and unpaid interest.
(g) Reflects the deferred income tax effect on the premium noted in (f) and the
write-offs noted in (h) and (k). Such amounts are based on the applicable
statutory tax rates.
(h) Reflects the write-off of the deferred transaction costs relating to our
8.50% Senior Notes and existing domestic Revolving Credit Facility.
(i) Represents the deferred transaction costs relating to the issuance of the
new notes and Revolving Credit Facility, which are to be amortized over the
term of such notes and Revolving Credit Facility.
(j) Reflects the payment of $12.6 million of accrued and unpaid interest
related to the 8.50% and 6.125% Senior Notes and the existing domestic
Revolving Credit Facility and the payment of $1.1 million of accrued
issuance costs.
(k) Reflects the write-off of unamortized discounts relating to the 8.50%
Senior Notes and the 6.125% Senior Notes.
(l) Reflects the impact of the premium paid on the early extinguishment of debt
of $19.0 million (net of taxes of $7.4 million) and the net impact of the
write-off of the deferred transactions costs noted in (h), the write-off of
unamortized discounts noted in (k), and other fees and expenses noted in
(f). The tax effect of such amounts are based on the applicable statutory
tax rates.
27
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the periods presented, found in our Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q, which are incorporated by reference in this
prospectus, as well as in conjunction with the other information contained or
incorporated by reference in this prospectus. The selected historical financial
data as of December 31, 2002 and 2003 and for the years ended December 31, 2001,
2002, and 2003 are derived from our audited consolidated financial statements,
and for the six months ended June 30, 2003 and 2004 are derived from our
unaudited condensed consolidated financial statements, which are included in
this prospectus. The selected historical financial data as of and for the years
ended December 31, 1999 and 2000 are derived from our consolidated financial
statements, which are not included in this prospectus. The results for the six
months ended June 30, 2004, are not necessarily indicative of results to be
expected for the full year. The selected historical financial data for the six
month periods below reflect all adjustments (consisting primarily of normal
recurring adjustments except as otherwise described in the footnotes) which are,
in the opinion of management, necessary to present fairly the financial data for
the six month periods.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------- -----------------
1999(A)(B) 2000 2001 2002 2003 2003 2004
---------- ---- ---- ---- ---- ---- ----
($ IN MILLIONS)
SUMMARY OF OPERATIONS:
Net sales........................... $ 1,933.4 $ 2,554.0 $ 2,286.5 $ 2,090.3 $ 2,185.0 $ 1,064.9 $1,271.1
Gross profit........................ 669.6 763.6 659.9 622.0 569.0 285.3 316.2
Selling, general and administrative. 311.1 371.1 378.9 354.5 353.0 172.1 188.6
Depreciation and amortization....... 106.0 148.8 150.8 111.4 115.4 54.5 61.8
Research and development............ 57.9 59.2 56.0 54.3 51.5 24.8 24.9
Equity income (c)................... (10.6) (11.4) (9.2) (7.9) (13.2) (7.8) (9.7)
Facility closures, severance and
related costs.................... -- 20.2 101.5 18.0 19.6 3.5 5.7
Antitrust costs..................... -- -- -- 6.3 77.7 20.9 8.4
Impairment of long-lived assets..... -- -- 80.4 -- -- -- --
Acquired in-process research and
development...................... 195.0 -- -- -- -- -- --
Merger and related costs............ 29.5 -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------- --------
Operating profit (loss)............. (19.3) 175.7 (98.5) 85.4 (35.0) 17.3 36.5
Interest expense.................... 69.8 120.4 109.9 101.7 89.7 52.3 35.1
Loss on early extinguishment of debt (d) 24.6 -- -- -- 24.7 -- --
Other (income) expense, net (e)..... 49.2 7.1 27.2 38.0 5.4 4.0 (89.8)
--------- --------- --------- --------- --------- ---------- --------
Earnings (loss) from continuing
operations before income taxes
and cumulative effect of
accounting change................ (162.9) 48.2 (235.6) (54.3) (154.8) (39.0) 91.2
Income taxes (benefit).............. 27.0 22.8 (79.9) (18.9) (36.1) (12.8) 29.2
--------- --------- --------- --------- --------- ---------- --------
Earnings (loss) from continuing
operations before cumulative
effect of accounting change...... (189.9) 25.4 (155.7) (35.4) (118.7) (26.2) 62.0
Earnings from discontinued operations 14.9 63.9 31.8 50.9 26.3 23.3 --
Gain on sale of discontinued operations -- -- -- -- 111.7 -- --
Cumulative effect of accounting change -- -- -- (299.0) (0.4) (0.4) --
--------- --------- --------- --------- --------- ---------- --------
Net earnings (loss)(f).............. $ (175.0) $ 89.3 $ (123.9) $ (283.5) $ 19.0 $ (3.3) $ 62.0
========= ========= ========= ========= ========= ========== ========
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 10.5 $ 20.8 $ 21.5 $ 16.9 $ 39.2 $ 18.4 $ 55.2
Working capital (g)................. 390.2 624.4 412.7 365.6 109.2 443.0 (136.7)
Total assets........................ 3,726.6 3,528.3 3,232.2 2,840.8 2,529.2 2,860.1 2,456.2
Total debt (h)...................... 1,375.5 1,493.9 1,412.0 1,256.8 814.7 1,296.4 757.6
Stockholders' equity................ 759.9 754.0 547.5 199.9 302.7 254.8 328.1
OTHER DATA:
Net cash:...........................
Net cash (used in) provided by
operations....................... 88.6 210.6 205.0 201.8 (14.8) 31.1 (23.8)
Net cash (used in) provided by
investing activities............. 250.3 (246.9) (100.6) (21.8) 547.5 (32.9) 108.5
Net cash (used in) provided by
financing activities............. (339.2) 47.1 (103.0) (185.2) (514.3) 1.5 (68.0)
Capital spending from
continuing operations............ 131.8 107.1 92.3 84.3 81.7 28.7 29.5
Depreciation and amortization from
continuing operations............ 106.0 148.8 150.8 111.4 115.4 54.5 61.8
Dividends (per common share)........ 0.10 0.20 0.20 0.20 0.20 0.10 0.10
Interest expense.................... 69.8 120.4 109.9 101.7 89.7 52.3 35.1
Net debt (h)(i)..................... 1,365.0 1,473.1 1,390.5 1,239.9 775.5 1,278.0 702.4
28
(a) Our 1999 operating results may not be comparable to our operating results
in subsequent periods due to the merger of Crompton & Knowles Corporation
and Witco Corporation on September 1, 1999.
(b) The loss on early extinguishment of debt in 1999 has been reclassified from
an extraordinary item to a component of net earnings (loss) from continuing
operations before income taxes in accordance with FASB Statement No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections."
(c) Includes equity income from our 50% interest in the Gustafson seed
treatment joint venture of $10.8 million, $13.9 million, $12.1 million,
$7.6 million, and $12.7 million in 1999, 2000, 2001, 2002, and 2003,
respectively, and $7.6 million and $9.6 million for the six months ended
June 30, 2003 and June 30, 2004, respectively.
(d) In August 2003, we repurchased $250.0 million of our 8.50% Senior Notes. As
a result of the repurchase, we recorded a loss on early extinguishment of
debt of $24.7 million.
(e) Other (income) expense, net includes a loss of $83.3 million on the sale of
the textile colors business unit partially offset by a gain of $42.1
million on the sale of the specialty ingredients business unit in 1999,
losses of $17.3 million and $1.8 million on the sale of the Industrial
Colors business unit and the nitrile rubber joint venture, respectively, in
2001, a loss of $34.7 million on the sale of the Industrial Specialties
business unit in 2002, and a gain of $90.9 million on the sale of our 50%
interest in the Gustafson seed treatment joint venture for the six months
ended June 30, 2004. Other (income) expense, net also includes fees related
to our accounts receivable securitization programs of $6.3 million, $11.0
million, $10.5 million, $9.1 million and $7.8 million in 1999, 2000, 2001,
2002, and 2003, respectively, and $3.2 million and $4.3 million for six
months ended June 30, 2003 and June 30, 2004, respectively.
(f) For the year ended December 31, 2003, our net earnings and results of
operations include:
o income tax benefit of $36.1 million;
o interest expense of $89.7 million; and
o depreciation and amortization of $115.4 million, as well as
o loss on early extinguishment of debt of $24.7 million;
o antitrust costs of $77.7 million;
o facility closures, severance and related costs of $19.6 million; and
o other expense, net of $5.4 million.
For the six months ended June 30, 2004, our net earnings and results of
operations include:
o income tax expense of $29.2 million;
o interest expense of $35.1 million; and
o depreciation and amortization of $61.8 million, as well as
o antitrust costs of $8.4 million;
o facility closures, severance and related costs of $5.7 million; and
o other income, net of $89.8 million.
(g) The working capital balance at June 30, 2004 reflects the reclassification
of the carrying value of our $350.0 million of 8.50% Senior Notes to
short-term due to a scheduled maturity date of March 2005.
(h) Excludes accounts receivable securitization program to sell up to $150.0
million of domestic accounts receivable to agent banks, which program was
reduced to $115.0 million on April 15, 2004. Amounts sold under this
program were $164.7 million, $176.3 million, $132.0 million, $136.5
million, and $106.1 million as of December 31, 1999, December 31, 2000,
December 31, 2001, December 31, 2002, and December 31, 2003, respectively.
Amounts sold under this program were $150.0 million and $115.0 million as
of June 30, 2003 and 2004, respectively. As part of the Refinancing, this
facility was extended for approximately three years with an ability to sell
up to $125.0 million of domestic accounts receivable, which represents an
increase of $10.0 million from our previous ability to sell up to $115.0
million of domestic accounts receivable. In addition, our European
subsidiaries have a separate program to sell their eligible accounts
receivable to agent banks. International accounts receivable sold under
this program were $42.0 million, $105.6 million, $101.0 million, and $93.3
million as of December 31, 2000, December 31, 2001, December 31, 2002, and
December 31, 2003, respectively. Amounts sold under this program were
$102.0 million and $95.5 million as of June 30, 2003 and June 30, 2004,
respectively.
(i) Total debt less cash and cash equivalents.
29
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Subject to terms and conditions detailed in this prospectus, we will
accept for exchange old notes which are properly tendered on or prior to the
expiration date and not withdrawn as permitted below. As used herein, the term
"expiration date" means 5:00 p.m., New York City time, on , 2004. We may,
however, in our sole discretion, extend the period of time during which the
exchange offer is open. The term "expiration date" means the latest time and
date to which the exchange offer is extended.
As of the date of this prospectus, $600.0 million aggregate principal
amount of old notes are outstanding. This prospectus is first being sent on or
about the date hereof, to all holders of old notes known to us.
We expressly reserve the right, at any time, to extend the period of
time during which the exchange offer is open, and delay acceptance for exchange
of any old notes, by giving oral or written notice of such extension to the
holders thereof as described below. During any such extension, all old notes
previously tendered will remain subject to the exchange offer and may be
accepted for exchange by us. Any old notes not accepted for exchange for any
reason will be returned without expense to an account maintained with DTC
promptly after the expiration or termination of the exchange offer.
Old notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
We expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any old notes, upon the occurrence of any
of the conditions of the exchange offer specified under "--Conditions to the
exchange offer." We will give oral or written notice of any extension,
amendment, non acceptance or termination to the holders of the old notes as
promptly as practicable. Such notice, in the case of any extension, will be
issued by means of a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
PROCEDURES FOR TENDERING OLD NOTES
You may only tender your old notes by book-entry transfer of the old
notes into the exchange agent's account at DTC. The tender to us of old notes by
you as set forth below and our acceptance of the old notes will constitute a
binding agreement between us and you upon the terms and subject to the
conditions set forth in this prospectus. Except as set forth below, to tender
old notes for exchange pursuant to the exchange offer, you must transmit an
agent's message to Deutsche Bank Trust Company Americas, as exchange agent at
the address listed below under the heading "--Exchange Agent." In addition, the
exchange agent must receive, on or prior to the expiration date, a timely
confirmation of book-entry transfer (a "book-entry confirmation") of the old
notes into the exchange agent's account at DTC, along with an agent's message.
The term "agent's message" means a message, transmitted to DTC and
received by the exchange agent and forming a part of a book-entry transfer.
If you are a beneficial owner whose old notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee, and
wish to tender, you should promptly instruct the registered holder to tender on
your behalf. Any registered holder that is a participant in DTC's book-entry
transfer facility system may make book-entry delivery of the old notes by
causing DTC to transfer the old notes into the exchange agent's account.
We or the exchange agent in our sole discretion will make a final and
binding determination on all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of old notes tendered for exchange.
We reserve the absolute right to reject any and all tenders not properly
tendered or to not accept any tender which acceptance might, in our judgment or
our counsel's, be unlawful. We also reserve the absolute right to waive any
defects or irregularities or conditions of the exchange offer as to any tender
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). Our or the exchange agent's interpretation of the term and conditions of
the exchange offer as to any particular tender either before or after the
expiration date 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 a reasonable period of time, as we determine. We are not,
nor is the exchange agent or any other person, under any
30
duty to notify you of any defect or irregularity with respect to your tender of
old notes for exchange, and no one will be liable for failing to provide such
notification.
By tendering old notes, you represent to us that, among other things,
(i) the new notes acquired pursuant to the exchange offer are being obtained in
the ordinary course of business of the person receiving such new notes, whether
or not such person is the holder, (ii) that at the time of the commencement or
consummation of the exchange offer, neither the holder nor such other person has
any arrangement or understanding with any person to participate in the
distribution of the new notes, (iii) that neither the holder nor, to the
holder's knowledge, such other person is our "affiliate," as defined under Rule
405 under the Securities Act, (iv) if you are not a broker-dealer, you are not
engaging nor intend to engage in a distribution of the new notes, (v) if you are
a broker-dealer that receives new notes for your own account in exchange for old
notes acquired by as a result of market-making activities or other trading
activities, you will deliver a prospectus in connection with any resale of such
new notes, and (vi) and that you are not holding old notes that have, or are
reasonably likely to have, the status of an unsold allotment in the initial
offering.
If you are our "affiliate," as defined under Rule 405 under the
Securities Act, and engage in or intend to engage in or have an arrangement or
understanding with any person to participate in a distribution of such new notes
to be acquired pursuant to the exchange offer, you or any such other person:
o could not rely on the applicable interpretations of the staff of the
SEC; and
o must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
See "Plan of Distribution." 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.
By delivering an agent's message, a beneficial owner(whose old notes
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee) or holder will be deemed to have irrevocably appointed the
exchange agent as its agent and attorney-in-fact (with full knowledge that the
exchange agent is also acting as an agent for us in connection with the exchange
offer) with respect to the old notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with in
interest subject only to the right of withdrawal described in this prospectus),
to receive for our account all benefits and otherwise exercise all rights of
beneficial ownership of such old notes, in accordance with the terms and
conditions of the exchange offer.
Each beneficial owner or holder will also be deemed to have represented
and warranted to us that it has authority to tender, exchange, sell, assign and
transfer the old notes it tenders and that, when the same are accepted for
exchange, we will acquire good, marketable and unencumbered title to such old
notes, free and clear of all liens, restrictions, charges and encumbrances, and
that the old notes tendered are not subject to any adverse claims or proxies.
Each beneficial owner and holder, by tendering its old notes, also agrees that
it will comply with its obligations under the registration rights agreement.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date, all old notes
properly tendered and will issue the new notes promptly after acceptance of the
old notes. See "--Conditions to the Exchange Offer." For purposes of the
exchange offer, we will be deemed to have accepted properly tendered old notes
for exchange if and when we give oral (confirmed in writing) or written notice
to the exchange agent.
The holder of each old note accepted for exchange will receive a new
note in the amount equal to the surrendered old note. Holders of new notes on
the relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid on the old notes. Holders of new
notes will not receive any payment in respect of accrued interest on old notes
otherwise payable on any interest payment date, the record date for which occurs
on or after the consummation of the exchange offer.
In all cases, issuance of new notes for old notes that are accepted for
exchange will be made only after timely receipt by the exchange agent of an
agent's message and a timely confirmation of book-entry transfer of the old
notes into the exchange agent's account at DTC.
31
If any tendered old notes are not accepted for any reason set forth in
the terms and conditions of the exchange offer or if old notes are submitted for
a greater principal amount than the holder desires to exchange, such unaccepted
or non exchanged old notes will be returned without expense to an account
maintained with DTC promptly after the expiration or termination of the exchange
offer.
BOOK-ENTRY TRANSFERS
The exchange agent will make a request to establish an account for the
old notes at DTC for purposes of the exchange offer within two business days
after the date of this prospectus. Any financial institution that is a
participant in DTC's systems must make book-entry delivery of old notes by
causing DTC to transfer those old notes into the exchange agent's account at DTC
in accordance with DTC's procedure for transfer. This participant should
transmit its acceptance to DTC on or prior to the expiration date. DTC will
verify this acceptance, execute a book-entry transfer of the tendered old notes
into the exchange agent's account at DTC and then send to the exchange agent
confirmation of this book-entry transfer. The transmission of the notes and
agent's message to DTC and delivery by DTC to and receipt by the exchange agent
of the related agent's message will be deemed to be a valid tender.
WITHDRAWAL RIGHTS
For a withdrawal of a tender of notes to be effective, the exchange
agent must receive a valid withdrawal request through the Automated Tender Offer
Program system from the tendering DTC participant before the expiration date.
Any such request for withdrawal must include the VOI number of the tender to be
withdrawn and the name of the ultimate beneficial owner of the related notes in
order that such notes may be withdrawn. Properly withdrawn old notes may be
re-tendered by following the procedures described under "Procedures for
Tendering" above at any time on or before 5:00 p.m., New York City time, on
the expiration date.
We will determine all questions as to the validity, form and
eligibility, including time of receipt, of notices of withdrawal. Any old notes
so withdrawn will be deemed not to have been validly tendered for exchange. No
exchange notes will be issued unless the old notes so withdrawn are validly
retendered.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we are not
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer, if any of the following
events occur prior to acceptance of such old notes:
(a) the exchange offer violates any applicable law or applicable
interpretation of the staff of the SEC;
(b) there is instituted or threatened any action or proceeding in
any court or by any governmental agency which might materially
impair our ability to proceed with the exchange offer, and no
material adverse development shall have occurred in any
existing action or proceeding with respect to us; or
(c) all governmental approvals shall have been obtained, which
approvals we deem necessary for the consummation of the
Exchange Offer.
The foregoing conditions are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to any condition or may be
waived by us in whole or in part at any time in our reasonable discretion. Our
failure at any time to exercise any of the foregoing rights will not be deemed a
waiver of any such right and each such right will be deemed an ongoing right
which may be asserted at any time.
In addition, we will not accept for exchange any old notes tendered,
and no new notes will be issued in exchange for any such old notes, if at such
time any stop order is threatened or in effect with respect to the Registration
Statement, of which this prospectus constitutes a part, or the qualification of
the indenture under the Trust Indenture Act.
32
EXCHANGE AGENT
We have appointed Deutsche Bank Trust Company Americas as the exchange
agent for the exchange offer. Questions and requests for assistance, requests
for additional copies of this prospectus or of other documents should be
directed to the exchange agent addressed as follows:
DEUTSCHE BANK TRUST COMPANY AMERICAS
By Regular, Registered or By Hand: By Overnight Courier:
Certified Mail:
DB Services Tennessee, Inc. Deutsche Bank Trust Company Americas DB Services Tennessee, Inc.
Reorganization Unit C/O The Depository Trust Clearing Corporation Corporate Trust & Agency
P.O. Box 292737 55 Water Street, 1st floor Services
Nashville, TN 37229-2731 Jeannette Park Entrance Reorganization Unit
New York, NY 10041 648 Grassmere Park Road
Nashville, TN 37211
Attention: Security Holder
Relations
By Facsimile:
(615) 835-3701
Confirm by Telephone:
(800) 735-7777
FEES AND EXPENSES
The principal solicitation is being made by mail by Deutsche Bank Trust
Company Americas, as exchange agent. We will pay the exchange agent customary
fees for its services, reimburse the exchange agent for its reasonable out of
pocket expenses incurred in connection with the provision of these services and
pay other registration expenses, including fees and expenses of the trustee
under the indenture relating to the new notes, filing fees, blue sky fees and
printing and distribution expenses. We will not make any payment to brokers,
dealers or others soliciting acceptances of the exchange offer.
Additional solicitation may be made by telephone, facsimile or in
person by our and our affiliates' officers and regular employees and by persons
so engaged by the exchange agent.
ACCOUNTING TREATMENT
We will record the new notes at the same carrying value as the old
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. The
expenses of the exchange offer will be expensed as incurred.
TRANSFER TAXES
You will not be obligated to pay any transfer taxes in connection with
the tender of old notes in the exchange offer unless you instruct us to register
new notes in the name of, or request that old notes not tendered or not accepted
in the exchange offer be returned to, a person other than the registered
tendering holder. In those cases, you will be responsible for the payment of any
applicable transfer tax.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
If you do not exchange your old notes for new notes in the exchange
offer, your old notes will continue to be subject to the provisions of the
indenture relating to the old notes regarding transfer and exchange of the old
notes and the restrictions on transfer of the old notes described in the legend
on your certificates. These transfer restrictions are required because the old
notes were issued under an exemption from, or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws. In general, the old notes may not be offered or sold unless
registered under the Securities Act, except under an exemption from, or in a
transaction not subject to, the Securities Act and applicable
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state securities laws. We do not plan to register the old notes under the
Securities Act. Based on interpretations by the staff of the SEC, as set forth
in no action letters issued to third parties, we believe that the new notes you
receive in the exchange offer may be offered for resale, resold or otherwise
transferred without compliance with the registration and prospectus delivery
provisions of the Securities Act. However, you will not be able to freely
transfer the new notes if:
o you are our "affiliate," as defined in Rule 405 under the Securities
Act;
o you are not acquiring the new notes in the exchange offer in the
ordinary course of your business;
o you are holding old notes that have, or are reasonably likely to
have, the status of an unsold allotment in the initial offering;
o you have an arrangement or understanding with any person to
participate in the distribution, as defined in the Securities Act,
of the new notes you will receive in the exchange offer; or
o you are a participating broker-dealer.
We do not intend to request the SEC to consider, and the SEC has not considered,
the exchange offer in the context of a similar no action letter. As a result, we
cannot guarantee that the staff of the SEC would make a similar determination
with respect to the exchange offer as in the circumstances described in the no
action letters discussed above. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of new notes and has no arrangement or understanding to participate
in a distribution of new notes. If you are our affiliate, are engaged in or
intend to engage in a distribution of the new notes or have any arrangement or
understanding with respect to the distribution of the new notes you will receive
in the exchange offer, you may not rely on the applicable interpretations of the
staff of the SEC and you must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction involving the new notes. If you are a participating broker-dealer,
you must acknowledge that you will deliver a prospectus in connection with any
resale of the new notes. In addition, to comply with state securities laws, you
may not offer or sell the new notes in any state unless they have been
registered or qualified for sale in that state or an exemption from registration
or qualification is available and is complied with. The offer and sale of the
new notes to "qualified institutional buyers" (as defined in Rule 144A of the
Securities Act) is generally exempt from registration or qualification under
state securities laws. We do not plan to register or qualify the sale of the new
notes in any state where an exemption from registration or qualification is
required and not available.
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DESCRIPTION OF THE NEW NOTES
The Company will issue $375,000,000 aggregate principal amount of
9 7/8% Senior Notes due 2012 (the "Fixed Rate Notes"), and $225,000,000
aggregate principal amount of Senior Floating Rate Notes due 2010 (the "Floating
Rate Notes" and, together with the Fixed Rate Notes, the "New Notes"), in each
case under an indenture (each, individually, an "Indenture" and, collectively,
the "Indentures"), among itself, the Guarantors and Wells Fargo Bank, National
Association, as Trustee (each, individually, a "Trustee," and, collectively, the
"Trustees"). These are the same indentures under which the Old Notes were
issued.
The following is a summary of the material provisions of each
Indenture. It does not include all of the provisions of the Indentures. We urge
you to read the Indentures because they define your rights. The terms of each
series of Notes include those stated in the applicable Indenture and those made
part of such Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "TIA"). Copies of the forms of the Indentures may be obtained from
us at the address and phone number listed on the inside front cover of this
prospectus. You can find definitions of certain capitalized terms used in this
description under "-- Certain Definitions." Terms as used in this description
may differ in their meanings from similar terms used elsewhere in this
prospectus. For purposes of this section, references to the "Company" include
only Crompton Corporation, and not its Subsidiaries. The term "notes" or
"Notes," as used in this description, includes the Old Notes and the New Notes.
The Notes are senior unsecured obligations of the Company, ranking
equal in right of payment with all other senior unsecured obligations of the
Company. The Notes are effectively subordinated to all existing and future
secured debt of the Company and the Guarantors to the extent of the assets
securing such debt. The Notes also are effectively subordinated to any debt,
preferred stock obligations and other liabilities of the Company's Subsidiaries
that are not Guarantors. As of June 30, 2004, on an as adjusted basis as if the
offering and the Refinancing had occurred on such date, the Company and the
Guarantors would have had approximately $260.0 million of secured debt
outstanding, no borrowings under our new Revolving Credit Facility,
approximately $68.6 million of outstanding letters of credit, and the Company's
Subsidiaries that are not Guarantors would have had approximately $4.2 million
of debt outstanding. As of and for the year ended December 31, 2003, our
non-guarantor subsidiaries represented 46% of our total assets before
eliminations.
The Company will issue the Notes in fully registered form in
denominations of $1,000 and integral multiples thereof. Deutsche Bank Trust
Company Americas will initially act as Paying Agent and Registrar for the Notes.
The Notes may be presented for registration or transfer and exchange at the
offices of the Registrar. The Company may change any Paying Agent and Registrar
without notice to holders of the Notes (the "Holders"). The Company will pay
principal (and premium, if any) on the Notes at the Trustees' corporate trust
office. At the Company's option, interest may be paid at the Trustees' corporate
trust office or by check mailed to the registered address of Holders. The old
notes of any series that remain outstanding after the completion of the exchange
offer, together with the applicable new notes issued in connection with such
exchange offer, will be treated as a single class of securities under the
applicable Indenture under which such old notes and new notes were issued.
NEW NOTES VERSUS THE OLD NOTES
The new notes are substantially identical to the old notes, except that
the transfer restrictions and registration rights relating to the old notes do
not apply to the new notes.
PRINCIPAL, MATURITY AND INTEREST
$600.0 million in aggregate principal amount of Notes will be issued in
this offering. Additional Notes of each series may be issued from time to time
without notice or the consent of holders of Notes, subject to the limitations
set forth under "-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness."
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
FIXED RATE NOTES. The Fixed Rate Notes will mature on August 1, 2012 at their
principal amount, plus accrued and unpaid interest to, but not including, the
maturity date. Interest on the Fixed Rate Notes will accrue at the rate of 9
7/8% per annum and will be payable semi-annually in arrears on August 1 and
February 1, commencing on February 1, 2005. The Company will make each interest
payment to the holders of record of the Fixed Rate Notes on the immediately
preceding July 15 and
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January 15. Interest on the Fixed Rate Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from and
including the Issue Date of the Old Notes and will be computed on the basis of a
360-day year comprised of twelve 30-day months.
FLOATING RATE NOTES. The Floating Rate Notes will mature on August 1, 2010 at
their principal amount, plus accrued and unpaid interest to, but not including,
the maturity date. The Floating Rate Notes will bear interest at a rate per
annum, reset quarterly, equal to LIBOR plus 5.75%, as determined by the
calculation agent (the "Calculation Agent"), which shall initially be the
Trustee for the Floating Rate Notes. Interest on the Floating Rate Notes will be
payable in arrears on August 1 and February 1, commencing on February 1, 2005.
The Company will make each interest payment to the holders of record of the
Floating Rate Notes on the immediately preceding July 15 and January 15.
Interest on the Floating Rate Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from and
including the Issue Date of the Old Notes. Interest on the Floating Rate Notes
will be computed on the basis of a 360-day year for the actual number of days
elapsed.
Set forth below is a summary of certain of the defined terms used in
the Indenture relating solely to the Floating Rate Notes.
"LIBOR," with respect to an Interest Period, will be the rate
(expressed as a percentage per annum) for deposits in United States dollars for
a six-month period beginning on the second London Banking Day after the
Determination Date that appears on Telerate Page 3750 as of 11:00 a.m., London
time, on the Determination Date. If Telerate Page 3750 does not include such a
rate or is unavailable on a Determination Date, the Calculation Agent will
request the principal London office of each of four major banks in the London
interbank market, as selected by the Calculation Agent, to provide such bank's
offered quotation (expressed as a percentage per annum), as of approximately
11:00 a.m., London time, on such Determination Date, to prime banks in the
London interbank market for deposits in a Representative Amount in United States
dollars for a six-month period beginning on the second London Banking Day after
the Determination Date. If at least two such offered quotations are so provided,
LIBOR for the Interest Period will be the arithmetic mean of such quotations. If
fewer than two such quotations are so provided, the Calculation Agent will
request each of three major banks in New York City, as selected by the
Calculation Agent, to provide such bank's rate (expressed as a percentage per
annum), as of approximately 11:00 a.m., New York City time, on such
Determination Date, for loans in a Representative Amount in United States
dollars to leading European banks for a six-month period beginning on the second
London Banking Day after the Determination Date. If at least two such rates are
so provided, LIBOR for the Interest Period will be the arithmetic mean of such
rates. If fewer than two such rates are so provided, then LIBOR for the Interest
Period will be LIBOR in effect with respect to the immediately preceding
Interest Period.
"Interest Period" means the period commencing on and including an
interest payment date and ending on and including the day immediately preceding
the next succeeding interest payment date, with the exception that the first
Interest Period shall commence on and include the Issue Date and end on and
include January 31, 2005.
"Determination Date," with respect to an Interest Period, will be the
second London Banking Day preceding the first day of the Interest Period.
"London Banking Day" is any day in which dealings in United States
dollars are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
"Representative Amount" means a principal amount of not less than
U.S.$1,000,000 for a single transaction in the relevant market at the relevant
time.
"Telerate Page 3750" means the display designated as "Page 3750" on the
Moneyline Telerate service (or such other page as may replace Page 3750 on that
service).
The amount of interest for each day that the Floating Rate Notes are
outstanding (the "Daily Interest Amount") will be calculated by dividing the
interest rate in effect for such day by 360 and multiplying the result by the
principal amount of the Floating Rate Notes. The amount of interest to be paid
on the Floating Rate Notes for each Interest Period will be calculated by adding
the Daily Interest Amounts for each day in the Interest Period.
All percentages resulting from any of the above calculations will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point being rounded upwards
(e.g.,
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9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all
dollar amounts used in or resulting from such calculations will be rounded to
the nearest cent (with one-half cent being rounded upwards).
The interest rate on the Floating Rate Notes will in no event be higher
than the maximum rate permitted by New York law as the same may be modified by
United States law of general application.
REDEMPTION
Prior to (i) August 1, 2008, the Company may redeem all or a part of
the Fixed Rate Notes, and (ii) prior to August 1, 2007, the Company may redeem
all or a part of the Floating Rate Notes, in each case, upon not less than 30
nor more than 60 days' notice, at a redemption price equal to the greater of:
o 100% of the principal amount of such series of Notes thereof; or
o the present value, as determined by an Independent Investment
Banker, of
(a) 104.938% of the principal amount of such Fixed Rate
Note or 103.500% of such Floating Rate Note, as applicable, being
redeemed as of (i) August 1, 2008 with respect to the Fixed Rate
Notes, and (ii) August 1, 2007, with respect to the Floating Rate
Notes (assuming a 360-day year consisting of twelve 30-day
months), plus
(b) all required interest payments due on the applicable
series of Notes through (i) August 1, 2008 with respect to the
Fixed Rate Notes, and (ii) August 1, 2007 with respect to the
Floating Rate Notes (assuming that the rate of interest on the
Floating Rate Notes for the period from the redemption date
through August 1, 2007 will be equal to the rate of interest on
the Floating Rate Notes in effect on the redemption date), in each
case, (excluding accrued interest), discounted to the redemption
date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus in each
case, accrued interest to the redemption date.
"Adjusted Treasury Rate" means with respect to the applicable
redemption date, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date, plus 0.50%.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Reference Treasury Dealer as having a maturity comparable to the
Stated Maturity of the principal of the Fixed Rate Notes or the Floating Rate
Notes, as applicable, that would be utilized at the time of selection and in
accordance with customary financial practices in pricing new issues of corporate
debt securities of comparable maturity to the remaining life of such series of
Notes.
"Comparable Treasury Price" means, with respect to any redemption date,
(i) the average of the bid and asked prices for the applicable Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such date of redemption or purchase, as set
forth in the daily statistical release (or any successor release) published by
the Federal Reserve Bank of New York and designated "Composite 3:30 p.m.
Quotations for U.S. Government Securities"; or (ii) if such release (or any
successor release) is not published or does not contain such prices on such
business day, the average of the Reference Treasury Dealer Quotations.
"Independent Investment Banker" means any Reference Treasury Dealer
appointed by the Trustee after consultation with the Company.
"Reference Treasury Dealer" means each of (1) Deutsche Bank Securities
Inc. or any successor (or, if the foregoing shall not be a primary U.S.
Government securities dealer in New York City (a "Primary Treasury Dealer"), the
Company shall substitute therefor another Primary Treasury Dealer) and (2) any
Primary Treasury Dealer selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to any
Reference Treasury Dealer on any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the applicable Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date.
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Optional Redemption.
FIXED RATE NOTES. Except as set forth below, the Fixed Rate Notes are
not redeemable prior to August 1, 2008. Thereafter, the Company may redeem the
Fixed Rate Notes at its option, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on August 1 of the year set forth below:
OPTIONAL
YEAR REDEMPTION PRICE
---- ----------------
2008.................................... 104.938%
2009.................................... 102.469%
2010 and thereafter..................... 100.000%
In addition, the Company must pay accrued and unpaid interest on the
Notes redeemed to, but not including, the date of redemption.
FLOATING RATE NOTES. Except as set forth below, the Floating Rate Notes
are not redeemable prior to August 1, 2007. Thereafter, the Company may redeem
the Floating Rate Notes its option, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on August 1 of the year set forth below:
OPTIONAL
YEAR REDEMPTION PRICE
---- ----------------
2007.................................... 103.500%
2008.................................... 101.500%
2009 and thereafter..................... 100.000%
In addition, the Company must pay accrued and unpaid interest on the
Notes redeemed to, but not including, the date of redemption.
Optional Redemption Upon Equity Offerings. Notwithstanding the
foregoing, (i) at any time prior to August 1, 2007, the Company may redeem up to
35% of the aggregate principal amount of the Fixed Rate Notes outstanding at a
redemption price equal to 109.875% of the principal amount of thereof, and (ii)
at any time prior to August 1, 2007, the Company may redeem up to 35% of the
aggregate principal amount of the Floating Rate Notes outstanding at a
redemption price equal to 100% of the principal amount of thereof plus a premium
equal to the rate per annum on the Floating Rate Notes applicable on the date on
which notice of redemption is given, in each case on the redemption date,
together with accrued and unpaid interest, if any to, but not including, such
redemption date, with the net cash proceeds of one or more Equity Offerings (as
defined below); provided that
(1) at least 65% of the principal amount of Notes of the
series being redeemed remains outstanding immediately after any such
redemption; and
(2) the Company makes such redemption not more than 180 days
after the consummation of any such Equity Offering.
"Equity Offering" means any public or private issuance or sale of
Qualified Capital Stock of the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that the Company chooses to redeem less than all of any
series of the Notes, selection of the Notes of such series for redemption will
be made by the applicable Trustee either
(1) in compliance with the requirements of the principal
national securities exchange, if any, on which such Notes are listed;
or,
(2) on a pro rata basis, by lot or by such method as the
applicable Trustee shall deem fair and appropriate.
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No Notes of a principal amount of $1,000 or less shall be redeemed in
part. If a partial redemption is made with the proceeds of an Equity Offering,
the applicable Trustee will select the Notes of such series only on a pro rata
basis or on as nearly a pro rata basis as is practicable (subject to DTC
procedures). Notice of redemption will be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, then the notice of redemption that relates to such Note must state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Company has deposited with the Paying Agent
funds in satisfaction of the applicable redemption price.
GUARANTEES
The Guarantors will jointly and severally and unconditionally guarantee
the Company's obligations under the Indentures and the Notes on a senior
unsecured basis. The obligations of each Guarantor under its Guarantee will be
limited as necessary to prevent the Guarantee from constituting a fraudulent
conveyance or fraudulent transfer under applicable law.
Each Guarantor may consolidate with or merge into or sell its assets to
the Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of
the Company without limitation, or with other Persons upon the terms and
conditions set forth in the Indentures. See "-- Certain Covenants -- Merger,
Consolidation and Sale of Assets." In the event all of the Capital Stock of a
Guarantor is sold by the Company and the sale complies with the provisions set
forth in "-- Certain Covenants -- Limitation on Asset Sales," the Guarantor's
Guarantee will be released. In addition, if the Company designates any
Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in
accordance with the provisions of the applicable Indenture, the Guarantee of
such Guarantor will be released. Furthermore, a Guarantor will be released from
its Guarantee upon the legal or covenant defeasance of the Notes as described
under Legal Defeasance and Covenant Defeasance.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the
right to require that the Company purchase all or a portion of such Holder's
Notes pursuant to the offer described below (the "Change of Control Offer"), at
a purchase price equal to 101% of the principal amount thereof plus accrued
interest to, but not including, the date of purchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to each Trustee, which notice shall govern the terms of the Change
of Control Offer. Such notice shall state, among other things, the purchase
date, which must be no earlier than 30 days nor later than 60 days from the date
such notice is mailed, other than as may be required by law (the "Change of
Control Payment Date"). Holders electing to have a Note purchased pursuant to a
Change of Control Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third business day prior to the Change of Control
Payment Date.
The Company will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indentures applicable to a Change of Control Offer made by the Company
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
In addition, the Credit Agreement prohibits the Company from making the
Change of Control Offer. There can be no assurance that the Company will obtain
the consents necessary to consummate a Change of Control Offer from the lenders
under the Credit Agreement or other agreements governing outstanding
Indebtedness which may in the future prohibit the Change of Control Offer.
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Neither the Board of Directors of the Company nor the Trustees may
waive the covenant relating to a Holder's right to redemption upon a Change of
Control. Restrictions in the Indentures described herein on the ability of the
Company and its Restricted Subsidiaries to incur additional Indebtedness, to
grant liens on its property, to make Restricted Payments and to make Asset Sales
may also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
Notes, and there can be no assurance that the Company or the acquiring party
will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of the Company or any of its Subsidiaries by the management of
the Company. While such restrictions cover a wide variety of arrangements which
have traditionally been used to effect highly leveraged transactions, the
Indentures may not afford the Holders protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indentures, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indentures by virtue thereof.
The "Change of Control" provisions described above will apply during
any Suspension Period.
COVENANT SUSPENSION; COVENANT FALLAWAY
During any period of time (a "Suspension Period") that (i) the ratings
assigned to a series of Notes issued under an Indenture by the Rating Agencies
are Investment Grade Ratings and (ii) no Default or Event of Default has
occurred and is continuing under such Indenture, the Company and its Restricted
Subsidiaries shall not be subject to the terms of the covenants of such
Indenture described under "Limitations on Incurrence of Additional
Indebtedness," "Limitations on Restricted Payments," "Limitations on Dividend
and Other Payment Restrictions Affecting Restricted Subsidiaries," "Limitations
on Transactions with Affiliates," "Limitations on Asset Sales", and clause (2)
of the first paragraph under "Limitations on Mergers, Consolidations, Etc."
(collectively, the "Affected Covenants"). In the event that the Company and its
Restricted Subsidiaries are not subject to the Affected Covenants with respect
to a series of Notes for any period of time as a result of the preceding
sentence and, subsequently, the applicable Rating Agency has in effect,
withdrawn or downgraded the ratings assigned to such Notes below the required
Investment Grade Ratings, then for such Notes the Company and its Restricted
Subsidiaries will thereafter again be subject to the Affected Covenants and
compliance with respect to Restricted Payments made after the time of such
withdrawal or downgrade will be calculated in accordance with the provisions of
the covenant described under "-- Limitations on Restricted Payments" as if such
covenant had been in effect since the date of the execution of the applicable
Indenture. For purposes of the "-- Limitation on Asset Sales" covenant, upon the
reversion of any Suspension Period, the unutilized Net Proceeds Offer amount
will be reset to zero.
CERTAIN COVENANTS
The Indentures will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. (a)The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any of its Restricted
Subsidiaries that is or, upon such incurrence, becomes a Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness) and any
Restricted Subsidiary of the Company that is not or will not, upon such
incurrence, become a Guarantor may incur Acquired Indebtedness, in each case if
on the date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
would have been greater than 2.0 to 1.0.
(b) The Company will not, and will not permit any Guarantor to,
directly or indirectly, incur any Indebtedness which by its terms (or by the
terms of any agreement governing such Indebtedness) is expressly subordinated in
right of payment to any other Indebtedness of the Company or such Guarantor, as
the case may be, unless such Indebtedness is also by its terms
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(or by the terms of any agreement governing such Indebtedness) made expressly
subordinate to the Notes or the applicable Guarantee, as the case may be, to the
same extent and in the same manner as such Indebtedness is subordinated to other
Indebtedness of the Company or such Guarantor, as the case may be. For purposes
of the foregoing, no Indebtedness will be deemed to be subordinated in right of
payment to any other Indebtedness of the Company or any Guarantor solely by
virtue of such Indebtedness being unsecured or by virtue of the fact that the
holders of such Indebtedness have entered into one or more intercreditor
agreements giving one or more of such holders priority over the other holders in
the collateral held by them.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution
(other than dividends or distributions payable in Qualified Capital
Stock of the Company) on or in respect of shares of the Company's
Capital Stock to holders of such Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company;
(3) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Subordinated Indebtedness (other than the purchase,
repurchase or other acquisition of Subordinated Indebtedness in
anticipation of satisfaction of a sinking fund payment or final
maturity, in each case within six months of the due date of such
sinking fund obligation or final maturity); or
(4) make any Investment (other than Permitted Investments)
(each of the foregoing actions set forth in clauses (1), (2), (3) and
(4) being referred to as a "Restricted Payment");
if at the time of such Restricted Payment or immediately after giving effect
thereto,
(i) a Default or an Event of Default shall have occurred and
be continuing; or
(ii) the Company is not able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant; or
(iii) the aggregate amount of Restricted Payments (including
such proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash, being
the fair market value of such property as determined in good faith by
the Board of Directors of the Company) shall exceed the sum of
(w) 50% of the cumulative Consolidated Net Income (or
if cumulative Consolidated Net Income shall be a loss, minus
100% of such loss) of the Company earned beginning in the
quarter during which the Issue Date occurs to the end of the
Company's most recently ended fiscal quarter for which
financial statements have been made available to the Trustee
(the "Reference Date") (treating such period as a single
accounting period); plus
(x) 100% of the aggregate net cash proceeds received
by the Company from any Person (other than a Subsidiary of the
Company) from the issuance and sale subsequent to the Issue
Date and on or prior to the Reference Date of Qualified
Capital Stock of the Company or warrants, options or other
rights to acquire Qualified Capital Stock of the Company
(including the cash paid on exercise of such warrants,
options, or rights but excluding any debt security that is
convertible into, or exchangeable for, Qualified Capital
Stock); plus
(y) without duplication of any amounts included in
clause (iii)(x) above, 100% of the aggregate net cash proceeds
of any equity contribution received by the Company from a
holder of the Company's Capital Stock subsequent to the Issue
Date and on or prior to the Reference Date (excluding, in the
case of clauses (iii)(x) and (y), any net cash proceeds from
an Equity Offering to the extent used to redeem the Notes in
compliance with the provisions set forth under
"Redemption--Optional Redemption Upon Equity Offerings.");
plus
41
(z) without duplication, the sum of:
(1) the aggregate amount returned in cash on
or with respect to Investments (other than Permitted
Investments) made subsequent to the Issue Date
whether through interest payments, principal
payments, dividends or other distributions or
payments;
(2) the net cash proceeds received by the
Company or any of its Restricted Subsidiaries from
the disposition of all or any portion of such
Investments (other than to a Subsidiary of the
Company); and
(3) upon redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the fair
market value of such Subsidiary;
provided, however, that the sum of clauses (1), (2) and (3)
above shall not exceed the aggregate amount of all such
Investments made subsequent to the Issue Date.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date
of declaration of such dividend if the dividend would have been
permitted on the date of declaration;
(2) the acquisition of any shares of Capital Stock of the
Company, either (i) solely in exchange for shares of Qualified Capital
Stock of the Company or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of
the Company) of shares of Qualified Capital Stock of the Company;
(3) the acquisition of any Subordinated Indebtedness either
(i) solely in exchange for shares of Qualified Capital Stock of the
Company, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of
the Company) of (a) Qualified Capital Stock of the Company or (b)
Refinancing Indebtedness;
(4) so long as no Default or Event of Default shall have
occurred and be continuing, repurchases by the Company of Common Stock
(or options, warrants or other rights to purchase Common Stock) of the
Company from officers, directors and employees of the Company or any of
its Subsidiaries (in each case, current or former) or their authorized
representatives upon the death, disability or termination of employment
of such employees or termination of their seat on the board of the
Company in an aggregate amount not to exceed $2.5 million in any
calendar year;
(5) so long as no Default or Event of Default shall have
occurred and be continuing, payments of a quarterly dividend on the
Common Stock of the Company not to exceed $0.05 per share;
(6) the repurchase of Capital Stock deemed to occur upon the
exercise of stock options to the extent such Capital Stock represents a
portion of the exercise price of the stock options;
(7) make cash payments in lieu of the issuance of fractional
shares in an aggregate amount not to exceed $100,000 in the aggregate;
(8) satisfaction of Change of Control obligations on
Subordinated Obligations once the Company has fulfilled its obligations
relating to a Change of Control under the Indentures; and
(9) Restricted Payments which, when taken together with all
other Restricted Payments pursuant to this clause (9), do not exceed
$20 million.
In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2) (ii),
(3)(ii)(a), (4), (5), (7) and (9) shall be included in such calculation.
Limitation on Asset Sales. The Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless
42
(1) the Company or the applicable Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale
at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Company's Board of
Directors);
(2) at least 75% of the consideration received by the Company
or the Restricted Subsidiary, as the case may be, from such Asset Sale
shall be in the form of cash, Cash Equivalents, Additional Assets
and/or Replacement Assets (as defined) and is received at the time of
such disposition; provided that the amount of any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance
sheet) of the Company or any such Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes or any
Guarantee of a Guarantor) that are assumed by the transferee of any
such assets shall be deemed to be cash for purposes of this provision;
and
(3) upon the consummation of an Asset Sale (other than an
Excluded Asset Sale, the proceeds of which may be used as set forth in
(c) below), the Company shall apply, or cause such Restricted
Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale
within 365 days of receipt thereof either
(a) to permanently reduce senior secured Indebtedness
of the Company or any Restricted Subsidiary; and, in the case
of any such outstanding Indebtedness under any revolving
credit facility, effect a permanent reduction in the
availability under such revolving credit facility;
(b) to make a capital expenditure or investment in
properties and assets that replace the properties and assets
that were the subject of such Asset Sale or in properties and
assets (including Capital Stock) that will be used in the
business of the Company and its Restricted Subsidiaries as
existing on the Issue Date or in businesses reasonably related
thereto ("Replacement Assets");
(c) to the payment (i) of all criminal and civil
judgments rendered against, and all civil and criminal
settlements entered into by, the Company or any of its
Subsidiaries in connection with antitrust investigations and
related matters and all costs and expenses related thereto
("Antitrust Liabilities") and (ii) after the Board of
Directors of the Company shall have delivered a certified
resolution to the Trustee to the effect that the Company is
not required, under the rules and regulations of the SEC under
the 1934 Act, to state in its annual report that the Antitrust
Liabilities could have a material adverse effect on the
Company's financial condition, results of operation and
prospects, of pension and environmental liabilities of the
Company or any of its Restricted Subsidiaries, in each case
only with respect to the Net Cash Proceeds from Excluded Asset
Sales; and/or
(d) a combination of prepayment and investment
permitted by the foregoing clauses (3)(a) and (3)(b).
Pending the final application of such Net Cash Proceeds, the Company
may (a) temporarily reduce borrowings under the Credit Agreement or any other
revolving credit facility and (b) with respect to Net Cash Proceeds from
Excluded Asset Sales, retain such Net Cash Proceeds in a blocked account pending
application as set forth in clause 3(c) above; provided that upon a
determination made by the Board of Directors of the Company that such Net Cash
Proceeds are no longer needed for such purpose, such Net Cash Proceeds will then
be applied as set forth in clauses 3(a), 3(b) and/or 3(d) of the preceding
sentence. On the 366th day after an Asset Sale or such earlier date, if any, as
the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (3)(a), (3)(b) and (3)(d) of the preceding paragraph (each, a
"Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (3)(a), (3)(b) and (3)(d) of the preceding paragraph (each
a "Net Proceeds Offer Amount") shall be applied by the Company or such
Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") to
all Holders and, to the extent required by the terms of any Pari Passu
Indebtedness, to all holders of such Pari Passu Indebtedness, on a date (the
"Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders (and
holders of any such Pari Passu Indebtedness) on a pro rata basis, that amount of
Notes (and Pari Passu Indebtedness) equal to the Net Proceeds Offer Amount at a
price equal to 100% of the principal amount of the Notes (and Pari Passu
Indebtedness) to be purchased, plus accrued and unpaid interest thereon, if any,
to the date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then such
43
conversion or disposition shall be deemed to constitute an Asset Sale hereunder
and the Net Cash Proceeds thereof shall be applied in accordance with this
covenant.
The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10.0
million, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets", which transaction does not constitute a Change of Control,
the successor corporation shall be deemed to have sold the properties and assets
of the Company and its Restricted Subsidiaries not so transferred for purposes
of this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown
on the register of Holders within 30 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustees, and shall comply with the procedures
set forth in the Indentures. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes and holders of Pari Passu Indebtedness properly tender such Pari Passu
Indebtedness in an amount exceeding the Net Proceeds Offer Amount, the tendered
Notes and Pari Passu Indebtedness will be purchased on a pro rata basis based on
the aggregate amounts of Notes and Pari Passu Indebtedness tendered (and the
applicable Trustee shall select the tendered Notes of tendering Holders on a pro
rata basis based on the amount of Notes tendered). A Net Proceeds Offer shall
remain open for a period of 20 business days or such longer period as may be
required by law. If any Net Cash Proceeds remain after the consummation of any
Net Proceeds Offer, the Company may use those Net Cash Proceeds for any purpose
not otherwise prohibited by the Indentures. Upon completion of each Net Proceeds
Offer, the amount of Net Cash Proceeds will be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indentures, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "-- Limitations on Asset Sales" provisions of the
Indentures by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or permit to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to
(1) pay dividends or make any other distributions on or in
respect of its Capital Stock;
(2) make loans or advances to the Company or any other
Restricted Subsidiary or to pay any Indebtedness or other obligation
owed to the Company or any other Restricted Subsidiary of the Company;
or
(3) transfer any of its property or assets to the Company or
any other Restricted Subsidiary of the Company, except in each case for
such encumbrances or restrictions existing under or by reason of
(a) applicable law, rules, regulations or orders;
(b) the Indentures, the Notes and the Guarantees by
the Guarantors;
(c) customary non-assignment provisions of any
contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company;
(d) any agreement or instrument governing Acquired
Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any
Person, other than the Person or the properties or assets of
the Person or any Subsidiary of such Person so acquired;
44
(e) agreements existing on the Issue Date to the
extent and in the manner such agreements are in effect on the
Issue Date and any amendments, modifications, restatements,
renewals, or supplements thereof, provided that such
amendment, modification, restatement, renewal or supplement
does not contain provisions relating to such encumbrance or
restriction that are less favorable to the Company in any
material respect as determined by the Board of Directors of
the Company in their reasonable and good faith judgment than
the provisions relating to such encumbrance or restriction in
the agreement existing on the Issue Date;
(f) the Credit Agreement;
(g) restrictions on the transfer of assets subject to
any Lien permitted under the Indentures imposed by the holder
of such Lien;
(h) restrictions imposed by any agreement to sell
assets or Capital Stock permitted under the Indentures to any
Person pending the closing of such sale;
(i) customary provisions in joint venture agreements
and other similar agreements (in each case relating solely to
the respective joint venture or similar entity or the equity
interests therein) entered into in the ordinary course of
business;
(j) an agreement governing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clauses (b), (d), (e)
and (g) above; provided, however, that the provisions relating
to such encumbrance or restriction contained in any such
Indebtedness are no less favorable to the Company in any
material respect as determined by the Board of Directors of
the Company in their reasonable and good faith judgment than
the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clauses (b), (d),
(e) and (g);
(k) Indebtedness or other contractual requirements of
a Securitization Entity in connection with a Qualified
Securitization Transaction; provided that such restrictions
apply only to such Securitization Entity.
(l) restrictions on cash or other deposits of net
worth imposed by contracts entered into in the ordinary course
of business;
(m) encumbrances on property that exist at the time
the property was acquired by the Company or a Restricted
Subsidiary; and
(n) encumbrances contained in Permitted Foreign
Subsidiary Indebtedness that are no less favorable to the
Company in any material respect as determined by the Board of
Directors of the Company in their reasonable and good faith
judgment than the restrictions contained in the Credit
Agreement as in effect on the date hereof.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company
will not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Restricted Subsidiary) or permit any Person
(other than the Company or a Restricted Subsidiary) to own any Preferred Stock
of any Restricted Subsidiary of the Company.
Limitation on Liens. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom unless:
(1) in the case of Liens securing Subordinated Indebtedness,
the Notes or the Guarantee of such Guarantor, as the case may be, are
secured by a Lien on such property, assets or proceeds that is senior
in priority to such Liens; and
45
(2) in all other cases, the Notes or the Guarantee of such
Guarantor, as the case may be, are equally and ratably secured, except
for:
(a) Liens existing as of the Issue Date to the extent
and in the manner such Liens are in effect on the Issue Date;
(b) Liens securing obligations under the Credit
Agreement incurred pursuant to clauses (2) and (14) of the
definition of "Permitted Indebtedness" and Liens securing
obligations under clauses (18) and (19) of the definition of
Permitted Indebtedness;
(c) Liens securing the Notes and the Guarantees;
(d) Liens securing the Existing Securities incurred
pursuant to the Existing Indentures;
(e) Liens securing Indebtedness for borrowed money
(including secured reimbursement obligations under letters of
credit (and similar instruments) and related fees) if, after
giving effect to the granting of any such Lien, the Secured
Leverage Ratio of the Company and its Restricted Subsidiaries
is no more than 1.5 to 1.0;
(f) Liens in favor of the Company or a Restricted
Subsidiary of the Company on assets of any Restricted
Subsidiary of the Company;
(g) Liens securing Refinancing Indebtedness which is
incurred to Refinance any Indebtedness which has been secured
by a Lien permitted under the Indentures and which has been
incurred in accordance with the provisions of the Indentures;
provided, however, that such Liens: (i) are not materially
less favorable to the Holders and are not materially more
favorable to the lienholders with respect to such Liens than
the Liens in respect of the Indebtedness being Refinanced (in
each case as determined in the good faith judgment of the
Board of Directors of the Company); and (ii) do not extend to
or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so
Refinanced; and
(h) Permitted Liens.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the Company
and the Company's Restricted Subsidiaries) whether as an entirety or
substantially as an entirety to any Person unless:
(1) either:
(a) the Company shall be the surviving or continuing
corporation; or
(b) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the
Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of
the Company and of the Company's Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity");
(x) shall be a corporation organized or
existing under the laws of the United States or any
State thereof or the District of Columbia; and
(y) shall expressly assume, by supplemental
indenture (in form and substance satisfactory to the
applicable Trustee), executed and delivered to the
applicable Trustee, the punctual payment of the
principal of, and premium, if any, and interest on
all of the applicable Notes and the performance of
every covenant of the applicable Notes, the
applicable Indenture and the applicable Registration
Rights Agreement on the part of the Company to be
performed or observed;
46
(2) immediately after giving effect to such transaction and
the assumption contemplated by clause (1)(b)(y) above (including giving
effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be,
shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the "-- Limitation on
Incurrence of Additional Indebtedness" covenant;
(3) immediately after giving effect to such transaction and
the assumption contemplated by clause (1)(b)(y) above (including,
without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no
Default or Event of Default shall have occurred or be continuing; and
(4) the Company or the Surviving Entity shall have delivered
to the Trustee an officers' certificate and an opinion of counsel, each
stating that such consolidation, merger, sale, assignment, transfer,
lease, conveyance or other disposition and, if a supplemental indenture
is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of the applicable
Indenture and that all conditions precedent in the applicable Indenture
relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Notwithstanding the foregoing clauses (1), (2) and (3), the Company may
(x) merge with an Affiliate that is a Person that has no material assets or
liabilities and which was organized solely for the purpose of reorganizing the
Company in another jurisdiction and (y) merge with or into a Wholly Owned
Domestic Restricted Subsidiary, and as to (y) need not comply with paragraph (2)
above.
The Indentures will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indentures and the Notes with the same effect as if such
surviving entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of the Guarantee and the Indentures in
connection with any transaction complying with the provisions of "-- Limitation
on Asset Sales") will not, and the Company will not cause or permit any
Guarantor to, consolidate with or merge with or into any Person other than the
Company or any other Guarantor unless:
(1) the entity formed by or surviving any such consolidation
or merger (if other than the Guarantor) or to which such sale, lease,
conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State
thereof or the District of Columbia;
(2) such entity assumes by supplemental indentures all of the
obligations of the Guarantor on the Guarantee;
(3) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction and
the use of any net proceeds therefrom on a pro forma basis, the Company
could satisfy the provisions of clause (2) of the first paragraph of
this covenant.
Any merger or consolidation of a Guarantor with and into the
Company (with the Company being the surviving entity) or another
Guarantor that is a Wholly Owned Restricted Subsidiary of the Company
need only comply with clause (4) of the first paragraph of this
covenant.
Limitations on Transactions with Affiliates. (a) The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with, or for the
47
benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than
(x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate
Transactions on terms that are no less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $15.0 million
shall be approved by the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that involves
an aggregate fair market value of more than $30.0 million, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to the Company or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustees.
(b) The restrictions set forth in this covenant shall not apply to:
(1) reasonable fees and compensation paid to and indemnity
provided on behalf of, officers, directors, employees or consultants of
the Company or any Restricted Subsidiary of the Company as determined
in good faith by the Company's Board of Directors or senior management;
(2) transactions exclusively between or among the Company and
any of its Restricted Subsidiaries or exclusively between or among such
Restricted Subsidiaries, provided that such transactions are not
otherwise prohibited by the Indentures;
(3) any agreement as in effect as of the Issue Date or any
amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) in any replacement agreement thereto
so long as any such amendment or replacement agreement is not
materially more disadvantageous to the Holders than the original
agreement as in effect on the Issue Date (as determined in the good
faith judgment of the Board of Directors of the Company);
(4) Restricted Payments permitted by the Indentures and
Permitted Investments;
(5) transactions between any of the Company, any of its
Restricted Subsidiaries and any Securitization Entity in connection
with a Qualified Securitization Transaction; provided, in each case,
that such transactions are not otherwise prohibited by the Indentures;
(6) if such Affiliate Transaction is with any Person solely in
its capacity as a holder of Indebtedness or Capital Stock of the
Company or any of its Restricted Subsidiaries, if such Person is
treated no more favorably than any other holder of such Indebtedness or
Capital Stock of the Company or any of its Restricted Subsidiaries
which other holder is not an Affiliate of the Company or an Affiliate
of an Affiliate of the Company;
(7) sales or purchases of products or materials or the
providing of services in the ordinary course of business and on terms
at least as favorable as might have been reasonably obtained from a
third party, in the reasonable judgment of senior management; and
(8) any issuance of Qualified Capital Stock of the Company to
Affiliates of the Company and the granting or performance of
registration rights.
Additional Subsidiary Guarantees. If the Company or any of its
Restricted Subsidiaries, other than a Securitization Entity, transfers or causes
to be transferred, in one transaction or a series of related transactions in
excess of $500,000, any property to any Domestic Restricted Subsidiary that is
not a Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in another Domestic Restricted Subsidiary
having total assets with a fair market value in excess of $500,000, then such
transferee or acquired or other Restricted Subsidiary shall:
48
(1) execute and deliver, within 30 business days, to each
Trustee a supplemental indenture in form reasonably satisfactory to
such Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the
Notes issued under each Indenture and each Indenture on the terms set
forth in such Indenture; and
(2) deliver to each Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered
by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary.
Thereafter, such Restricted Subsidiary shall be a Guarantor for all
purposes of the Indentures. In no event will (a) Assured Insurance Company be a
Guarantor unless such entity either ceases to transact substantially all of its
business as an insurance entity or guarantees any other Indebtedness of the
Company or a Restricted Subsidiary of the Company, (b) Crompton International
Corp. be a Guarantor unless such entity engages in any business other than
acting as a holding company for the Company's foreign equity investments or
guarantees any other Indebtedness of the Company or a Restricted Subsidiary of
the Company, or (c) Crompton & Knowles Receivables Corporation be a Guarantor.
Conduct of Business. The Company and its Restricted Subsidiaries will
not engage in any businesses which are not the same, similar, ancillary or
reasonably related to or constitutes a reasonable extension or expansion of the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the Issue Date.
Payments for Consent. The Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid
any consideration to or for the benefit of any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indentures or the Notes unless such consideration is offered to be paid
and is paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Reports to Holders. The Indentures will provide that, whether or not
required by the rules and regulations of the Commission, so long as any Notes
are outstanding, the Company will furnish the Holders of Notes
(1) all quarterly and annual financial information that would
be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its consolidated
Subsidiaries (if the Company has designated any Unrestricted
Subsidiaries and such Unrestricted Subsidiaries would, individually or
in the aggregate, if a Restricted Subsidiary or Restricted
Subsidiaries, as the case may be, of the Company constitute a
Significant Subsidiary, showing in reasonable detail, 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, the financial condition and results of operations of the
Company and its Restricted Subsidiaries separate from the financial
condition and results of operations of such Unrestricted Subsidiaries
of the Company) and, with respect to the annual information only, a
report thereon by the Company's certified independent accounts; and
(2) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file
such reports, in each case within the time periods specified in the
Commission's rules and regulations.
In addition, following the consummation of the exchange offer
contemplated by the Registration Rights Agreement, whether or not required by
the rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability within
the time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as any Notes remain outstanding, it will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT
The following events are defined in each Indenture as "Events of
Default":
49
(1) the failure to pay interest on any Notes issued thereunder
when the same becomes due and payable and the default continues for a
period of 30 days;
(2) the failure to pay the principal on any Notes issued
thereunder, when such principal becomes due and payable, at maturity,
upon redemption or otherwise (including the failure to make a payment
to purchase such Notes tendered pursuant to a Change of Control Offer
or a Net Proceeds Offer);
(3) a default in the observance or performance of any other
covenant or agreement contained in such Indenture which default
continues for a period of 30 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee under such Indenture or the Holders of at
least 25% of the outstanding principal amount of the Notes under such
Indenture (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant, which will constitute an
Event of Default with such notice requirement but without such passage
of time requirement);
(4) the failure to pay at final stated maturity (giving effect
to any applicable grace periods and any extensions thereof) the stated
principal amount of any Indebtedness of the Company or any Restricted
Subsidiary of the Company, or the acceleration of the final stated
maturity of any such Indebtedness (which acceleration is not rescinded,
annulled or otherwise cured within 20 days of receipt by the Company or
such Restricted Subsidiary of notice of any such acceleration) if the
aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure
to pay principal at final stated maturity or which has been accelerated
(in each case with respect to which the 20-day period described above
has elapsed), aggregates $25.0 million or more at any time;
(5) one or more judgments in an aggregate amount in excess of
$25.0 million shall have been rendered against the Company or any of
its Restricted Subsidiaries and such judgments remain undischarged,
unpaid or unstayed or subject to a negotiated settlement or offer
agreement to pay the judgment over time for a period of 60 days after
such judgment or judgments become final, non-appealable and payable;
(6) certain events of bankruptcy affecting the Company or any
of its Significant Subsidiaries; or
(7) any Guarantee of a Significant Subsidiary ceases to be in
full force and effect or any Guarantee of a Significant Subsidiary is
declared to be null and void and unenforceable or any Guarantee of a
Significant Subsidiary is found to be invalid or any Guarantor that is
a Significant Subsidiary denies its liability under its Guarantee
(other than by reason of release of a Guarantor in accordance with the
terms of such Indenture).
If an Event of Default under an Indenture (other than an Event of
Default specified in clause (6) above with respect to the Company) shall occur
and be continuing, the applicable Trustee or the Holders of at least 25% in
principal amount of outstanding Notes then outstanding under such Indenture may
declare the principal of and accrued interest on all such Notes to be due and
payable by notice in writing to the Company and the applicable Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration", and the same shall become immediately due and payable.
If an Event of Default specified in clause (6) above with respect to
the Company occurs and is continuing, then all unpaid principal of, and premium,
if any, and accrued and unpaid interest on all of the outstanding Notes shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of any Trustee or any Holder.
Each Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes issued under such Indenture as described
in the preceding paragraph, the Holders of a majority in principal amount of
such Notes may rescind and cancel such declaration and its consequences with
respect to such series.
(1) if the rescission would not conflict with any judgment or
decree;
(2) if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due
solely because of the acceleration;
(3) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of
acceleration, has been paid;
50
(4) if the Company has paid the applicable Trustee its
reasonable compensation and reimbursed such Trustee for its expenses,
disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default
of the type described in clause (6) of the description above of Events
of Default, the applicable Trustee shall have received an officers'
certificate and an opinion of counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
The Holders of a majority in principal amount of Notes under an
Indenture may waive any existing Default or Event of Default under such
Indenture, and its consequences, except a default in the payment of the
principal of or interest on such Notes.
Holders of the Notes under an Indenture may not enforce the Indenture
relating to such or such Notes except as provided in such Indenture and under
the TIA. Subject to the provisions of such applicable Indenture relating to the
duties of the applicable Trustee, such Trustee is under no obligation to
exercise any of its rights or powers under such Indenture at the request, order
or direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable indemnity. Subject to all provisions of the applicable
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes under such Indenture have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to applicable Trustee or exercising any trust or power conferred on
such Trustee.
Under each Indenture, the Company is required to provide an officers'
certificate to the applicable Trustee promptly upon any such officer obtaining
knowledge of any Default or Event of Default which has not been cured at the
time the officer obtained knowledge under an applicable Indenture (provided that
such officers shall provide such certification at least annually whether or not
they know of any such Default or Event of Default) that has occurred and, if
applicable, describe such Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes under an Indenture ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by such Notes, except for
(1) the rights of Holders of Notes outstanding under such
Indenture to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due;
(2) the Company's obligations with respect to such Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments;
(3) the rights, powers, trust, duties and immunities of the
applicable Trustee and the Company's obligations in connection
therewith; and
(4) the Legal Defeasance provisions of such Indenture.
In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company released with respect to certain covenants
that are described in an Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs
under an Indenture, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the Notes
outstanding under such Indenture.
In order to exercise either Legal Defeasance or Covenant Defeasance
under an Indenture:
(1) the Company must irrevocably deposit with the applicable
Trustee, in trust, for the benefit of the Holders of the Notes issued
under such Indenture cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the Notes outstanding under such Indenture on the
stated date for payment thereof or on the applicable redemption date,
as the case may be;
51
(2) in the case of Legal Defeasance, the Company shall have
delivered to the applicable Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that:
(a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling; or
(b) since the date of such Indenture, there has been
a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders of the Notes issued under such Indenture will
not recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the applicable Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that the
Holders of the Notes issued under such Indenture will not recognize
income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or an
Event of Default resulting from the borrowing of funds to be applied to
such deposit and the grant of any Lien securing such borrowings);
(5) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under such
Indenture (other than a Default or an Event of Default resulting from
the borrowing of funds to be applied to such deposit and the grant of
any Lien securing such borrowings) or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound;
(6) the Company shall have delivered to the applicable Trustee
an officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes issued under
such Indenture over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(7) the Company shall have delivered to the applicable Trustee
an officers' certificate and an opinion of counsel, each stating that
all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with;
(8) the Company shall have delivered to the applicable Trustee
an opinion of counsel to the effect that assuming no intervening
bankruptcy of the Company between the date of deposit and the 91st day
following the date of deposit and that no Holder is an insider of the
Company, after the 91st day following the date of deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and
(9) certain other customary conditions precedent are
satisfied.
Notwithstanding the foregoing, the opinion of counsel required by
clause (2) above with respect to a Legal Defeasance need not be delivered if all
Notes issued under such Indenture not theretofore delivered to the applicable
Trustee for cancellation (1) have become due and payable or (2) will become due
and payable on the maturity date or redemption date within one year under
arrangements satisfactory to such Trustee for the giving of notice of redemption
by such Trustee in the name, and at the expense, of the Company.
52
SATISFACTION AND DISCHARGE
The Indenture as to a particular series of Notes will be discharged and
will cease to be of further effect (except as to surviving rights or
registration of transfer or exchange of the Notes, as expressly provided for in
such Indenture) as to all outstanding Notes issued under such Indenture when
(1) either:
(a) all such Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust) have been delivered to the
applicable Trustee for cancellation; or
(b) all such not theretofore delivered to the
applicable Trustee for cancellation (1) have become due and
payable or (2) will become due and payable within one year, or
are to be called for redemption within one year, under
arrangements reasonably satisfactory to such Trustee for the
giving of notice of redemption by such Trustee in the name,
and at the expense, of the Company, and the Company has
irrevocably deposited or caused to be deposited with such
Trustee funds in an amount sufficient to pay and discharge the
entire Indebtedness on the Notes not theretofore delivered to
such Trustee for cancellation, for principal of, premium, if
any, and interest on the Notes to the date of maturity or
redemption, as the case may be, together with irrevocable
instructions from the Company directing such Trustee to apply
such funds to the payment thereof at maturity or redemption,
as the case may be;
(2) the Company has paid all other sums payable under such
Indenture by the Company; and
(3) the Company has delivered to the applicable Trustee an
officers' certificate and an opinion of counsel stating that all
conditions precedent under such Indenture relating to the satisfaction
and discharge of such Indenture have been complied with.
MODIFICATION OF AN INDENTURE
From time to time, the Company, the Guarantors and the Trustee under an
Indenture, without the consent of the Holders outstanding under such Indenture,
may amend such Indenture for certain specified purposes, including curing
ambiguities, mistakes, defects or inconsistencies, so long as such change does
not, in the opinion of such Trustee, adversely affect the rights of any of such
Holders in any material respect, taken as a whole. In formulating its opinion on
such matters, such Trustee will be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely on an opinion of counsel.
Other modifications and amendments of such Indenture may be made with the
consent of the Holders of a majority in principal amount of the then outstanding
Notes issued under such Indenture, except that, without the consent of each
Holder of Notes issued under such Indenture affected thereby, no amendment may
(1) reduce the amount of such Notes whose Holders must consent
to an amendment;
(2) reduce the rate of or change or have the effect of
changing the time for payment of interest, including defaulted
interest, on any Notes;
(3) reduce the principal of or change or have the effect of
changing the fixed maturity of any such Notes, or change the date on
which such Notes may be subject to redemption or reduce the redemption
price therefor;
(4) make any such Notes payable in money other than that
stated in such Notes;
(5) make any change in provisions of such Indenture protecting
the right of each Holder to receive payment of principal of and
interest on such Note on or after the due date thereof or to bring suit
to enforce such payment, or permitting Holders of a majority in
principal amount of such Notes to waive Defaults or Events of Default;
(6) after the Company's obligation to purchase such Notes
arises thereunder, amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control or make and consummate a Net
Proceeds Offer with respect to any Asset Sale that has been
53
consummated or, after such Change of Control has occurred or such Asset
Sale has been consummated, modify any of the provisions or definitions
with respect thereto; or
(7) modify or change any provision of such Indenture or the
related definitions affecting the ranking of such Notes or any
Guarantee of such Notes in a manner which adversely affects the
Holders; or
(8) release any Guarantor of Notes issued under such Indenture
that is a Significant Subsidiary from any of its obligations under its
Guarantee of Notes issued under such Indenture or such Indenture
otherwise than in accordance with the terms of such Indenture.
GOVERNING LAW
The Indentures will provide that they, the Notes and the Guarantees
will be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEES
Each Indenture will provide that, except during the continuance of an
Event of Default under such Indenture, the applicable Trustee will perform only
such duties as are specifically set forth in such Indenture. During the
existence of an Event of Default under such Indenture, such Trustee will
exercise such rights and powers vested in it by such Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
Each Indenture and the provisions of the TIA contain certain
limitations on the rights of the applicable Trustee, should it become a creditor
of the Company, to obtain payments of claims in certain cases or to realize on
certain property received in respect of any such claim as security or otherwise.
Subject to the TIA, each Trustee will be permitted to engage in other
transactions; provided that if a Trustee acquires any conflicting interest as
described in the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the Indentures. Reference is made to each Indenture for the full definition of
all such terms, as well as any other terms used herein for which no definition
is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with or into the Company or
any of its Restricted Subsidiaries or assumed in connection with the acquisition
of assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Affiliate" means, with respect to any specified Person, any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Additional Assets" means (a) any properties or assets to be owned by
the Company or any Restricted Subsidiary and to be used in the business of the
Company and its Restricted Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto; or (b) 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.
"Asset Acquisition" means (1) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (2) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any
54
division or line of business of such Person or any other properties or assets of
such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Restricted Subsidiary of the Company of:
(1) any Capital Stock of any Restricted Subsidiary of the Company (other than
director's qualifying shares or shares required by applicable law to be held by
a Person other than the Company or a Restricted Subsidiary); or (2) any other
property or assets of the Company or any Restricted Subsidiary of the Company
other than in the ordinary course of business; provided, however, that asset
sales or other dispositions shall not include: (a) a transaction or series of
related transactions for which the Company or its Restricted Subsidiaries
receive aggregate consideration of less than $5.0 million; (b) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company as permitted under "Merger, Consolidation and Sale of
Assets;" (c) any Restricted Payment permitted by the "Limitation on Restricted
Payments" covenants or that constitutes a Permitted Investment; (d) the sale or
discount, in each case without recourse, of accounts receivable arising in the
ordinary course of business, but only in connection with the compromise or
collection thereof; (e) disposals or replacements of obsolete or worn out
equipment, (f) sales of accounts receivable and related assets (including
contract rights) of the type specified in the definition of "Qualified
Securitization Transaction" to a Securitization Entity for the fair market value
thereof; (g) the surrender or waiver of contract rights or the settlement,
release, or surrender of contract, tort or other claims; (h) the granting of
Liens not otherwise prohibited by the Indenture; and (i) sales of accounts
receivable from European subsidiaries to a factoring entity for value equivalent
to the face value of the receivable.
"Board of Directors" means, as to any Person, the board of directors
(or similar governing body) of such Person or any duly authorized committee
thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustees.
"Brazilian Program" means the existing program, or a successor thereto,
pursuant to which the Company guarantees loans made in Brazil to distributors of
the Company's products to facilitate payments to the Company or its Restricted
Subsidiaries.
"Capital Stock" means
(1) with respect to any Person that is a corporation, any and
all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person, and all
options, warrants or other rights to purchase or acquire any of the
foregoing; and
(2) with respect to any Person that is not a corporation, any
and all partnership, membership or other equity interests of such
Person, and all options, warrants or other rights to purchase or
acquire any of the foregoing.
"Capitalized Lease Obligation" means, as to any Person, the obligations
of such Person under a lease that are required to be classified and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued
by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof;
(2) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state
or any public instrumentality thereof maturing within one year from the
date of
55
acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from either S&P or Moody's;
(3) commercial paper and other debt securities maturing no
more than one year from the date of creation thereof and, at the time
of acquisition, having a rating of at least A-1 from S&P or at least
P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing
within one year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia or any U.S. branch of a foreign
bank having at the date of acquisition thereof combined capital and
surplus of not less than $250.0 million;
(5) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (1)
above entered into with any bank meeting the qualifications specified
in clause (4) above;
(6) investments in money market funds which invest
substantially all their assets in securities of the types described in
clauses (1) through (5) above; and
(7) with respect to a Foreign Subsidiary, obligations of
foreign obligors (including foreign sovereign nations) correlative in
type, maturity and rating to those set forth in clauses (1) through (5)
above.
"Change of Control" means the occurrence of one or more of the
following events:
(1) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any Person or group of related Persons
for purposes of Section 13(d) of the Exchange Act (a "Group"), together
with any Affiliates thereof (whether or not otherwise in compliance
with the provisions of the Indentures);
(2) the approval by the holders of Capital Stock of the
Company of any plan or proposal for the liquidation or dissolution of
the Company (whether or not otherwise in compliance with the provisions
of the Indentures);
(3) any Person or Group (other than any entity formed for the
purpose of owning Capital Stock of the Company) shall become the owner,
directly or indirectly, beneficially or of record, of shares
representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of the Company;
or
(4) the replacement of a majority of the Board of Directors of
the Company over a two-year period from the directors who constituted
the Board of Directors of the Company at the beginning of such period,
and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in
office who either were members of such Board of Directors at the
beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced
thereby,
(a) all income taxes of such Person and its
Restricted Subsidiaries, paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or
taxes attributable to sales or dispositions outside the
ordinary course of business);
(b) Consolidated Interest Expense; and
56
(c) Consolidated Non-cash Charges less any non-cash
items increasing Consolidated Net Income for such period, all
as determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period.
In addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to:
(1) the incurrence or repayment of any Indebtedness of such
Person or any of its Restricted Subsidiaries (and the application of
the proceeds thereof) giving rise to the need to make such calculation
and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or
repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities,
occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may
be (and the application of the proceeds thereof), occurred on the first
day of the Four Quarter Period; and
(2) any asset sales or other dispositions or Asset
Acquisitions (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries (including any Person who
becomes a Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired Indebtedness
and also including any Consolidated EBITDA (including any pro forma
expense and cost reductions calculated on a basis consistent with
Regulation S-X under the Exchange Act) attributable to the assets which
are the subject of the Asset Acquisition or asset sale or other
disposition during the Four Quarter Period) occurring during the Four
Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such
asset sale or other disposition or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness)
occurred on the first day of the Four Quarter Period. If such Person or
any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly
incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes
of determining the denominator (but not the numerator) of this "Consolidated
Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to
be so determined thereafter shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be
deemed to accrue at the rate per annum resulting after giving effect to
the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense; plus
(2) the product of (x) the amount of all dividend payments on
any series of Preferred Stock of such Person (other than dividends paid
in Qualified Capital Stock) paid, accrued or scheduled to be paid or
accrued during such period times (y) a fraction, the numerator of which
is one and the denominator of which is one minus the then current
effective consolidated federal, state and local income tax rate of such
Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and
its Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including without
limitation: (a) any amortization of
57
debt discount and amortization or write-off of deferred financing
costs; (b) the net costs under Interest Swap Obligations; (c) all
capitalized interest; and (d) the interest portion of any deferred
payment obligation; and
(2) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and
its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom
(1) after-tax gains or losses from Asset Sales (without regard
to the $2.5 million limitation set forth in the definition thereof) or
abandonments or reserves relating thereto;
(2) after-tax items classified as extraordinary or
nonrecurring gains or losses;
(3) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent (and up to the amount) that the
declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is restricted by a contract, operation of law
or otherwise, which restriction has not been waived;
(4) the net income of any Person, other than a Restricted
Subsidiary of the referent Person, except to the extent of cash
dividends or distributions paid to the referent Person or to a
Restricted Subsidiary of the referent Person by such Person;
(5) any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date;
(6) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued);
and
(7) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's
assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets.
For the purposes of this definition of Consolidated Net Income,
"nonrecurring" means any gain or loss as of any date that is not reasonably
likely to recur within the two years following such date; provided that if there
was a gain or loss similar to such gain or loss within the two years preceding
such date, such gain or loss shall not be deemed nonrecurring.
"Consolidated Non-cash Charges" means, with respect to any Person, for
any period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net Income
of such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Consolidated Tangible Assets" means total consolidated assets of the
Company and its Restricted Subsidiaries, less the following:
(1) all depreciation and valuation reserves and all other
reserves (except reserves for contingencies which have not been
allocated to any particular purpose) of the Company and its Restricted
Subsidiaries;
(2) the net book amount of all intangible assets of the
Company and its Restricted Subsidiaries, including, but without
limitation, the unamortized portions of such items as good will,
trademarks, trade names, patents and debt discount and expense less
debt premium; and
(3) appropriate adjustments on account of minority interests
of other Persons holding stock in Restricted Subsidiaries.
58
"Credit Agreement" means the Credit Agreement dated on or about the
Issue Date by and among the Company, the lenders party thereto in their
capacities as lenders thereunder and Deutsche Bank AG New York Branch, as
administrative agent, together with the related documents thereto (including,
without limitation, any guarantee agreements, security documents and pre-funded
revolving loan and letter of credit or similar facility), in each case as such
agreements may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including one or more
credit agreements, loan agreements, indentures or similar agreements extending
the maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding Restricted
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or agreements or any
successor or replacement agreement or agreements and whether by the same or any
other agent, lender or group of lenders, whether such refinancing or replacement
is under one or more debt facilities or commercial paper facilities, indentures
or other agreements, in each case with banks or other institutional lenders or
trustees or investors providing for revolving credit loans, term loans, notes or
letters of credit, together with related documents thereto.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event (other than an event which would
constitute a Change of Control), matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the sole option
of the holder thereof (except, in each case, upon the occurrence of a Change of
Control) on or prior to the final maturity date of the Notes.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary
incorporated or otherwise organized or existing under the laws of the United
States or any state thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"Excluded Asset Sale" means an Asset Sale consisting of a separate
business segment, division or line of business which, together with any other
Excluded Asset Sale, does not comprise assets or properties that generated
operating cash flow of more than an aggregate of 6.5% of Operating Cash Flow of
the Company, calculated based on, in each case, a percentage of Operating Cash
Flow for the most recent four full fiscal quarters for which financial
statements are available, and, if such Asset Sale consists of assets or
properties that are classified as a discontinued operations, calculated, with
respect to the Company, including such discontinued operation in Operating Cash
Flow; provided, that the total fair market value for all Excluded Asset Sales
shall not exceed $150.0 million.
"Existing Indenture" means the Indenture dated as of February 1, 1993,
as supplemented by the First Supplemental Indenture dated as of February 1,
1996, each as in effect on the Issue Date.
"Existing Securities" means the 7.75% Debentures due April 11, 2023,
the 6-1/8% Notes due 2006 and the 6-7/8% Debentures due 2026.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Except as
otherwise noted, fair market value shall be determined by the Board of Directors
of the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Board of Directors of the Company and delivered to the
Trustees.
"Foreign Subsidiary" means any Restricted Subsidiary other than a
Domestic Restricted Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements
59
of the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantee" means a guarantee of the Notes by a Guarantor.
"Guarantor" means (1) each of Uniroyal Chemical Company Inc. (New
Jersey); Uniroyal Chemical Company Inc. (Delaware); Crompton Holding
Corporation; Crompton Colors Incorporated; Kem Manufacturing Corporation;
Uniroyal Chemical Company Limited (Delaware); GT Seed Treatment Inc.; Uniroyal
Chemical Export Limited; GT Seed International Company; Naugatuck Treatment
Company; Crompton Sales Company Inc.; CNK Chemical Realty Corporation; Uniroyal
Chemical Leasing Company, Inc.; Weber City Road LLC; Monochem, Inc.; Crompton
Monochem, Inc.; Davis Standard Corporation; Crompton Europe Financial Services
Company, and (2) each of the Company's Restricted Subsidiaries that in the
future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of each Indenture as a Guarantor; provided that
any Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of such Indenture.
"Indebtedness" means with respect to any Person, without duplication,
(1) all indebtedness of such Person for borrowed money;
(2) all indebtedness of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations
and all Obligations under any title retention agreement (but excluding
trade accounts payable and other accrued liabilities arising in the
ordinary course of business that are not overdue by 90 days or more or
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted);
(5) all Obligations for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit
transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause
(8) below;
(7) all Obligations of any other Person of the type referred
to in clauses (1) through (6) which are secured by any lien on any
property or asset of such Person, the amount of such Obligation being
deemed to be the lesser of the fair market value of such property or
asset or the amount of the Obligation so secured;
(8) all Obligations under currency agreements and interest
swap agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with
the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indentures, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock.
"Independent Financial Advisor" means a firm which, in the judgment of
the Board of Directors of the Company, is independent and qualified to perform
the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
60
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any other Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries in the ordinary course of business
and on commercially reasonable terms. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"Investment Grade Rating" means (i) with respect to Moody's, a rating
equal to or higher than Baa3 (or the equivalent), and (ii) with respect to S&P,
a rating equal to or higher than BBB- (or the equivalent).
"Issue Date" means the date of original issuance of the Old Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest) but not including any interests in
accounts receivable and related assets conveyed by the Company or any of its
Restricted Subsidiaries in connection with any Qualified Securitization
Transaction.
"Moody's" means Moody's Investors Service, Inc. (or any successor to
the rating agency business thereof).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to
such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions);
(2) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements;
(3) repayment of Indebtedness and any accrued interest or
premium that is secured by the property or assets that are the subject
of such Asset Sale; and
(4) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale and
retained by the Company or any Restricted Subsidiary, as the case may
be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Operating Cash Flow" means the sum of operating profit and
depreciation and amortization.
"Pari Passu Indebtedness" means any Indebtedness of the Company or any
Guarantor that ranks pari passu in right of payment with the Notes or the
Guarantee of such Guarantor, as applicable.
"Permitted Indebtedness" means, without duplication, each of the
following:
61
(1) Indebtedness under the Notes issued on the Issue Date in
an aggregate principal amount not to exceed $600.0 million and the
Exchange Notes (as defined in the Registration Rights Agreement) and
the Guarantees thereof;
(2) Indebtedness incurred pursuant to the Credit Agreement in
an aggregate principal amount at any time outstanding not to exceed
$300.0 million less the amount of any payments made under the Credit
Agreement pursuant to clause 3(a) of the first sentence of
"--Limitation on Asset Sales."
(3) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or permanent prepayments when actually
paid or permanent reductions thereon;
(4) Interest Swap Obligations of the Company or any Restricted
Subsidiary of the Company covering Indebtedness of the Company or any
of its Restricted Subsidiaries; provided, however, that such Interest
Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on its
outstanding Indebtedness to the extent the notional principal amount of
such Interest Swap Obligation does not, at the time of the incurrence
thereof, exceed the principal amount of the Indebtedness to which such
Interest Swap Obligation relates;
(5) Indebtedness under Currency Agreements; provided that in
the case of Currency Agreements which relate to Indebtedness, such
Currency Agreements do not increase the Indebtedness of the Company and
its Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(6) Indebtedness of a Restricted Subsidiary of the Company to
the Company or to a Restricted Subsidiary of the Company for so long as
such Indebtedness is held by the Company or a Restricted Subsidiary of
the Company or the holder of a Lien permitted under the Indentures, in
each case subject to no Lien held by a Person other than the Company or
a Restricted Subsidiary of the Company or the holder of a Lien
permitted under the Indentures; provided that if as of any date any
Person other than the Company or a Restricted Subsidiary of the Company
or the holder of a Lien permitted under the Indentures owns or holds
any such Indebtedness or holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness under this clause (6) by the issuer
of such Indebtedness;
(7) Indebtedness of the Company to a Restricted Subsidiary of
the Company for so long as such Indebtedness is held by a Restricted
Subsidiary of the Company or the holder of a Lien permitted under the
Indenture, in each case subject to no Lien other than a Lien permitted
under the Indentures; provided that (a) any Indebtedness of the Company
to any Restricted Subsidiary of the Company that is not a Guarantor is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Indentures and the Notes and (b) if as
of any date any Person other than a Restricted Subsidiary of the
Company or the holder of a Lien permitted under the Indentures owns or
holds any such Indebtedness or any Person holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness under this clause
(7) by the Company;
(8) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within five business
days of incurrence;
(9) Indebtedness of the Company or any of its Restricted
Subsidiaries in respect of performance bonds, bankers' acceptances,
workers' compensation claims, surety or appeal bonds, payment
obligations in connection with self-insurance or similar obligations,
and bank overdrafts (and letters of credit in respect thereof) in the
ordinary course of business;
(10) Indebtedness represented by Capitalized Lease Obligations
and Purchase Money Indebtedness of the Company and its Restricted
Subsidiaries incurred in the ordinary course of business not to exceed
the greater of (a) $20.0 million or (b) 1% of Consolidated Tangible
Assets of the Company, at any one time outstanding;
62
(11) Refinancing Indebtedness;
(12) Indebtedness represented by guarantees by the Company or
its Restricted Subsidiaries of Indebtedness otherwise permitted to be
incurred under the Indentures;
(13) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of
purchase price adjustments in connection with the acquisition or
disposition of assets;
(14) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $50.0
million at any one time outstanding (which amount may, but need not, be
incurred in whole or in part under the Credit Agreement);
(15) the incurrence by a Securitization Entity of Indebtedness
in a Qualified Securitization Transaction that is not recourse to the
Company or any Restricted Subsidiary (except for Standard
Securitization Undertakings);
(16) Indebtedness incurred during any Suspension Period;
(17) guarantees made in connection with the Brazilian Program
not to exceed $5.0 million at any one time outstanding;
(18) Indebtedness incurred to refinance attributed
indebtedness (and to pay reasonable fees, expenses or premiums)
associated with a Securitization Entity incurred in the ordinary course
of business and refinancings thereof; and
(19) Indebtedness of Restricted Subsidiaries that are not
Domestic Subsidiaries in an aggregate principal amount not to exceed
$25.0 million at any one time outstanding (which amount may, but need
not, be incurred in whole or in part under the Credit Agreement)
("Permitted Foreign Subsidiary Indebtedness").
For purposes of determining compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Indebtedness described in clauses (1) through (19) above or is entitled to be
incurred pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of
such covenant, the Company shall, in its sole discretion, classify (or later
reclassify) such item of Indebtedness in any manner that complies with this
covenant; provided that all secured Indebtedness outstanding under the Credit
Agreement up to the maximum amount permitted under clause (2) above shall be
deemed to have been incurred pursuant to clause (2). Accrual of interest,
accretion or amortization of original issue discount, fluctuations in currency
exchange rates, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Capital Stock in the form of additional shares of the same class of
Disqualified Capital Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Capital Stock for purposes of the
"Limitations on Incurrence of Additional Indebtedness" covenant.
"Permitted Investments" means
(1) Investments by the Company or any Restricted Subsidiary of
the Company in any Person that is or will become immediately after such
Investment a Restricted Subsidiary of the Company or that will merge or
consolidate into the Company or a Restricted Subsidiary of the Company;
provided, however, that this clause (1) shall not permit any investment
by the Company or a Domestic Restricted Subsidiary in a Foreign
Subsidiary other than cash or Cash Equivalents and transfers of other
property in the ordinary course of business;
(2) Investments in the Company by any Restricted Subsidiary of
the Company; provided that any Indebtedness evidencing such Investment
and held by a Restricted Subsidiary that is not a Guarantor is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Notes and the Indenture;
(3) investments in cash and Cash Equivalents;
(4) loans and advances to employees, directors and officers of
the Company and its Restricted Subsidiaries in the ordinary course of
business for bona fide business purposes not in excess of $2.0 million
at any one time outstanding;
63
(5) Currency Agreements and Interest Swap Obligations entered
into in the ordinary course of the Company's or its Restricted
Subsidiaries' businesses and otherwise in compliance with the
Indentures;
(6) additional Investments not to exceed $35.0 million at any
one time outstanding;
(7) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers
or in good faith settlement of delinquent obligations of such trade
creditors or customers;
(8) Investments made by the Company or its Restricted
Subsidiaries as a result of consideration received in connection with
an Asset Sale made in compliance with the "Limitation on Asset Sales"
covenant;
(9) Investments represented by guarantees that are otherwise
permitted under the Indentures;
(10) Investments the payment for which is Qualified Capital
Stock of the Company;
(11) any Indebtedness of the Company to any of its
subsidiaries incurred in connection with the purchase of accounts
receivable and related assets by the Company from any such subsidiary
which assets are subsequently conveyed by the Company to a
Securitization Entity in a Qualified Securitization Transaction;
(12) Investments relating to purchase or acquisition of
products or services from vendors, manufacturers or suppliers in the
ordinary course of business;
(13) Deposits required by government agencies or public
utilities (including pertaining to taxes or other charges) in the
ordinary course of business;
(14) any assets, Capital Stock or other securities to the
extent acquired in exchange for shares of Qualified Capital Stock;
(15) any Investment made in joint ventures of the Company or
its Restricted Subsidiaries in existence on the Issue Date and pursuant
to documentation as in effect on the Issue Date, not to exceed $4.0
million in any fiscal year (other than any modifications which merely
extend the term of such Investment);
(16) Investments made during any Suspension Period;
(17) Investments consisting of guarantees made pursuant to
clause (17) of the definition of Permitted Indebtedness; and
(18) the acquisition by the Company of obligations of one or
more officers, directors or employees of the Company or any of its
Subsidiaries in connection with such officers', directors' or
employees' acquisition of shares of capital stock of the Company so
long as no cash is paid by the Company or any of its Subsidiaries to
such officers, directors or employees in connection with the
acquisition of any such obligations.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or
claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if a reserve
or other appropriate provision, if any, as required by GAAP shall have
been made in respect thereof;
(3) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
64
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(5) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized
Lease Obligation; provided that such Liens do not extend to any
property or assets which is not leased property subject to such
Capitalized Lease Obligation;
(7) Liens securing Purchase Money Indebtedness incurred in the
ordinary course of business; provided, however, that (a) such Purchase
Money Indebtedness shall not exceed the purchase price or other cost of
such property or equipment and shall not be secured by any property or
equipment of the Company or any Restricted Subsidiary of the Company
other than the property and equipment so acquired and (b) the Lien
securing such Purchase Money Indebtedness shall be created within 120
days of such acquisition;
(8) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or
other goods;
(9) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds
thereof;
(10) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty
requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off;
(11) Liens securing Interest Swap Obligations which Interest
Swap Obligations relate to Indebtedness that is otherwise permitted
under the Indentures;
(12) Liens securing Indebtedness under Currency Agreements;
(13) Liens securing Acquired Indebtedness incurred in
accordance with the "Limitation on Incurrence of Additional
Indebtedness" covenant; provided that
(a) such Liens secured such Acquired Indebtedness at
the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the
Company and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Indebtedness
by the Company or a Restricted Subsidiary of the Company; and
(b) such Liens do not extend to or cover any property
or assets of the Company or of any of its Restricted
Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the
lienholders in any material respect as determined by the Board
of Directors of the Company than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the
Company;
(14) Liens on assets of a Restricted Subsidiary of the Company
that is not a Guarantor to secure Indebtedness of such Restricted
Subsidiary that is otherwise permitted under the Indentures;
(15) leases, subleases, licenses and sublicenses granted to
others that do not materially interfere with the ordinary cause of
business of the Company and its Restricted Subsidiaries;
65
(16) banker's Liens, rights of setoff and similar Liens with
respect to cash and Cash Equivalents on deposit in one or more bank
accounts in the ordinary course of business;
(17) Liens arising from filing Uniform Commercial Code
financing statements regarding leases;
(18) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payments of custom duties in connection
with the importation of goods; and
(19) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $2.5 million in an aggregate principal
amount at any one time outstanding.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment (including
Capital Stock).
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Securitization Transaction" means any transaction or series
of transactions that may be entered into by the Company or any of its Restricted
Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer pursuant to customary terms to:
(1) a Securitization Entity or to the Company, which
subsequently transfers to a Securitization Entity (in the case of a
transfer by the Company or any of its Restricted Subsidiaries); and
(2) any other person (in the case of 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
Restricted Subsidiaries, and any assets related thereto including, without
limitation, 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) which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable.
"Rating Agencies" means Moody's and S&P.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clauses (2), (4), (5), (6), (7), (8), (9), (10), (12), (13), (14),
(15), (17), (18) or (19) of the definition of Permitted Indebtedness), in each
case that does not:
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of
the instrument governing such Indebtedness and plus the amount of
reasonable fees and expenses incurred by the Company in connection with
such Refinancing); or
66
(2) create Indebtedness with: (a) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced; or (b) a final maturity earlier than the
final maturity of the Indebtedness being Refinanced; provided that (x)
if such Indebtedness being Refinanced is Indebtedness solely of the
Company (and is not otherwise guaranteed by a Restricted Subsidiary of
the Company), then such Refinancing Indebtedness shall be Indebtedness
solely of the Company and (y) if such Indebtedness being Refinanced is
subordinate or junior to the Notes or any Guarantee, then such
Refinancing Indebtedness shall be subordinate to the Notes or such
Guarantee, as the case may be, at least to the same extent and in the
same manner as the Indebtedness being Refinanced.
"Restricted Subsidiary" of any Person means any Subsidiary of such
Person which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Service, a division of McGraw
Hill, Inc. (or any successor to the rating agency business thereof).
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"Secured Leverage Ratio" means the ratio of (i) outstanding secured
Indebtedness of the Company and its Restricted Subsidiaries (including
indebtedness attributed to any Securitization Entity) to (ii) Consolidated
EBITDA of the Company and its Restricted Subsidiaries for the four full fiscal
quarters ending prior to the date of the transaction giving rise to the need to
calculate the Secured Leverage Ratio for which financial statements are
available, calculated on the same basis as the calculation of Consolidated
EBITDA used in the definition of Consolidated Fixed Charge Coverage Ratio.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company
or another person in which the Company or any Restricted Subsidiary of the
Company makes an Investment and to which the Company or any Restricted
Subsidiary of the Company transfers accounts receivable which engages in no
activities other than in connection with the financing of accounts receivable
and which is designated by the Board of Directors of the Company (as provided
below) as a Securitization Entity:
(1) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which:
(i) is guaranteed by the Company or any Restricted
Subsidiary of the Company (other than the Securitization
Entity) (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness)) pursuant to
Standard Securitization Undertakings;
(ii) is recourse to or obligates the Company or any
Restricted Subsidiary of the Company (other than the
Securitization Entity) in any way other than pursuant to
Standard Securitization Undertakings; or
(iii) subjects any property or asset of the Company
or any Restricted Subsidiary of the Company (other than the
Securitization Entity), directly or indirectly, contingently
or otherwise, to the satisfaction thereof, other than pursuant
to Standard Securitization Undertakings and other than any
interest in the accounts receivable and related assets being
financed (whether in the form of an equity interest in such
assets or subordinated indebtedness payable primarily from
such financed assets) retained or acquired by the Company or
any Restricted Subsidiary of the Company,
(2) with which neither the Company nor any Restricted
Subsidiary of the Company has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to
the Company or such Restricted Subsidiary 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 receivables of such entity, and
(3) to which neither the Company nor any Restricted Subsidiary
of the Company has any obligation to maintain or preserve such entity's
financial condition or cause such entity to achieve certain levels of
operating
67
results. Any such designation by the Board of Directors of the Company
shall be evidenced to the trustees by filing with the Trustees a
certified copy of the resolution of the Board of Directors of the
Company giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing
conditions.
"Significant Subsidiary", with respect to any Person, means any
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the
Exchange Act.
"Subordinated Indebtedness" means Indebtedness of the Company or any
Guarantor that is subordinated or junior in right of payment to the Notes or the
Guarantee of such Guarantor, as the case may be.
"Subsidiary", with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock
having at least a majority of the votes entitled to be cast in the
election of directors under ordinary circumstances shall at the time be
owned, directly or indirectly, by such Person; or
(2) any other Person of which at least a majority of the
voting interest under ordinary circumstances is at the time, directly
or indirectly, owned by such Person.
"Standard Securitization Undertakings" means representations,
warranties, covenants, and indemnities entered into by the Company or any
Restricted Subsidiary of the Company which are reasonably customary in an
accounts receivable securitization transaction.
"Unrestricted Subsidiary" of any Person means:
(1) any Subsidiary of such Person that at the time of
determination shall be or continue to be designated an Unrestricted
Subsidiary by the Board of Directors of such Person in the manner
provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns 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 that:
(1) the Company certifies to the Trustees that such
designation complies with the "Limitation on Restricted Payments"
covenant; and
(2) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant
to which the lender has recourse to any of the assets of the Company or
any of its Restricted Subsidiaries.
For purposes of making the determination of whether any such
designation of a Subsidiary as an Unrestricted Subsidiary complies with the
"Limitation on Restricted Payments" covenant, the portion of the fair market
value of the net assets of such Subsidiary of the Company at the time that such
Subsidiary is designated as an Unrestricted Subsidiary that is represented by
the interest of the Company and its Restricted Subsidiaries in such Subsidiary,
as determined in good faith by the Board of Directors of the Company, shall be
deemed to be an Investment. Such designation will be permitted only if such
Investment would be permitted at such time under the "Limitation on Restricted
Payments" covenant.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary only if:
(1) immediately after giving effect to such designation, the
Company is able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation
on Incurrence of Additional Indebtedness" covenant; and
68
(2) immediately before and immediately after giving effect to
such designation, no Default or Event of Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustees by promptly filing with the Trustees a
copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with
the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Wholly
Owned Subsidiary of such Person which at the time of determination is a
Restricted Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such
Person of which all the outstanding voting securities (other than in the case of
a Subsidiary, directors' qualifying shares or an immaterial amount of shares
required to be owned by other Persons pursuant to applicable law) are owned by
such Person or any Wholly Owned Subsidiary of such Person.
BOOK-ENTRY DELIVERY AND FORM
Except as described below, the notes will be initially represented by
one or more global notes in fully registered form without interest coupons. The
notes will be deposited with the Trustee as custodian for DTC, and DTC or its
nominee will initially be the sole registered holder of the notes for all
purposes under the applicable Indenture. We expect that pursuant to procedures
established by DTC (i) upon the issuance of the global notes, DTC or its
custodian will credit, on its internal system, the principal amount at maturity
of the individual beneficial interests represented by such global notes to the
respective accounts of persons who have accounts with such depositary, and (ii)
ownership of beneficial interests in the global notes will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Ownership of beneficial interests in the global notes will be limited to persons
who have accounts with DTC ("participants") or persons who hold interests
through participants. Holders may hold their interests in the global notes
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of
the notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the notes represented by such global notes for all purposes
under the applicable Indenture. No beneficial owner of an interest in the global
notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the notes.
Payments of the principal of, premium (if any), and interest on the
global notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee, or 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
notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest on the global notes, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global notes 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 notes held through
such participants will be governed by standing instructions and customary
practice, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary
way through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of their
certificates for any reason, including to sell notes to persons in states which
require physical delivery of the notes, or to pledge such securities, such
holder must transfer its interest in a global note, in accordance with the
normal procedures of DTC and with the procedures set forth in the applicable
Indenture.
69
So long as DTC or its nominee is the registered owner or holder of such
global note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by such global note for the
purposes of receiving payment on the notes, receiving notices and for all other
purposes under the applicable Indenture and the notes. Beneficial interests in
the notes will be evidenced only by, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Except as provided
below, owners of beneficial interests in a global note will not be entitled to
receive physical delivery of certificated notes in definitive form and will not
be considered the holders of such global note for any purposes under the
applicable Indenture. Accordingly, each person owning a beneficial interest in a
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 owns
its interest, to exercise any rights of a holder under the applicable Indenture.
The Company understands that under existing industry practices, in the event
that the Company requests any action of holders or that an owner of a beneficial
interest in a global note desires to give or take any action that a holder is
entitled to give or take under the applicable Indenture, DTC would authorize the
participants holding the relevant beneficial interest to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
DTC has advised us that it will take any action permitted to be taken
by a holder of notes only at the direction of one or more participants to whose
account the DTC interests in the global notes are credited and only in respect
of such portion of the aggregate principal amount of notes as to which such
participant or participants has or have given such direction.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies, and 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 custodial relationship with a participant, either
directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures 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 us 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.
CERTIFICATED SECURITIES
New notes in physical, certificated form shall be issued and delivered
to each person that DTC identitifes as a beneficial owner of the related new
notes only if (i) DTC is at any time unwilling or unable to continue as a
depositary for the global notes and a successor depositary is not appointed by
us within 90 days or (ii) we, at our sole discretion, notify the relevant
Trustee in writing that we elect to cause the issuance of certificated notes
under the applicable Indenture.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new 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 new notes received in exchange for old notes where
the old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for 90 days after the expiration date
of the exchange offer, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any resale. In
addition, until , 2004, all dealers effecting transactions in the new notes may
be required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New 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 new notes or a combination of these methods of
resale. These resales may be made at market prices prevailing at the time of
resale, at prices related to these prevailing market prices or negotiated
prices. Any 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 broker-dealer and/or the purchasers of any of the new
notes. Any broker-dealer that resells new notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of the new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on the
resale of new notes and any commission or concessions received by those persons
may be deemed to be underwriting compensation under the Securities Act. Any such
broker-dealer must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
including the delivery of a prospectus that contains information with respect to
any selling holder required by the Securities Act in connection with any resale
of the new notes. This prospectus may be used, to the extent permitted by the
applicable policies and regulations of the SEC, by all persons subject to the
prospectus delivery requirements of the Securities Act, including, to the extent
permitted by the applicable policies and regulations of the SEC, all
broker-dealers that are the "beneficial owners" (as defined in Rule 13d-3 under
the Exchange Act) of new notes received by such broker-dealer in the exchange
offer. By delivering a prospectus, however, a broker-dealer will not be deemed
to admit that it is an underwriter within the meaning of the Securities Act.
Furthermore, any broker-dealer that acquired any of its old notes
directly from us:
o may not rely on the applicable interpretation of the staff of the
SEC's position contained in Exxon Capital Holdings Corp., SEC
no-action letter (April 13, 1988), Morgan, Stanley & Co. Inc., SEC
no-action letter (June 5, 1991) and Shearman & Sterling, SEC
no-action letter (July 2, 1993); and
o must also be named as a selling noteholder in connection with the
registration and prospectus delivery requirements of the Securities
Act relating to any resale transaction.
For 90 days after the expiration date of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these
documents. We have agreed to pay all expenses incident to the performance of our
obligations in relation to the exchange offer (including the expenses of one
counsel for the holder of the original notes) other than commissions or
concessions of any brokers or dealers. We will indemnify the holders of the new
notes, including any broker-dealers, against various liabilities, including
liabilities under the Securities Act.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the anticipated material
United States federal income tax consequences of the exchange offer. The summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, judicial decisions, published positions of the Internal Revenue
Service ("IRS"), and other applicable authorities, all as in effect as of the
date hereof and all of which are subject to change or differing interpretations
(possibly with retroactive effect). The discussion does not address all of the
tax consequences that may be relevant to a particular person or to persons
subject to special treatment under United States federal income tax laws (such
as financial institutions, broker-dealers, insurance companies, expatriates,
tax-exempt organizations, or persons that are, or hold their notes through,
partnerships or other pass-through entities), or to persons who hold the new
notes as part of a straddle, hedge, conversion, synthetic security, or
constructive sale transaction for United States federal income tax purposes, all
of whom may be subject to tax rules that differ from those summarized below.
This summary deals only with persons who hold the new notes as capital assets
within the meaning of Section 1221 of the Code (generally, property held for
investment). No opinion of counsel or IRS ruling has been or will be sought
regarding any matter discussed herein. No assurance can be given that the IRS
would not assert, or that a court would not sustain, a position contrary to any
of those set forth below. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR UNITED STATES FEDERAL TAX CONSEQUENCES TO THEM OF THE OFFER, AS WELL
AS THE EFFECTS OF STATE, LOCAL AND NON-UNITED STATES TAX LAWS.
The exchange of new notes for old notes pursuant to the exchange offer
will not be treated as a taxable event for U.S. federal income tax purposes.
Rather, the new notes received by a holder will be treated as a continuation of
the old notes in the hands of such holder. Accordingly, the exchanging holder
will have the same tax basis, holding period and interest income in respect of
the new notes as it would have had in respect of the old notes surrendered in
the exchange.
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LEGAL MATTERS
The validity of the new notes offered hereby will be passed upon for us
by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements of Crompton Corporation and its
consolidated subsidiaries as of December 31, 2003 and 2002 and for each of the
years ended December 31, 2003, 2002, and 2001, have been included herein and in
the registration statement in reliance upon the report of KPMG LLP, independent
registered public accounting firm, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. The audit report
contains an explanatory paragraph that we adopted the provisions of Statement of
Financial Accounting Standards No. 143 in 2003 and Statement of Financial
Accounting Standards No. 142 in 2002.
AVAILABLE INFORMATION
We are subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, we file
annual, quarterly and current reports, proxy statements and other information
with the SEC. We also furnish to our stockholders annual reports, which include
financial statements audited by our independent certified public accountants and
other reports that the law requires us to send to our stockholders. The public
may read and copy any reports, proxy statements or other information that we
file at the SEC's public reference room at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the SEC's regional office at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain
information on the public reference room by calling the SEC at 1-800-SEC-0330.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov." You may obtain a copy of any of these documents, at no
cost, by writing or telephoning us at the following address:
Crompton Corporation
199 Benson Road
Middlebury, Connecticut 06749
Attention: Corporate Communications
Phone: (203) 573-2000
Our common stock is listed on the NYSE under the symbol "CK." You can
inspect and copy reports, proxy statements and other information about us at the
NYSE's offices at 20 Broad Street, New York, New York 10005.
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO
LATER THAN FIVE BUSINESS DAYS BEFORE YOU MUST MAKE YOUR INVESTMENT DECISION.
INCORPORATION BY REFERENCE
We are incorporating by reference certain information that we file with
the SEC under the informational requirements of the Exchange Act. The
information contained in the documents we are incorporating by reference is
considered to be part of this prospectus. We are incorporating by reference:
o Our annual report on Form 10-K for the fiscal year ended December
31, 2003;
o Our quarterly reports on Form 10-Q for the quarterly periods ended
March 31, 2004 and June 30, 2004;
o Our current reports on Form 8-K dated January 12, 2004, March 15,
2004, March 22, 2004, March 31, 2004, April 28, 2004, May 3, 2004,
July 1, 2004, July 20, 2004, July 21, 2004 (as to information filed
under Item 5 only), August 4, 2004, August 11, 2004, August 17,
2004, August 20, 2004 and September 15, 2004; and
o Our definitive proxy statement on Form 14A, dated March 29, 2004.
All documents that we subsequently file pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of this exchange
offer will be deemed to be incorporated by reference into this prospectus from
the date of
73
filing of such documents. These documents are or will be available for
inspection or copying at the locations identified above under the caption
"Available Information."
Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus shall be considered to be modified
or superseded for purposes of this prospectus to the extent that a statement in
this prospectus or in any subsequently filed document that is or is considered
to be incorporated by reference modifies or supersedes such statement. Any
statement that is modified or superseded shall not, except as so modified or
superseded, constitute a part of this prospectus.
74
INDEX TO FINANCIAL STATEMENTS
Page
----
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm......................................................... F-2
Consolidated Statements of Operations for each of the years ended
December 31, 2003, 2002 and 2001........................................................................... F-3
Consolidated Balance Sheets as of December 31, 2003 and 2002.................................................... F-4
Consolidated Statements of Cash Flows for each of the years ended
December 31, 2003, 2002 and 2001........................................................................... F-5
Consolidated Statements of Stockholders' Equity for each of the years
ended December 31, 2003, 2002 and 2001..................................................................... F-6
Notes to Consolidated Financial Statements...................................................................... F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm......................................................... F-46
Condensed Consolidated Statements of Earnings (Unaudited) for the second quarter
ended June 30, 2004 and 2003............................................................................... F-47
Condensed Consolidated Balance Sheets as of June 30, 2004 (Unaudited) and
December 31, 2003.......................................................................................... F-48
Condensed Consolidated Statements of Cash Flows (Unaudited) for the second quarter
ended June 30, 2004 and 2003............................................................................... F-49
Notes to Unaudited Condensed Consolidated Financial Statements.................................................. F-50
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Crompton Corporation:
We have audited the accompanying consolidated balance sheets of
Crompton Corporation and subsidiaries (the "Company") as of December 31, 2003
and 2002, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (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 financial position of the Company
as of December 31, 2003 and 2002, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
2003, in conformity with U.S. generally accepted accounting principles.
As discussed in the Asset Retirement Obligations note to the
consolidated financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 143, "Asset Retirement
Obligations" on January 1, 2003. As discussed in the Accounting Policies note to
the consolidated financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" on January 1, 2002.
/s/ KPMG LLP
Stamford, Connecticut
January 30, 2004, except as to the "Antitrust Investigations and Related
Matters" note, which is as of March 15, 2004, and except as to the "Guarantor
Condensed Consolidating Financial Data" note, which is as of October 5, 2004
F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
2003 2002 2001
---- ---- ----
NET SALES ........................................................................ $ 2,185,043 $ 2,090,271 $ 2,286,543
COSTS AND EXPENSES
Cost of products sold ............................................................ 1,616,092 1,468,268 1,626,667
Selling, general and administrative .............................................. 353,026 354,559 378,916
Depreciation and amortization .................................................... 115,369 111,426 150,830
Research and development ......................................................... 51,467 54,285 56,030
Equity income .................................................................... (13,169) (7,917) (9,278)
Facility closures, severance and related costs ................................... 19,560 17,969 101,512
Antitrust costs .................................................................. 77,716 6,306 --
Impairment of long-lived assets .................................................. -- -- 80,366
----------- ----------- -----------
OPERATING PROFIT (LOSS) .......................................................... (35,018) 85,375 (98,500)
Interest expense ................................................................. 89,653 101,704 109,877
Loss on early extinguishment of debt ............................................. 24,699 -- --
Other expense, net ............................................................... 5,383 38,021 27,265
----------- ----------- -----------
EARNINGS (LOSS)
Loss from continuing operations before income taxes and cumulative
effect of accounting change ...................................................... (154,753) (54,350) (235,642)
Income tax benefit ............................................................... (36,102) (18,904) (79,883)
----------- ----------- -----------
Loss from continuing operations before cumulative effect of accounting change .... (118,651) (35,446) (155,759)
Earnings from discontinued operations ............................................ 26,314 50,920 31,815
Gain on sale of discontinued operations .......................................... 111,692 -- --
Cumulative effect of accounting change ........................................... (401) (298,981) --
----------- ----------- -----------
Net Earnings (Loss) .............................................................. $ 18,954 $ (283,507) $ (123,944)
=========== =========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
Loss from continuing operations before cumulative effect of accounting change .... $ (1.05) $ (0.31) $ (1.38)
Earnings from discontinued operations ............................................ 0.23 0.44 0.28
Gain on sale of discontinued operations .......................................... 0.99 -- --
Cumulative effect of accounting change ........................................... -- (2.63) --
----------- ----------- -----------
Net Earnings (Loss) .............................................................. $ 0.17 $ (2.50) $ (1.10)
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
F-3
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 2003 AND 2002
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
2003 2002
----------- -----------
ASSETS
CURRENT ASSETS
Cash .............................................. $ 39,213 $ 16,941
Accounts receivable ............................... 210,190 183,329
Inventories ....................................... 390,199 353,556
Other current assets .............................. 170,852 112,950
Assets held for sale .............................. -- 392,887
----------- -----------
TOTAL CURRENT ASSETS .............................. 810,454 1,059,663
----------- -----------
NON-CURRENT ASSETS
Property, plant and equipment ..................... 774,612 695,962
Cost in excess of acquired net assets ............. 418,607 584,633
Other assets ...................................... 525,509 500,557
----------- -----------
$ 2,529,182 $ 2,840,815
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings ............................. $ 60,695 $ 3,694
Accounts payable .................................. 232,127 268,593
Accrued expenses .................................. 267,472 260,718
Income taxes payable .............................. 130,284 116,111
Other current liabilities ......................... 10,667 15,670
Liabilities held for sale ......................... -- 29,273
----------- -----------
TOTAL CURRENT LIABILITIES ......................... 701,245 694,059
----------- -----------
NON-CURRENT LIABILITIES
Long-term debt .................................... 754,018 1,253,149
Pension and post-retirement health care liabilities 566,966 510,235
Other liabilities ................................. 204,244 183,489
STOCKHOLDERS' EQUITY
Common stock - $.01 par value ..................... 1,192 1,192
Additional paid-in capital ........................ 1,034,027 1,048,304
Accumulated deficit ............................... (590,157) (586,555)
Accumulated other comprehensive loss .............. (96,463) (200,426)
Treasury stock at cost ............................ (45,890) (62,632)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ........................ 302,709 199,883
----------- -----------
$ 2,529,182 $ 2,840,815
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN THOUSANDS OF DOLLARS)
INCREASE (DECREASE) IN CASH 2003 2002 2001
--------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) .......................................................... $ 18,954 $(283,507) $(123,944)
Adjustments to reconcile net earnings (loss) to net cash (used in) provided by
operations:
Cumulative effect of accounting change .................................... 401 298,981 --
Impairment of long-lived assets ........................................... -- -- 80,366
Gain on sale of discontinued operations ................................... (111,692) -- --
Loss on sale of business units ............................................ -- 34,705 19,121
Loss on early extinguishment of debt ...................................... 24,699 -- --
Depreciation and amortization ............................................. 136,087 146,550 185,570
Equity income ............................................................. (13,169) (7,917) (9,278)
Deferred taxes ............................................................ (76,968) (38,431) (84,820)
Changes in assets and liabilities, net:
Accounts receivable ..................................................... 75,407 7,858 93,053
Accounts receivable -- securitization ................................... (38,051) (157) 19,358
Inventories ............................................................. 39,421 22,683 29,906
Other current assets .................................................... 3,742 (95) (10,736)
Other assets ............................................................ 31,318 13,683 33,585
Accounts payable ........................................................ (82,220) 28,945 12,594
Accrued expenses ........................................................ (54,477) (48,914) (601)
Income taxes payable .................................................... 28,423 57,053 (12,770)
Other current liabilities ............................................... (6,026) (4,531) 2,567
Pension and post-retirement health care liabilities ..................... (20,191) (10,811) (4,042)
Other liabilities ....................................................... 28,528 (10,442) (27,760)
Other ................................................................... 984 (3,899) 2,838
--------- --------- ---------
Net cash (used in) provided by operations .................................... (14,830) 201,754 205,007
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of businesses ......................................... 633,427 80,000 35,061
Capital expenditures ......................................................... (87,591) (100,309) (136,642)
Other investing activities ................................................... 1,707 (1,526) 933
--------- --------- ---------
Net cash provided by (used in) investing activities .......................... 547,543 (21,835) (100,648)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term notes .................................................. (478,380) (11,742) (169)
Proceeds from long-term notes ................................................ -- -- 2,003
Proceeds (payments) on domestic credit facility .............................. 32,000 (130,000) (105,000)
Payments on short-term borrowings ............................................ (1,824) (27,186) (672)
Premium paid on early extinguishment of debt ................................. (23,804) -- --
Dividends paid ............................................................... (22,556) (22,698) (22,542)
Proceeds from interest rate swap contract .................................... -- -- 21,870
Common shares acquired ....................................................... (22,080) -- --
Other financing activities ................................................... 2,323 6,415 1,555
--------- --------- ---------
Net cash used in financing activities ........................................ (514,321) (185,211) (102,955)
--------- --------- ---------
CASH
Effect of exchange rates on cash ............................................. 3,880 727 (675)
Change in cash ............................................................... 22,272 (4,565) 729
Cash at beginning of period .................................................. 16,941 21,506 20,777
--------- --------- ---------
Cash at end of period ........................................................ $ 39,213 $ 16,941 $ 21,506
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED 2003, 2002 AND 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED
COMMON ADDITIONAL OTHER
SHARES TREASURY COMMON PAID-IN ACCUMULATED COMPREHENSIVE TREASURY
ISSUED SHARES STOCK CAPITAL DEFICIT LOSS STOCK TOTAL
------ ------ ----- ------- ------- ---- ----- -----
BALANCE, DECEMBER 31, 2000 119,372 6,597 $1,194 $1,051,371 $(133,864) $(86,221) $(78,504) $753,976
Comprehensive loss:
Net loss...................... (123,944) (123,944)
Equity adjustment for translation
of foreign currencies....... (22,038) (22,038)
Minimum pension liability
adjustment (net of deferred tax
benefit of $24,237)......... (37,576) (37,576)
Other......................... (6,004) (6,004)
--------
Total comprehensive loss......... (189,562)
Cash dividends ($0.20 per share). (22,542) (22,542)
Stock options and other issuances (467) (116) 5,785 5,669
Merger share adjustment.......... (185) (2) 2 --
------- ------ ------ ---------- --------- -------- -------- --------
BALANCE, DECEMBER 31, 2001....... 119,187 6,130 1,192 1,051,257 (280,350) (151,839) (72,719) 547,541
Comprehensive loss:
Net loss...................... (283,507) (283,507)
Equity adjustment for translation
of foreign currencies....... 30,038 30,038
Minimum pension liability
adjustment (net of deferred tax
benefit of $49,370)......... (78,463) (78,463)
Other......................... (162) (162)
--------
Total comprehensive loss......... (332,094)
Cash dividends ($0.20 per share). (22,698) (22,698)
Stock options and other issuances (832) (2,953) 10,087 7,134
Merger share adjustment.......... (35) -- -- --
------- ------ ------ ---------- --------- -------- -------- --------
BALANCE, DECEMBER 31, 2002....... 119,152 5,298 1,192 1,048,304 (586,555) (200,426) (62,632) 199,883
Comprehensive income:
Net earnings.................. 18,954 18,954
Equity adjustment for translation
of foreign currencies....... 125,438 125,438
Minimum pension liability
adjustment (net of deferred tax
benefit of $18,534)......... (24,887) (24,887)
Other......................... 3,412 3,412
--------
Total comprehensive income....... 122,917
Cash dividends ($0.20 per share). (22,556) (22,556)
Stock options and other issuances (638) (3,664) 7,313 3,649
Common shares acquired........... 3,200 (22,080) (22,080)
Issued for pension funding....... (3,200) (10,613) 31,509 20,896
------- ------ ------ ---------- --------- -------- -------- --------
BALANCE, DECEMBER 31, 2003....... 119,152 4,660 $1,192 $1,034,027 $(590,157) $(96,463) $(45,890) $302,709
======= ====== ====== ========== ========= ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
F-6
CROMPTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of all majority-owned subsidiaries. Other affiliates in which Crompton
Corporation (the "Company") has a 20% to 50% ownership are accounted for in
accordance with the equity method. All significant intercompany balances and
transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which require the Company to make estimates and assumptions that affect the
amounts and disclosures reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these estimates.
Certain prior year amounts have been reclassified to conform to the
current year's presentation. These changes did not have a material impact on
previously reported results of operations or financial position.
DISCONTINUED OPERATIONS
On April 24, 2003, the Company entered into an agreement to sell
certain assets and assign certain liabilities of the OrganoSilicones business
unit to the Specialty Materials division of General Electric Company (GE) and to
acquire GE's Specialty Chemicals business. The transaction closed on July 31,
2003. As a result, the accompanying financial statements reflect the
OrganoSilicones business unit as a discontinued operation for all periods
presented. The operations of the OrganoSilicones business unit have been
classified as earnings from discontinued operations (net of tax) in the
consolidated statements of operations and the estimated carrying amount of the
assets sold and the liabilities assumed have been reflected as assets and
liabilities held for sale in the consolidated balance sheets for all prior
periods presented. The consolidated statements of cash flows have not been
adjusted to reflect the discontinued operations and thus include the cash flows
of the OrganoSilicones business through July 31, 2003. Refer to the Discontinued
Operations footnote for further information.
ACCOUNTING DEVELOPMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities."
Interpretation No. 46 requires existing unconsolidated variable interest
entities (VIEs) to be consolidated by their primary beneficiaries if the
entities do not effectively disperse risks among the parties involved.
Interpretation No. 46 applies immediately to VIE's created after January 31,
2003 and to VIEs in which an enterprise holds a variable interest that was
acquired before February 1, 2003, the Interpretation applies for periods
beginning after June 15, 2003. In December 2003, the FASB reissued
Interpretation No. 46 with certain modifications and clarifications for certain
VIEs. The Company has no unconsolidated VIEs and therefore its consolidated
financial statements are in compliance with the requirements of Interpretation
No. 46 at December 1, 2003.
In April 2003, the FASB issued Statement No. 149, "Amendment of
Statement No. 133 on Derivative Instruments and Hedging Activities." Statement
No. 149 amends and clarifies accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 149 is effective
for contracts entered into or modified, and for hedging relationships
designated, after June 30, 2003. The Company has applied the provisions of
Statement No. 149, which has not had a material impact on its earnings or
financial position.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
Statement No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
guidance in Statement No. 150 is generally effective for all financial
instruments entered into or modified after May 31, 2003. Otherwise, it is
effective at the beginning of the first interim period beginning after June 15,
2003. The Company has applied the provisions of Statement No. 150, which has not
had a material impact on its earnings or financial position.
F-7
REVENUE RECOGNITION
Substantially all of the Company's revenues are derived from the sale
of products. Approximately 94% of the Company's revenue is recognized when risk
of loss of, and title to, the product is transferred to the customer, which
usually occurs at the time shipment is made. Substantially all of the Company's
products are sold FOB ("free on board") shipping point or on an equivalent
basis. The Company's standard terms of delivery are included on its sales
invoices and order confirmation documents. The remaining 6% of revenue, which
represents a substantial portion of the revenue of the polymer processing
equipment reporting segment, is recognized in accordance with the completed
contract method of accounting.
CUSTOMER REBATES
The Company accrues for the estimated cost of customer rebates as a
reduction of sales. Customer rebates are primarily based on customers achieving
defined sales targets over a specified period of time. The Company estimates the
cost of these rebates based on the likelihood of the rebate being achieved and
recognizes the cost as a deduction from sales when such sales are recognized.
Rebate programs are monitored on a regular basis and adjusted as required. The
Company's accruals for customer rebates were $27.4 million and $21.8 million at
December 31, 2003 and December 31, 2002, respectively.
OPERATING COSTS AND EXPENSES
Cost of products sold includes all costs incurred in manufacturing
products, including raw materials, direct manufacturing costs and manufacturing
overhead. Cost of products sold also includes warehousing, distribution,
engineering (other than polymer processing equipment design engineering),
purchasing, and environmental, health and safety functions. Selling, general and
administrative expenses (SG&A) include costs and expenses related to the
following functions and activities: selling, advertising, customer service,
polymer processing equipment design engineering, shipping costs for out-bound
product shipments, information technology, legal, provision for doubtful
accounts, corporate facilities and corporate administration. SG&A also includes
accounting, finance and human resources, excluding direct support in
manufacturing operations, which is included as cost of products sold. Research
and development expenses (R&D) include basic and applied research and
development activities of a technical and non-routine nature. R&D costs are
expensed as incurred. Costs of products sold, research and development, and SG&A
expenses exclude depreciation and amortization expenses, which are presented on
a separate line in the consolidated statements of operations.
Included in SG&A are shipping costs of $80.5 million, $72.4 million and
$78.3 million in 2003, 2002 and 2001, respectively.
EQUITY INVESTMENTS
Included among the Company's equity investments are a 50% ownership in
Gustafson LLC and a 50% ownership in Gustafson Partnership. The Company accounts
for these investments in accordance with the equity method. The combined assets
and liabilities of these two investments were $93.4 million and $38.3 million,
respectively, as of December 31, 2003 and were $74.0 million and $26.3 million,
respectively, as of December 31, 2002. The combined pre-tax income of the two
investments for the years ended December 31, 2003, 2002 and 2001 were $25.3
million, $15.6 million and $24.7 million, respectively, of which the Company has
included its proportionate share in equity income in its consolidated statements
of operations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Included in accounts receivable are allowances for doubtful accounts in
the amount of $17.8 million in 2003 and $16.3 million in 2002.
INVENTORY VALUATION
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
F-8
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated
depreciation. Depreciation expense ($100.8 million in 2003, $99.9 million in
2002 and $119 million in 2001) is computed on the straight-line method using the
following ranges of asset lives: land improvements 3 to 20 years; buildings and
improvements 10 to 40 years; machinery and equipment 10 to 25 years; information
systems equipment 5 to 10 years; and furniture, fixtures and other 3 to 10
years.
Renewals and improvements that extend the useful lives of the assets
are capitalized. Capitalized leased assets and leasehold improvements are
depreciated over the shorter of their useful lives or the remaining lease term.
Expenditures for maintenance and repairs are charged to expense as incurred.
INTANGIBLE ASSETS
Prior to January 1, 2002, the excess cost over the fair value of net
assets of businesses acquired (goodwill) was being amortized on a straight-line
basis over 20 to 40 years. Effective January 1, 2002, in accordance with FASB
Statement No. 142, the Company discontinued the amortization of goodwill.
Goodwill amortization expense was $20.2 million in 2001.
Patents, trademarks and other intangibles are being amortized
principally on a straight-line basis using the following ranges for their
estimated useful lives: patents 10 to 15 years; trademarks 10 to 40 years; and
other intangibles primarily 5 to 19 years. Further information is provided in
the Goodwill and Intangible Assets footnote included herein.
RECOVERABILITY OF LONG-LIVED ASSETS AND GOODWILL
The Company evaluates the recoverability of the carrying value of
long-lived assets, excluding goodwill, whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Under
such circumstances, the Company assesses whether the projected undiscounted cash
flows of its businesses are sufficient to recover the existing unamortized cost
of its long-lived assets. If the undiscounted projected cash flows are not
sufficient, the Company calculates the impairment amount by discounting the
projected cash flows using its weighted-average cost of capital. The amount of
the impairment is written-off against earnings in the period in which the
impairment is determined.
The Company evaluates the recoverability of the carrying value of
goodwill on an annual basis as of July 31, or sooner if events occur or
circumstances change, in accordance with FASB Statement No. 142. See the
Goodwill and Intangible Assets footnote included herein for further details.
ENVIRONMENTAL LIABILITIES
Accruals for environmental remediation, and operation and management
costs directly related to remediation, are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated based on current laws and existing technologies. Each quarter, the
Company evaluates and reviews estimates for future remediation and related costs
to determine appropriate environmental reserve amounts. At December 31, 2003,
environmental liabilities of $17.2 million have been included in accrued
expenses and $103.5 million have been included in other liabilities. At December
31, 2002, environmental liabilities of $21.8 million have been included in
accrued expenses and $107 million have been included in other liabilities. See
the Contingencies and Environmental Matters footnote included herein for further
details.
STOCK-BASED COMPENSATION
As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" and Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," the Company elected to continue its
historical method of accounting for stock-based compensation in accordance with
APB Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." Under APB
25, compensation expense for fixed plans is recognized based on the difference
between the exercise price and the stock price on the date of grant. Since the
Company's fixed-plan awards have been granted with an exercise price equal to
the stock price on the date of grant, no compensation expense has been
recognized in the consolidated statements of operations for these awards.
However, compensation expense has been recognized for the restricted awards
under the Company's long-term incentive programs in accordance with the
provisions of APB 25, which would be unchanged under FASB Statements No. 123 and
No. 148. The following table illustrates the effect on net earnings (loss) and
F-9
earnings (loss) per share if the Company had applied the fair value recognition
provisions of Statements No. 123 and No. 148 to all stock-based employee
compensation awards:
2003 2002 2001
--------- --------- ---------
(In thousands, except per share data)
Net earnings (loss), as reported ......................................... $ 18,954 $(283,507) $(123,944)
Stock-based employee compensation expense (income)included in net
earnings (loss), net of tax ........................................... (1,359) 4,944 2,371
Total stock-based employee compensation determined under fair value based
accounting method for all awards, net of tax .......................... (2,770) (10,863) (11,598)
--------- --------- ---------
Pro forma net earnings (loss) ............................................ $ 14,825 $(289,426) $(133,171)
========= ========= =========
Earnings (loss) per share:
Basic and diluted - as reported ......................................... $ 0.17 $ (2.50) $ (1.10)
Basic and diluted - pro forma ........................................... $ 0.13 $ (2.55) $ (1.18)
FINANCIAL AND DERIVATIVE INSTRUMENTS
Financial and derivative instruments are presented in the accompanying
consolidated financial statements at either cost or fair value as required by
accounting principles generally accepted in the United States of America.
Further information is provided in the Financial Instruments and Derivative
Instruments and Hedging Activities footnotes included herein.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts denominated in foreign currencies are translated
at the current rate of exchange as of the balance sheet date, while revenues and
expenses are translated at average rates of exchange during the periods
presented. The cumulative foreign currency adjustments resulting from such
translation are included in accumulated other comprehensive loss.
STATEMENTS OF CASH FLOWS
Cash includes bank term deposits with original maturities of three
months or less. Cash payments included interest payments of $95.8 million in
2003, $105.4 million in 2002 and $119.3 million in 2001. Cash payments also
included net income tax payments of $21.4 million in 2003, net income tax
refunds of $26.4 million in 2002 and net income tax payments of $31.3 million in
2001. The net income tax refund in 2002 included a $50 million federal income
tax refund resulting from a change in tax legislation. Included in the Company's
cash balance at December 31, 2003, is approximately $13 million of restricted
cash that is required to be on deposit to support certain letters of credit and
performance guarantees, the majority of which will be settled within one year.
FACILITY CLOSURES, SEVERANCE AND RELATED COSTS
In July 2003, the Company announced a new cost reduction program to
eliminate, at a minimum, overhead expenses previously absorbed by the
OrganoSilicones business. In order to achieve this goal, the Company expects to
reduce its global workforce by approximately 375 positions, of which
approximately 305 positions had been eliminated as of December 31, 2003. In
2003, the Company recorded a pre-tax charge of $14 million for facility
closures, severance and related costs in the consolidated statements of
operations. A summary of this charge is as follows:
Severance Other
and Facility
Related Asset Closure
Costs Write-offs Costs Total
--------- ---------- ---------- ------
(In thousands)
2003 charge..................................... $ 12,585 $ 396 $ 988 $13,969
Cash payments................................... (2,859) -- (383) (3,242)
Non-cash charges................................ -- (396) -- (396)
-------- ----- ------ -------
BALANCE AT DECEMBER 31, 2003.................... $ 9,726 $ -- $ 605 $10,331
======== ===== ====== =======
F-10
In July 2001, the Company announced a cost reduction initiative
expected to lower annual operating costs through a program of facility
consolidation, workforce reduction, and improvements in procurement and working
capital control. In 2002, the Company announced the relocation of its corporate
headquarters from Greenwich, CT to Middlebury, CT. The 2001 initiative and the
corporate relocation have been substantially completed as of December 31, 2003
and the Company does not expect future costs to be significant. As a result of
the cost reduction initiative and the corporate relocation, the Company recorded
pre-tax charges for facility closures, severance and related costs of $5.6
million, $17.4 million and $109 million (of which $7.5 million is in cost of
products sold) in 2003, 2002 and 2001, respectively. These charges are
summarized as follows:
Severance Other
and Asset Facility
Related Write-offs and Closure
Costs(a) Impairments (b) Costs(c) Total
-------- --------------- --------- -----
(In thousands)
2001 charge:
Continuing operations ....................... $ 41,196 $ 41,847 $ 25,986 $ 109,029
Discontinued operations ..................... 4,270 -- 734 5,004
Cash payments .................................. (8,526) -- (2,022) (10,548)
Non-cash charges ............................... (6,706) (41,847) (13,866) (62,419)
--------- --------- --------- ---------
Balance at December 31, 2001 ................... 30,234 -- 10,832 41,066
2002 charge:
Continuing operations ....................... 7,211 4,918 5,240 17,369
Discontinued operations ..................... 4,256 -- 1,092 5,348
Cash payments .................................. (16,480) -- (6,285) (22,765)
Non-cash charges ............................... (988) (4,918) 459 (5,447)
--------- --------- --------- ---------
Balance at December 31, 2002 ................... 24,233 -- 11,338 35,571
2003 charge:
Continuing operations ....................... 2,711 183 2,697 5,591
Discontinued operations ..................... 15 -- 15 30
Cash payments .................................. (17,457) -- (9,695) (27,152)
Non-cash charges ............................... (1,110) (183) (280) (1,573)
--------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2003 ................... $ 8,392 $ -- $ 4,075 $ 12,467
========= ========= ========= =========
- ---------
(a) Includes severance at various sites, including severance resulting from
the corporate relocation, and pension curtailments related to closed
sites.
(b) Includes primarily asset write-offs related to closed sites and the
write-down of an equity investment relating to the impairment of assets
of an affiliate.
(c) Includes primarily demolition, decontamination and decommissioning
costs and inventory charges related to closed sites.
In December 2000, the Company closed its manufacturing facility in
Freeport, Grand Bahama Island. In connection with the facility closure, the
Company incurred a pre-tax charge of $23.1 million in 2000 (of which $3.0
million was included in cost of products sold). This charge included $15.5
million for the write-off of long-lived assets, $6.2 million for facility
closure and maintenance costs and $1.4 million for severance and other costs.
The Company made payments of $0.5 million and $4 million in 2002 and 2001,
respectively. In 2002, due to changes in the original estimate, the Company
recorded a pre-tax charge of $0.6 million for additional facility closure and
maintenance costs. During 2003, the Company made payments of $0.4 million
related to this closure and had a remaining accrual of $0.2 million at December
31, 2003.
Effective January 1, 2003, the Company adopted the provisions of FASB
Statement No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." Statement No. 146 requires companies to record exit or disposal
costs when they are incurred and to initially measure these costs at fair value.
Statement No. 146 also requires that recorded liabilities be adjusted in future
periods to reflect changes in timing or estimated cash flows. The provisions of
Statement No. 146 are effective for exit or disposal activities initiated after
December 31, 2002. The adoption of Statement No. 146 has not had a material
impact on the Company's accounting for facility closures, severance and related
costs as of December 31, 2003.
The Company's accruals for facility closures, severance and related
costs are included in accrued expenses in its consolidated balance sheets.
F-11
DISCONTINUED OPERATIONS
On April 24, 2003, the Company entered into an agreement to sell
certain assets and assign certain liabilities of the OrganoSilicones business
unit to the Specialty Materials division of GE and to acquire GE's Specialty
Chemicals business. The transaction closed on July 31, 2003 and resulted in a
gain of $111.7 million (net of income taxes of $175.3 million). The gain
includes the write-off of certain other assets associated with the
OrganoSilicones business unit, principally goodwill, with carrying amounts of
$220 million at July 31, 2003. The Company received net cash proceeds of $633.4
million, which includes proceeds from its first quarterly earn-out payment of
$8.75 million less certain transaction-related fees of $18.4 million. The
consideration that the Company received is subject to adjustment based on the
change and/or adjustment to certain net assets of the OrganoSilicones business
unit and the GE Specialty Chemicals business between December 31, 2002 and the
closing date. In addition, as a result of the transaction, the Company acquired
GE's Specialty Chemicals business valued at $160 million. The Company will
continue to receive quarterly earn-out payments through September of 2006 based
on the combined performance of GE's existing Silicones business and the
OrganoSilicones business that GE acquired from the Company. The total of such
payments will be a minimum of $105 million and a maximum of $250 million. During
the fourth quarter of 2003, the Company received its first minimum quarterly
earn-out payment of $8.75 million. Based on the performance of GE's Silicones
business during the fourth quarter of 2003, the Company will receive an
additional $4.5 million of earn-out proceeds in the first quarter of 2004. The
recognition of this additional gain is contingent upon the continued favorable
future performance of GE's Silicones business, which the Company will assess on
a quarterly basis.
The Company has used proceeds from this transaction primarily to reduce
indebtedness. On July 31, 2003, the Company reduced the borrowings under its
domestic credit facility from $294 million to zero and in August of 2003, the
Company repurchased $250 million of its 8.5% notes and paid down the $61.3
million balance of its EURIBOR based bank loans.
The agreement provided for the sale of assets and assignment of
liabilities of the OrganoSilicones business unit with carrying amounts as
follows:
July 31, December 31,
2003 2002
-------- --------
(In thousands)
Inventory ................................................... $102,420 $106,560
Other current assets ........................................ 2,356 3,798
Property, plant and equipment, net........................... 229,328 246,554
Other assets ................................................ 33,909 35,975
-------- --------
TOTAL ASSETS HELD FOR SALE ............................. $368,013 $392,887
======== ========
Notes payable ............................................... $ 2,204 $ 2,033
Accounts payable and accrued expenses ....................... 13,262 14,671
Long-term debt .............................................. 7,728 8,698
Other liabilities ........................................... 4,193 3,871
-------- --------
TOTAL LIABILITIES HELD FOR SALE ........................ $ 27,387 $ 29,273
======== ========
The sales and earnings from discontinued operations for all periods
presented are as follows:
2003 2002 2001
--------- --------- ---------
(In thousands)
Net sales .............................................. $ 273,387 $ 456,601 $ 432,255
========= ========= =========
Pre-tax earnings from discontinued operations........... $ 35,278 $ 63,634 $ 47,036
Income taxes ........................................... (8,964) (12,714) (15,221)
--------- --------- ---------
Earnings from discontinued operations .................. $ 26,314 $ 50,920 $ 31,815
========= ========= =========
The Company's consolidated statement of operations for the year ended
December 31, 2003 reflects the results of operations of the acquired GE
Specialty Chemicals business for the months of August through December 2003. The
$160 million purchase price was allocated to the assets acquired and liabilities
assumed based on the fair value of such assets and liabilities. The Company
engaged an independent appraiser to determine the fair value of certain assets.
As a result of the independent valuation that was performed, certain adjustments
were made to the purchase price allocation subsequent to the date of acquisition
through December 31, 2003. The purchase price allocation as of December 31, 2003
is as follows:
F-12
Purchase
Price
Allocation
--------------
(In thousands)
Accounts receivable.............................................. $ 13,789
Inventory........................................................ 28,878
Other current assets............................................. 1,670
Property, plant and equipment, net............................... 50,992
Cost in excess of acquired net assets (goodwill)................. 42,345
Other assets..................................................... 43,691
Accounts payable and accrued expenses............................ (15,865)
Post-retirement health care liability............................ (5,500)
--------
Total purchase price............................................. $160,000
========
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma results of operations for the years ended
December 31, 2003, 2002, and 2001 assume the divestiture of the OrganoSilicones
business unit and the acquisition of the GE Specialty Chemicals business had
been consummated as of the beginning of each respective period:
2003 2002 2001
----------- ----------- -----------
(In thousands, except per share data)
Net sales ......................................................... $ 2,276,962 $ 2,259,219 $ 2,449,866
=========== =========== ===========
Earnings (loss) from continuing operations before
cumulative effect of accounting change ......................... $ (101,854) $ 2,424 $ (113,491)
=========== =========== ===========
Net earnings (loss) (a) ........................................... $ 9,437 $ (296,557) $ (113,491)
=========== =========== ===========
Basic earnings (loss) per common share:
Earnings (loss) before cumulative effect of accounting change...... $ (0.91) $ 0.02 $ (1.00)
=========== =========== ===========
Net earnings (loss) ............................................... $ 0.08 $ (2.61) $ (1.00)
=========== =========== ===========
Diluted earnings (loss) per common share:
Earnings (loss) before cumulative effect of accounting change...... $ (0.91) $ 0.02 $ (1.00)
=========== =========== ===========
Net earnings (loss) ............................................... $ 0.08 $ (2.56) $ (1.00)
=========== =========== ===========
Weighted average shares outstanding:
Basic ............................................................. 112,531 113,568 113,061
=========== =========== ===========
Diluted ........................................................... 112,531 115,656 113,061
=========== =========== ===========
- ---------
(a) The pro forma net earnings (loss) for the year ended December 31, 2003
includes a gain on the sale of discontinued operations of $111,692. In
addition, the pro forma net earnings (loss) for the years ended
December 31, 2003 and 2002 include charges for cumulative effect of
accounting changes of $401 and $298,981, respectively.
The pro forma information above has been prepared for comparative
purposes only and does not purport to be indicative of the results of operations
that would have occurred had the divestiture of the OrganoSilicones business
unit and the acquisition of the GE Specialty Chemicals business been consummated
at the beginning of the respective periods.
DIVESTITURES
In June 2002, the Company sold its industrial specialties business unit
(excluding retained accounts receivable and accounts payable valued at
approximately $10 million) for $95 million, including cash proceeds of $80
million and a note receivable of $15 million due February 2003. The note
receivable, net of adjustments made to the value of certain assets sold, was
paid by the buyer. The industrial specialties assets sold consisted of inventory
of $24.9 million, property, plant and equipment, net, of $80.2 million and
intangible assets of $2.0 million. In addition, other assets (primarily
intangible assets) of $11.5 million were written off. After transaction fees and
related costs, the Company recorded a pre-tax loss of $34.7
F-13
million in 2002 (included in other expense, net). During the fourth quarter of
2003, the Company resolved certain transaction-related matters with the buyer
and accordingly recorded a $2.6 million credit adjustment to the pre-tax loss in
other expense, net. Prior to the sale, the industrial specialties business unit
was included in the Other reporting segment.
In December 2001, the Company sold its industrial colors business unit
for $32 million, which resulted in a pre-tax loss of $17.3 million (included in
other expense, net).
In December 2001, the Company sold its equity interest in the nitrile
rubber joint venture for $3.1 million. The sale resulted in a pre-tax loss of
$1.8 million (included in other expense, net).
In March 2001, the Company sold its equity interest in Yorkshire Group
PLC for $7 million. The sale resulted in a pre-tax loss of $1.5 million
(included in other expense, net).
ASSET IMPAIRMENTS
During the fourth quarter of 2001, as a result of changes in the
marketplace, the Company evaluated the recoverability of the long-lived assets
of its rubber chemicals and trilene businesses. The rubber additives business
(included in the Polymer Additives reporting segment) had experienced
industry-wide overcapacity, customer consolidation and low cost regional
competition, which led to deteriorating pricing and marginally profitable
long-term prospects. For the trilene business (which represents less than $4
million of net sales included in the Polymers reporting segment), the issue was
a lack of demand with little prospect for improvement. Based on the projected
cash flows, the Company determined that the carrying values of the long-lived
assets of these businesses were impaired and recorded impairment charges of
$66.7 million and $13.7 million related to the rubber chemicals and trilene
businesses, respectively. These amounts were charged to operating profit in the
fourth quarter of 2001 with an offsetting reduction to the long-lived assets of
the businesses, primarily property, plant and equipment.
MERGER ACCRUALS
On September 1, 1999, Crompton and Knowles Corporation (C&K) merged
with Witco Corporation (Witco) in a tax-free stock-for-stock merger (the
"Merger"). As a result of the Merger, the Company recorded various merger
related accruals in 1999 as a component of cost in excess of acquired net assets
(goodwill). The changes to these accruals for the periods presented in the
Company's consolidated financial statements are as follows:
Severance Other Merger
and Related Related
Costs Costs Total
----------- ------------ -----
(In thousands)
Balance at December 31, 2000............................. $ 17,678 $ 7,606 $ 25,284
Cash payments ........................................... (3,019) (2,836) (5,855)
Non-cash charges ........................................ (983) (862) (1,845)
-------- -------- --------
Balance at December 31, 2001 ............................ 13,676 3,908 17,584
Cash payments ........................................... (764) (1,226) (1,990)
Non-cash charges ........................................ -- (157) (157)
Reserve adjustment (a) .................................. (12,571) (536) (13,107)
-------- -------- --------
Balance at December 31, 2002 ............................ 341 1,989 2,330
Cash payments ........................................... (115) (283) (398)
Reserve adjustment (a) .................................. -- (797) (797)
-------- -------- --------
Balance at December 31, 2003 ............................ $ 226 $ 909 $ 1,135
======== ======== ========
- ----------
(a) Represents the reversal of reserves no longer deemed necessary, of which
$12.6 million in 2002 was a reduction of goodwill.
F-14
Also, as a result of the Merger, the Company recorded additional
accruals in 1999 as a component of operating profit (loss). The changes to these
accruals for the periods presented in the Company's consolidated financial
statements are summarized as follows:
Severance Facility Other
and Closure and Merger
Related Maintenance Related
Costs Costs Costs Total
---------- ----------- -------- -----
(In thousands)
Balance at December 31, 2000................... $ 1,347 $ 4,796 $ 922 $ 7,065
Cash payments ................................. (297) (1,187) (613) (2,097)
Non-cash charges .............................. (684) (1,758) 126 (2,316)
------- ------- ------- -------
Balance at December 31, 2001 .................. 366 1,851 435 2,652
Cash payments ................................. (325) (1,564) (42) (1,931)
Non-cash charges .............................. 50 (287) (250) (487)
------- ------- ------- -------
Balance at December 31, 2002 .................. 91 -- 143 234
Cash payments ................................. -- -- (44) (44)
Reserve adjustment ............................ (91) -- 91 --
------- ------- ------- -------
BALANCE AT DECEMBER 31, 2003 .................. $ -- $ -- $ 190 $ 190
======= ======= ======= =======
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAMS
The Company has an accounts receivable securitization program to sell
up to $150 million of domestic accounts receivable to agent banks. At December
31, 2003, $106.1 million had been sold at an average cost of approximately
1.89%. At December 31, 2002, $136.5 million had been sold at an average cost of
approximately 2.19%. In addition, the Company's European subsidiaries have a
separate program to sell their eligible accounts receivable to agent banks. At
December 31, 2003, $93.3 million of international accounts receivable had been
sold at an average cost of approximately 3.37%. At December 31, 2002, $101
million of international accounts receivable had been sold at an average cost of
approximately 3.94%. The total costs associated with these programs of $7.8
million and $9.1 million as of December 31, 2003 and 2002, respectively, are
included in other expense, net in the consolidated statements of operations. The
decrease in accounts receivable sold under these programs in 2003 was primarily
due to a reduction in eligible receivables resulting from the sale of the
OrganoSilicones business unit.
Under the domestic program, certain subsidiaries of the Company sell
their receivables to a special purpose entity (SPE) that has been created as a
separate legal entity for the purpose of acquiring such receivables and selling
an undivided interest therein to agent banks. In accordance with the domestic
sale agreement, the agent banks purchase an undivided ownership interest in the
accounts receivable owned by the SPE. The amount of such undivided ownership
interest will vary based on the level of eligible accounts receivable as defined
in the agreement. In addition, the agent banks retain a security interest in the
unsold receivable balance owned by the SPE, which was $43.3 million and $27.4
million as of December 31, 2003 and 2002, respectively. The balance of the
unsold receivables owned by the SPE is included in the Company's accounts
receivable balance on its consolidated balance sheets. Under the international
programs, certain foreign subsidiaries of the Company sell eligible accounts
receivable directly to agent banks. During the period, the Company had an
obligation to service the accounts receivable sold under its domestic and
international programs. The Company has treated the transfer of receivables
under its domestic and international receivable programs as a sale of accounts
receivable.
INVENTORIES
2003 2002
-------- --------
(In thousands)
Finished goods...................................... $293,846 $264,078
Work in process .................................... 20,175 21,158
Raw materials and supplies ......................... 76,178 68,320
-------- --------
$390,199 $353,556
======== ========
F-15
PROPERTY, PLANT AND EQUIPMENT
2003 2002
---------- ----------
(In thousands)
Land and improvements................................. $ 47,953 $ 44,737
Buildings and improvements ........................... 236,325 172,359
Machinery and equipment .............................. 1,088,383 978,155
Information systems equipment ........................ 124,951 118,039
Furniture, fixtures and other ........................ 25,619 23,212
Construction in progress ............................. 79,386 82,725
---------- ----------
1,602,617 1,419,227
Less accumulated depreciation ........................ 828,005 723,265
---------- ----------
$ 774,612 $ 695,962
========== ==========
GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted FASB Statement No. 141,
"Business Combinations" and FASB Statement No. 142, "Goodwill and Other
Intangible Assets." Statement No. 141 requires that all business combinations
initiated after June 30, 2001 be accounted for using the purchase method of
accounting. It also specifies criteria that must be met for intangible assets
acquired in a purchase combination to be recognized apart from goodwill.
Statement No. 142 requires that the useful lives of all existing intangible
assets be reviewed and adjusted if necessary. It also requires that goodwill and
intangible assets with indefinite lives no longer be amortized, but rather be
tested for impairment at least annually. Other intangible assets will continue
to be amortized over their useful lives and reviewed for impairment in
accordance with FASB Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets."
In accordance with Statement No. 142, the Company discontinued the
amortization of goodwill effective January 1, 2002. The following is a
reconciliation to adjust previously reported annual financial information to
exclude goodwill amortization expense:
2001
---------------------------------------
Net Earnings
(Loss) Per Share
-----------------------
Loss Basic Diluted
--------- -------- --------
(In thousands, except per share data)
Net loss, as reported .......................................... $(123,944) $ (1.10) $ (1.10)
Goodwill amortization expense -- continuing operations.......... 20,179 0.18 0.18
Goodwill amortization expense -- discontinued operations ....... 5,877 0.05 0.05
--------- -------- --------
ADJUSTED NET LOSS .............................................. $ (97,888) $ (0.87) $ (0.87)
========= ======== ========
The Company's intangible assets (excluding goodwill) are included in
"other assets" on the consolidated balance sheets and comprise the following:
December 31, 2003 December 31, 2002
------------------------------ ------------------------------
Gross Accumulated Gross Accumulated
Cost Amortization Cost Amortization
-------------- -------------- -------------- --------------
(In thousands)
Patents.................................. $ 60,824 $ (18,877) $ 45,440 $ (15,335)
Trademarks .............................. 83,718 (31,334) 69,547 (27,932)
Other ................................... 89,364 (37,444) 64,327 (31,325)
--------- --------- --------- ---------
$ 233,906 $ (87,655) $ 179,314 $ (74,592)
========= ========= ========= =========
The gross cost of the Company's intangible assets increased $54.6
million during 2003 primarily due to $43.6 million of intangibles acquired with
the acquisition of the GE Specialty Chemicals business, the capitalization of
fees associated with the renewal of patents, trademarks and registrations, and
higher foreign currency translation. The estimated fair value of intangible
assets associated with the GE Specialty Chemicals acquisition was based on an
independent valuation
F-16
and includes $13.2 million for trademarks with a 40-year useful life, $23.1
million for acquired customer lists/relationships with a weighted-average useful
life of 6.3 years, and $7.3 million for patents with a 10-year useful life.
Amortization expense related to intangible assets (excluding goodwill)
amounted to $14.5 million in 2003, $11.6 million in 2002 and $11.6 in 2001.
Estimated amortization expense for the next five fiscal years is as follows:
$17.1 million (2004); $16.3 million (2005); $16.1 million (2006); $15.9 million
(2007); and $15.4 million (2008).
During the first quarter of 2002, in accordance with the goodwill
impairment provisions of Statement No. 142, the Company allocated its assets and
liabilities, including goodwill, to its reporting units. Much of the goodwill
relates to the Merger and, accordingly, has been allocated to the former Witco
business units. During the second quarter of 2002, the Company completed its
reporting unit fair value calculations by discounting the projected cash flows
of each of its reporting units using its weighted-average cost of capital. As a
result, the Company recorded a charge of $299 million, or $2.63 per share,
retroactive to January 1, 2002. The charge is reflected in 2002 as a cumulative
effect of accounting change. Of the $299 million charge, $84 million relates to
the divested industrial specialties business and represents 100 percent of the
goodwill attributed to that business. A further $65 million relates to 100
percent of the goodwill attributed to the refined products business and the
remaining $150 million of the charge represents 43 percent of the goodwill
attributed to the plastic additives business.
Goodwill by reportable segment is as follows:
December 31, December 31,
2003 2002
------------ ------------
(In thousands)
Polymer Products
Polymer Additives......................................... $310,785 $266,105
Polymers ................................................. 17,299 17,299
Polymer Processing Equipment ............................. 34,637 31,870
-------- --------
362,721 315,274
-------- --------
Specialty Products
OrganoSilicones .......................................... -- 213,980
Crop Protection .......................................... 55,886 55,379
-------- --------
55,886 269,359
-------- --------
$418,607 $584,633
======== ========
During 2003, goodwill decreased $166 million primarily due to the
write-off of $214 million of goodwill related to the OrganoSilicones business,
partially offset by $42.3 million of goodwill associated with the acquisition of
the GE Specialty Chemicals business (included in the Polymer Additives segment)
and higher foreign currency translation of $5.6 million. The goodwill associated
with the OrganoSilicones business was written off as part of the gain on sale of
discontinued operations. All of the goodwill associated with the GE Specialty
Chemicals business is deductible for tax purposes.
The Company has elected to perform its annual goodwill impairment
procedures for all of its reporting units as of July 31. During the third
quarter of 2003, the Company updated its carrying value calculations and fair
value estimates for each of its reporting units as of July 31, 2003. Based on
the comparison of the carrying values to the estimated fair values, the Company
has concluded that no additional goodwill impairment exists. The Company will
update its review as of July 31, 2004, or sooner, if events occur or
circumstances change that could reduce the fair value of a reporting unit below
its carrying value.
LEASES
At December 31, 2003, minimum rental commitments under non-cancelable
operating leases, net of sublease income, amounted to $17.9 million (2004),
$15.2 million (2005), $10.5 million (2006), $9.1 million (2007), $8.7 million
(2008) and $35.3 million (2009 and thereafter). Rental expenses under operating
leases were $24.4 million (2003), $27.8 million (2002) and $31.5 million (2001).
F-17
Real estate taxes, insurance and maintenance expenses generally are
obligations of the Company, and accordingly, are not included as part of rental
payments. It is expected that in the normal course of business, leases that
expire will be renewed or replaced by similar leases.
INDEBTEDNESS
The Company's long-term debt instruments are recorded at face value,
net of unamortized discounts. Such discounts will be amortized to interest
expense over the life of the related debt instruments. The Company's long-term
debt is summarized as follows:
LONG-TERM DEBT
2003 2002
---------- ----------
(In thousands)
Domestic Credit Facility (a) .................................................. $ -- $ 25,000
8.50% Notes due 2005, net of unamortized discount of $850 in 2003 and $2,706 in
2002, with an effective interest rate of 8.71% ............................. 349,150 597,294
6.125% Notes due 2006, net of unamortized discount of $4,966 in 2003 and $7,348
in 2002, with an effective interest rate of 7.71% .......................... 145,034 142,652
6.875% Debentures due 2026, net of unamortized discount of $23,265 in 2003 and
$24,319 in 2002, with an effective interest rate of 7.58% .................. 126,735 125,681
7.75% Debentures due 2023, net of unamortized discount of $1,405 in 2003 and
$1,478 in 2002, with an effective interest rate of 7.82% ................... 108,595 108,522
6.60% Notes due 2003, net of unamortized discount of $442 in 2002, with an
effective interest rate of 7.67% ........................................... -- 164,558
EURIBOR-based Bank Loans due 2003 ............................................. -- 57,051
Other ......................................................................... 24,504 32,391
---------- ----------
$ 754,018 $1,253,149
========== ==========
- ----------
(a) The Company's domestic credit facility of $57 million at December 31,
2003 has been classified as short-term due to its maturity date of
October 2004.
On April 1, 2003, the Company utilized its domestic credit facility to
repay its $165 million of 6.6% notes due in 2003. On July 31, 2003, the Company
completed its transaction with GE and used the proceeds from this transaction
primarily to reduce indebtedness. On July 31, 2003, the Company reduced the
borrowings under its domestic credit facility from $294 million to zero. In
August of 2003, the Company repaid the $61.3 million balance of its
EURIBOR-based bank loans and repurchased $250 million of its 8.5% notes. As a
result of the repurchase of the 8.5% notes, the Company recorded a loss on early
extinguishment of debt of $24.7 million as a component of net earnings (loss)
from continuing operations before taxes in accordance with FASB Statement No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." Included in this loss is a premium
of $23.8 million and a write-off of $0.9 million related to the unamortized
discount and debt issuance costs related to the repurchased notes.
In March of 2000, the Company issued $600 million of notes due in 2005
with a coupon rate of 8.5%, and entered into an interest rate swap contract to
convert $300 million of such notes into variable interest rate debt. On March
24, 2001, the Company terminated the $300 million variable interest rate swap
contract and received $21.9 million of cash proceeds from the settlement of the
contract, which represented the fair market value of the contract on the date of
termination. In accordance with FASB Statements No. 133 and No. 138, as they
relate to fair value hedge accounting, the $21.9 million was recorded as an
increase to long-term debt and is being amortized to earnings over the life of
the notes. The unamortized balance at December 31, 2003 and 2002 was $6.6
million and $12.1 million, respectively.
CREDIT FACILITIES
At December 31, 2002, the Company had a $400 million five-year domestic
credit facility available through October 2004. Effective July 31, 2003, the
credit facility was amended to $300 million. Borrowings on this facility are at
various rate options determined on the date of borrowing. In addition, the
Company must pay a facility fee on the aggregate amount of the credit facility,
which was .50% and .38% at December 31, 2003 and 2002, respectively. At December
31, 2003,
F-18
borrowings under this credit facility were $57 million with a weighted-average
interest rate of 3.57%. At December 31, 2002, borrowings under this credit
facility were $25 million with a weighted-average interest rate of 3.56%. Due to
the October 2004 maturity date, borrowings under this facility were classified
as short-term at December 31, 2003.
The Company also has arrangements with various banks for lines of
credit for its international subsidiaries aggregating $26.3 million in 2003 and
$28 million in 2002, of which $3.7 million (at 4.9%) and $4.7 million (at 4.4%)
were outstanding at December 31, 2003 and 2002, respectively.
DEBT COVENANTS
The Company's various debt agreements contain covenants that limit the
ability to create or assume mortgages or engage in mergers, consolidations, and
certain sales or leases of assets. The Company is required to report compliance
with certain financial covenants to its lenders on a quarterly basis. Under
these covenants, the Company is required to maintain a leverage ratio (adjusted
total debt to adjusted earnings before interest, taxes, depreciation and
amortization ("Bank EBITDA"), with adjustments to both debt and earnings being
made in accordance with the terms of the domestic credit facility agreement) and
an interest coverage ratio (Bank EBITDA to interest expense). The Company also
provides a security interest in certain domestic personal property not to exceed
10% of consolidated net tangible assets. As a result of the waiver and
amendments to the domestic credit facility agreement dated October 17, 2003 and
November 10, 2003, the leverage and interest coverage ratio covenants were
modified to allow for more latitude beginning in the third quarter of 2003. The
Company was in compliance with the financial covenants of its domestic credit
facility at December 31, 2003. The Company's five-year domestic credit facility
and the amendments thereto have been filed as exhibits to the Company's filings
with the Securities and Exchange Commission.
MATURITIES
At December 31, 2003, the scheduled maturities of long-term debt during
the next five fiscal years are: 2004 - $0; 2005 - $350 million; 2006 - $150
million; 2007 - $0; and 2008 - $0.
INCOME TAXES
The components of earnings (loss) from continuing operations before
income taxes and cumulative effect of accounting change, and the provision for
income taxes (benefit) are as follows:
2003 2002 2001
--------- --------- ---------
(In thousands)
Pre-tax Earnings (Loss) from Continuing Operations:
Domestic ................................................... $(249,802) $(150,523) $(280,092)
Foreign..................................................... 95,049 96,173 44,450
--------- --------- ---------
$(154,753) $ (54,350) $(235,642)
========= ========= =========
Income Taxes (Benefits):
Domestic
Current .................................................... $ 2,524 $ (1,749) $ 562
Deferred ................................................... (75,798) (55,435) (102,381)
--------- --------- ---------
(73,274) (57,184) (101,819)
Foreign
Current .................................................... 47,057 33,991 19,596
Deferred ................................................... (9,885) 4,289 2,340
--------- --------- ---------
37,172 38,280 21,936
Total
Current .................................................... 49,581 32,242 20,158
Deferred ................................................... (85,683) (51,146) (100,041)
--------- --------- ---------
$ (36,102) $ (18,904) $ (79,883)
========= ========= =========
The provision (benefit) for income taxes differs from the Federal
statutory rate for the following reasons:
F-19
2003 2002 2001
-------- -------- --------
(In thousands)
Income tax benefit at statutory rate........................... $(54,164) $(19,023) $(82,475)
Antitrust fines ............................................... 15,816 -- --
Goodwill amortization ......................................... -- -- 7,210
Foreign income tax rate differential .......................... 5,619 (389) 6,378
State income taxes, net of federal benefit .................... (7,433) (4,381) (9,192)
Tax audit settlements ......................................... -- (900) (4,870)
Impact of valuation allowance ................................. (1,714) 5,008 1,792
Exclusions and foreign income subject to U.S. taxation ........ 2,696 23 882
Non-deductible items .......................................... 4,811 758 3,585
Other, net .................................................... (1,733) -- (3,193)
-------- -------- --------
ACTUAL INCOME TAX BENEFIT ..................................... $(36,102) $(18,904) $(79,883)
======== ======== ========
Provisions have been made for deferred taxes based on differences
between the financial statement and the tax basis of assets and liabilities
using currently enacted tax rates and regulations. The components of the net
deferred tax assets and liabilities are as follows:
2003 2002
--------- ---------
(In thousands)
DEFERRED TAX ASSETS:
Pension and other post-retirement liabilities............................... $ 172,487 $ 182,427
Net operating loss and tax credit carryforwards ............................ 101,639 138,500
Accruals for environmental remediation ..................................... 41,596 44,430
Other accruals ............................................................. 54,245 54,332
Inventories and other ...................................................... 24,695 19,407
Intercompany royalty ....................................................... -- 21,935
DEFERRED TAX LIABILITIES:
Property, plant and equipment .............................................. (40,493) (69,316)
Earn-out receivable ........................................................ (35,786) --
Foreign basis differential ................................................. (35,698) --
Financial instruments ...................................................... (11,793) (13,254)
Intangibles ................................................................ (5,380) (12,453)
Other ...................................................................... (3,509) (5,829)
--------- ---------
Net deferred tax asset before valuation allowance ............................. 262,003 360,179
Valuation allowance ........................................................... (18,356) (20,070)
--------- ---------
Net deferred tax asset after valuation allowance .............................. $ 243,647 $ 340,109
========= =========
Net deferred taxes of $64.9 million and $62.1 million are included in
other current assets and $178.8 million and $278 million are included in other
assets in 2003 and 2002, respectively. The Company believes that it is more
likely than not that the results of future operations will generate sufficient
taxable income to realize its deferred tax assets.
At December 31, 2003, the Company had an aggregate of $259.5 million of
net operating losses (NOLs) ($231.9 million generated domestically and $27.6
million related to the Company's foreign subsidiaries) and $1.3 million of
excess foreign tax credits. The Company's NOL's are subject to certain
limitations and will begin to expire in 2008. The valuation allowance at
December 31, 2003 includes $12.8 million related to the NOL's ($4.4 million for
which subsequently recognized tax benefits will be applied to reduce goodwill)
and $5.6 million related to other foreign deferred tax assets.
At December 31, 2002, the Company had an aggregate of $350.4 million of
NOL's ($316.9 million generated domestically and $33.5 million related to the
Company's foreign subsidiaries) and $1.9 million of excess foreign tax credits.
The valuation allowance at December 31, 2002 included $14.5 million related to
the NOL's ($5.2 million for which subsequently recognized tax benefits will be
applied to reduce goodwill) and $5.6 million related to other foreign deferred
tax assets.
F-20
The Company has not made any provision for U.S. taxes which would be
payable if undistributed earnings of the foreign subsidiaries of approximately
$466 million at December 31, 2003 were distributed to the Company since certain
foreign countries limit the extent of repatriation of earnings while, for
others, the Company's intention is to permanently reinvest such foreign
earnings. A determination of the amount of the unrecognized deferred tax
liability related to undistributed earnings is not practicable.
In addition, the Company has not recognized a deferred tax liability
for the difference between the book basis and the tax basis of its investment in
the common stock of its subsidiaries. Such difference relates primarily to $235
million of unremitted earnings earned by Witco's foreign subsidiaries prior to
the Merger on September 1, 1999. The Company does not expect this difference in
basis to become subject to tax at the parent level, as it is the Company's
intention to permanently reinvest such foreign earnings.
EARNINGS (LOSS) PER COMMON SHARE
The computation of basic earnings (loss) per common share is based on
the weighted-average number of common shares outstanding. Diluted earnings
(loss) per share is based on the weighted-average number of common and common
share equivalents outstanding. The computation of diluted earnings (loss) per
share equals the basic calculation since common stock equivalents were
antidilutive due to losses from continuing operations in each year. Common stock
equivalents amounted to 147,539 in 2003, 2,087,888 in 2002 and 2,442,685 in
2001.
2003 2002 2001
--------- --------- ---------
(In thousands, except per share data)
Loss from continuing operations before
cumulative effect of accounting change.................................... $(118,651) $ (35,446) $(155,759)
Earnings from discontinued operations ...................................... 26,314 50,920 31,815
Gain on sale of discontinued operations .................................... 111,692 -- --
Cumulative effect of accounting change ..................................... (401) (298,981) --
--------- --------- ---------
NET EARNINGS (LOSS) ........................................................ $ 18,954 $(283,507) $(123,944)
========= ========= =========
BASIC AND DILUTED
Weighted-average shares outstanding ........................................ 112,531 113,568 113,061
========= ========= =========
Loss from continuing operations before
cumulative effect of accounting change ................................... $ (1.05) $ (0.31) $ (1.38)
Earnings from discontinued operations ...................................... 0.23 0.44 0.28
Gain on sale of discontinued operations .................................... 0.99 -- --
Cumulative effect of accounting change ..................................... -- (2.63) --
--------- --------- ---------
NET EARNINGS (LOSS) ........................................................ $ 0.17 $ (2.50) $ (1.10)
========= ========= =========
CAPITAL STOCK
The Company is authorized to issue 500 million shares of $.01 par value
common stock. There were 119,152,254 shares issued at year-end 2003 and 2002, of
which 4,660,158 and 5,297,885 shares were held as treasury stock in 2003 and
2002, respectively.
The Company is authorized to issue 250,000 shares of preferred stock
without par value, none of which are outstanding. On September 3, 1999, the
Company declared a dividend distribution of one Preferred Share Purchase Right
(Rights) on each outstanding share of common stock. These Rights entitle
stockholders to purchase one one-hundredth of a share of a new series of junior
participating preferred stock at an exercise price of $100. The Rights are only
exercisable if a person or group acquires 15% or more of the Company's common
stock or announces a tender offer which, if successful, would result in
ownership of 15% or more of the Company's common stock.
F-21
COMPREHENSIVE LOSS
Components of accumulated other comprehensive loss are as follows:
2003 2002
--------- ---------
(In thousands)
Foreign currency translation adjustment.............................................. $ 49,605 $ (75,833)
Minimum pension liability adjustment ................................................ (142,753) (117,866)
Other ............................................................................... (3,315) (6,727)
--------- ---------
ACCUMULATED OTHER COMPREHENSIVE LOSS ................................................ $ (96,463) $(200,426)
========= =========
Reclassification adjustments during 2003, 2002 and 2001 aggregated $4.9
million, $6.6 million, and $2.2 million, respectively. Of these amounts, $3.8
million in 2003, $6.0 million in 2002 and $2.0 million in 2001 relate to
amortization from other comprehensive income to earnings in connection with the
Company's equity option contracts, which expired in May 2003. These amounts have
been disclosed in the Derivative Instruments and Hedging Activities footnote.
The remaining $1.1 million in 2003, $0.6 million in 2002 and $0.2 million in
2001 were also reclassified from other comprehensive income to earnings and
relate to the Company's interest rate swap contracts accounted for as cash flow
hedges, which expired in July 2003 concurrent with the maturity of the
underlying debt.
STOCK INCENTIVE PLANS
The 1988 Long-Term Incentive Plan (1988 Plan), as amended, authorized
the Board of Directors (Board) to grant stock options, stock appreciation
rights, restricted stock and long-term performance awards covering up to 10
million shares to the officers and other key employees of C&K over a period of
ten years through October 1998. Non-qualified and incentive stock options were
granted under the 1988 plan at prices not less than 100% of the fair market
value of the underlying common shares on the date of the grant. All outstanding
options will expire not more than ten years and one month from the date of
grant.
The 1993 Stock Option Plan for Non-Employee Directors, as amended in
1996, authorized 200,000 options to be granted to non-employee directors. The
options vest over a two-year period and are exercisable over a ten-year period
from the date of grant, at a price equal to the fair market value of the
underlying common shares on the date of grant.
The 1998 Long-Term Incentive Plan (1998 Plan) was approved by the
shareholders of C&K in 1999. This plan authorizes the Board to grant stock
options, stock appreciation rights, restricted stock and long-term performance
awards to eligible employees and non-qualified stock options to non-employee
directors over a ten-year period. During 2003, 2002 and 2001, non-qualified and
incentive stock options were granted under the 1998 Plan at prices not less than
100% of the fair market value of the underlying common shares on the date of
grant. All outstanding options will expire not more than ten years and one month
from the date of grant. The 1998 Plan authorizes the Company to grant shares and
options for shares of common stock equal to the sum of (i) the shares available
for award under the 1988 Plan and the 1993 Stock Option Plan For Non-Employee
Directors as of October 18, 1998 and (ii) the shares awarded under prior plans
of C&K which were forfeited, expired, lapsed, not earned or tendered to pay the
exercise price of options or withholding taxes. In 1999, the number of common
shares reserved for issuance under the 1998 plan was increased by 2.8 million
shares and, pursuant to the Merger, increased by an additional 5 million shares.
Under the terms of the Merger, the shareholders also approved the conversion of
all outstanding Witco options into options to purchase the Company's common
stock. These 4.7 million converted options expired 30 days after the Merger and
became available for grant under the 1998 Plan.
In October 2001, the Board of Directors approved the 2001 Employee
Stock Option Plan (2001 Plan). The 2001 Plan authorizes the Board to grant up to
1 million non-qualified stock options to key non-officer employees. Options
under the 2001 plan will be granted at prices not less than 100% of the fair
market value of the underlying common shares on the date of grant and will
expire not more than 10 years and one month from the date of grant.
In October 1999, the Company granted long-term incentive awards in the
amount of 2,175,000 shares of restricted stock from the 1998 Plan. In connection
with the Merger, vesting requirements relating to 300,000 shares of restricted
stock were waived. The remaining 1,875,000 shares were earned as of December 31,
2000 based upon the achievement of certain financial criteria and vested over a
three-year period, which ended on January 1, 2003. Compensation expense relating
to these shares was accrued over a three-year period.
F-22
In January 2000, the Company granted long-term incentive awards under
the 1998 Plan for a maximum of 2,707,250 shares to be earned at the end of 2002
if certain financial criteria were met. In January 2001, the January 2000 awards
were cancelled and awards were granted for a maximum of 2,343,367 shares to be
earned if certain vesting and financial criteria were met at the end of 2002. In
January 2002, the Company granted long-term incentive awards under the 1998 Plan
for a maximum of 1,052,000 shares to be earned at the end of 2004 if certain
financial criteria are met for 2002 through 2004. In conjunction with this
award, the remaining outstanding performance-based portion of the awards
(1,655,000 shares) granted in January 2001 were cancelled. In accordance with
the terms of the January 2002 grant, the maximum number of shares to be earned
under this award has been reduced to 381,000.
In January 2003, the Board of Directors approved the grant of options
covering 1,270,458 shares at the fair market value of the underlying common
stock at the date of grant. In October 2003, the Board of Directors approved the
grant of options covering 898,000 shares at the fair market value of the
underlying common stock at the date of grant. These options will vest over a
three-year period.
In January 2004, the Board of Directors granted long-term incentive
awards in the amount of 430,000 shares of restricted stock, which will vest over
a three-year period. In addition, in connection with the employment of the
Company's new President and Chief Executive Officer in January 2004, the Board
of Directors approved an employment contract authorizing the grant of options
covering 500,000 shares, at the fair market value of the underlying common stock
at the date of grant, and the grant of a long-term incentive award for 200,000
shares of restricted stock. The options will vest ratably over a two-year period
and the restricted stock will vest ratably over a three-year period.
As permitted under FASB Statement No. 123 and FASB Statement No. 148,
the Company elected to continue its historical method of accounting for
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation
expense has not been recognized for stock-based compensation plans other than
restricted stock awards under the Company's long-term incentive programs.
The following table summarizes the effect on net earnings (loss) and
earnings (loss) per common share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123 to all stock-based employee
compensation awards, the estimated fair value of options granted using the
Black-Scholes model and the assumptions utilized in the model:
2003 2002 2001
------- --------- ---------
(In thousands)
Net earnings (loss), as reported......................................... $18,954 $(283,507) $(123,944)
Pro forma net earnings (loss)............................................ $14,825 $(289,426) $(133,171)
Earnings (loss) per share:
Basic and diluted - as reported....................................... $ 0.17 $ (2.50) $ (1.10)
Basic and diluted - pro forma......................................... $ 0.13 $ (2.55) $ (1.18)
Average fair value of options granted.................................... $ 2.67 $ 3.08 $ 3.97
Assumptions:
Dividend yield........................................................ 2.6% 2.5% 2.0%
Expected volatility................................................... 49% 48% 52%
Risk-free interest rate............................................... 4.0% 3.5% 5.0%
Expected life (in years).............................................. 8 8 8
Changes during 2003, 2002 and 2001 in shares under option are
summarized as follows:
Price Per Share
---------------------------
Range Average Shares
----------- ------ ----------
Outstanding at 12/31/00.................................................. $3.13-26.41 $11.98 11,771,322
Granted.................................................................. 7.92-10.81 7.93 1,760,866
Exercised................................................................ 3.13-8.34 5.20 (111,759)
Lapsed................................................................... 8.16-26.41 15.75 (346,142)
----------- ------ ----------
Outstanding at 12/31/01.................................................. 5.22-26.41 11.39 13,074,287
Granted.................................................................. 7.25 7.25 1,272,430
Exercised................................................................ 5.22-8.34 7.59 (436,149)
Lapsed................................................................... 7.92-26.41 16.95 (771,165)
----------- ------ ----------
Outstanding at 12/31/02.................................................. 5.22-26.41 10.79 13,139,403
F-23
Price Per Share
---------------------------
Range Average Shares
----------- ------ ----------
Granted.................................................................. 5.85-6.38 6.16 2,168,458
Exercised................................................................ 5.22 5.22 (8,525)
Lapsed................................................................... 5.22-26.41 10.77 (1,511,244)
----------- ------ ----------
OUTSTANDING AT 12/31/03.................................................. $5.85-26.41 $10.07 13,788,092
=========== ====== ==========
Exercisable at 12/31/01.................................................. $5.22-26.41 $12.78 9,073,974
Exercisable at 12/31/02.................................................. $5.22-26.41 $11.52 10,699,627
Exercisable at 12/31/03.................................................. $7.25-26.41 $11.04 10,847,565
Shares available for grant at year-end 2003 and 2002 were 6,876,664 and
6,148,135, respectively.
The following table summarizes information concerning currently
outstanding and exercisable options:
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at End of Contractual Exercise at End of Exercise
Prices 2003 Life Price 2003 Price
- ---------------------------------------- ----------- ----------- -------- ----------- --------
$5.85-7.92.............................. 4,866,589 8.6 $6.99 1,927,729 $7.74
$8.16-8.35.............................. 5,031,485 5.7 $8.27 5,031,485 $8.27
$10.81-14.35............................ 1,313,345 3.7 $14.04 1,311,678 $14.05
$14.50-26.41............................ 2,576,673 2.7 $17.37 2,576,673 $17.37
---------- --- ------ ---------- ------
13,788,092 6.0 $10.07 10,847,565 $11.04
========== === ====== ========== ======
The Company has an Employee Stock Ownership Plan that is offered to
eligible employees of the Company and certain of its subsidiaries. The Company
makes contributions equivalent to a stated percentage of employee contributions.
The Company's contributions were $2.5 million in 2003, $2.8 million in 2002 and
$3.6 million in 2001.
Effective June 1, 2001, the Company established an Employee Stock
Purchase Plan. This plan permits eligible employees to annually elect to have up
to 10% of their compensation withheld for the purchase of shares of the
Company's common stock at 85% of the average of the high and low sale prices on
the date of purchase, up to a maximum of $25,000. As of December 31, 2003,
1,577,237 shares of common stock are available for future issuance under this
plan.
PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
The Company has several defined benefit and defined contribution
pension plans covering substantially all of its domestic employees and certain
international employees. Benefits under the defined benefit plans are primarily
based on the employees' years of service and compensation during employment. The
Company's funding policy for the defined benefit plans is based on contributions
at the minimum annual amounts required by law plus such amounts as the Company
may deem appropriate. Contributions for the defined contribution plans are
determined as a percentage of the covered employees' salary. Plan assets consist
of publicly traded securities and investments in commingled funds administered
by independent investment advisors.
Employees of international locations are covered by various pension
benefit arrangements, some of which are considered to be defined benefit plans
for financial reporting purposes. Assets of these plans are comprised primarily
of insurance contracts and financial securities. Benefits under these plans are
primarily based upon levels of compensation. Funding policies are based on legal
requirements, tax considerations and local practices.
The Company also provides health and life insurance benefits for
certain retired and active employees and their beneficiaries and covered
dependents for substantially all of its domestic employees and certain
international employees. These plans are generally not pre-funded and are paid
by the Company as incurred, except for certain inactive government-related
plans.
The Company uses a measurement date of December 31 for substantially
all of its pension and other post-retirement benefit plans.
F-24
BENEFIT OBLIGATIONS
Defined Benefit Plans
-------------------------------------------------------
Qualified International and Post-Retirement
Domestic Plans Non-Qualified Plans Health Care Plans
------------------------ ------------------------ -------------------------
2003 2002 2003 2002 2003 2002
-------- -------- -------- -------- -------- --------
(In thousands)
Change in projected benefit
obligation:
Projected benefit obligation at
beginning of year.............. $648,121 $619,981 $226,553 $184,773 $224,078 $216,511
Service cost...................... 6,518 6,705 6,678 6,537 1,294 1,604
Interest cost..................... 40,896 42,245 13,729 11,796 14,533 14,497
Plan participants' contributions..... -- -- 915 938 963 734
Plan amendments................... -- 98 (1,553) (83) (2,405) --
Actuarial losses.................. 40,467 27,300 23,362 16,639 17,397 8,510
Foreign currency exchange rate
changes........................ -- -- 34,171 20,310 1,684 61
Divestitures...................... -- -- (17,061) -- (4,248) --
Benefits paid..................... (46,679) (46,788) (8,549) (13,564) (19,786) (17,839)
Curtailments...................... (16,543) (1,420) (1,204) -- -- --
Settlements....................... -- -- (637) (793) -- --
-------- -------- -------- -------- -------- --------
Projected benefit obligation at
end of year.................... $672,780 $648,121 $276,404 $226,553 $233,510 $224,078
======== ======== ======== ======== ======== ========
Accumulated benefit obligation
at end of year................. $661,055 $621,445 $259,573 $201,283 $233,510 $224,078
======== ======== ======== ======== ======== ========
Weighted-average year-end
assumptions used to determine
benefit obligations:
Discount rate..................... 6.00% 6.75% 5.54% 5.96% 6.00% 6.75%
Rate of compensation increase..... 4.00% 4.00% 3.17% 3.25% -- --
An 8.9% average annual rate of increase in the per capita cost of
covered health care benefits was assumed for 2003. The rate was assumed to
decrease gradually to 5% for 2011 and remain at that level thereafter. Assumed
health care cost trend rates have a significant effect on the post-retirement
benefit obligation reported for the health care plans. A one-percentage-point
increase in assumed health care cost trend rates would increase the accumulated
post-retirement benefit obligation by $13.6 million for health care benefits as
of December 31, 2003. A one-percentage-point decrease in assumed health care
cost trend rates would decrease the accumulated post-retirement benefit
obligation by $11.9 million for health care benefits as of December 31, 2003.
PLAN ASSETS
Defined Benefit Plans
-------------------------------------------------------
Qualified International and Post-Retirement
Domestic Plans Non-Qualified Plans Health Care Plans
------------------------ ------------------------ ------------------------
2003 2002 2003 2002 2003 2002
-------- -------- -------- -------- -------- -------
(In thousands)
Change in plan assets:
Fair value of plan assets at
beginning of year.................. $458,328 $539,294 $82,431 $80,725 $30,423 $34,580
Actual return on plan assets.......... 75,222 (41,058) 5,658 (4,425) 2,678 (1,832)
Foreign currency exchange rate
changes............................ -- -- 14,523 8,834 -- --
Employer contributions................ 30,877 6,880 10,500 10,716 16,371 14,780
F-25
Defined Benefit Plans
-------------------------------------------------------
Qualified International and Post-Retirement
Domestic Plans Non-Qualified Plans Health Care Plans
------------------------ ------------------------ ------------------------
2003 2002 2003 2002 2003 2002
-------- -------- -------- -------- -------- -------
(In thousands)
Plan participants' contributions...... -- -- 915 938 963 734
Divestitures.......................... -- -- (10,714) -- -- --
Benefits paid.......................... (46,679) (46,788) (8,549) (13,564) (19,786) (17,839)
Settlements............................ -- -- (151) (793) -- --
-------- -------- ------- ------- ------- -------
FAIR VALUE OF PLAN ASSETS AT END OF
YEAR................................ $517,748 $458,328 $94,613 $82,431 $30,649 $30,423
======== ======== ======= ======= ======= =======
The asset allocation for the Company's pension plans at the end of 2003
and 2002, and the target allocation for 2004, by asset category are as follows:
Target Allocation -- 2004 Percentage of Plan Assets at December 31,
-------------------------------------- -----------------------------------------
Qualified Domestic International and
Plans Non-Qualified Plans
------------------ -------------------
Qualified International and
Asset Category: Domestic Plans Non-Qualified Plans 2003 2002 2003 2002
-------------- ------------------- ---- ---- ---- ----
Equity securities............ 60% 45% 58% 47% 45% 44%
Fixed income securities...... 40% 53% 42% 53% 53% 54%
Other........................ -- 2% -- -- 2% 2%
---- ---- ---- ---- ---- ----
TOTAL........................ 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
During 2003, a special contribution of $20.9 million of the Company's
common stock was made to various domestic pension plans. The value of this
common stock is $22.9 million (4% of total domestic plan assets) at the end of
2003. There was no Company common stock included within equity securities at the
end of 2002.
Estimated funding requirements for the domestic pension plans are $4.6
million for 2004 and $6.8 million for 2005 compared to $30.9 million contributed
in 2003. The Company funds the domestic pension plans based on the minimum
amounts required by law plus such amounts the Company deems appropriate. The
funding estimates for 2004 and 2005 are based upon actual December 31, 2003
asset values and the assumption that the Company would contribute the minimum
required contributions. The funding estimates also assume pension funding relief
legislation will be extended and no other significant changes with regards to
demographics, legislation, plan provisions, or actuarial assumptions or methods
to determine the estimated funding requirements.
The Company's pension plan assets are managed by outside investment
managers; assets are monitored monthly to ensure they are within the range of
parameters as set forth by the Company. The Company's investment strategy with
respect to pension assets is to achieve the expected rate of return within an
acceptable or appropriate level of risk. The Company's investment strategy is
designed to promote diversification to moderate volatility and attempt to
balance the expected return with risk levels.
The asset allocation for the post-retirement health care plans at the
end of 2003 and 2002, and target allocation for 2004, by asset category are as
follows:
Percentage of Plan Assets at
----------------------------------
December 31,
----------------------------------
Target Allocation
Asset Category: 2004 2003 2002
----------------- ------ ------
Equity securities............................................. 60% 55% 51%
Fixed income securities....................................... 40% 45% 47%
Other......................................................... -- -- 2%
---- ---- ----
TOTAL......................................................... 100% 100% 100%
==== ==== ====
F-26
The Company's post-retirement health care plan assets relating to
certain inactive government plans are managed by outside investment managers.
The Company will review these assets at least quarterly to ensure they are
within the range of parameters as set forth by the Company. The Company's
investment strategy with respect to post-retirement health care assets is to
achieve the expected rate of return within an acceptable or appropriate level of
risk. The Company's investment strategy is designed to promote diversification
to moderate volatility and attempt to balance the expected return with risk
levels.
FUNDED STATUS
The funded status of the plans reconciled to the amount reported on the
consolidated financial statements is as follows:
Defined Benefit Plans
-------------------------------------------------------
Qualified Domestic International and Post-Retirement Health
Plans Non-Qualified Plans Care Plans
------------------------ ----------------------- -------------------------
2003 2002 2003 2002 2003 2002
--------- --------- --------- --------- --------- ---------
(In thousands)
Funded status at the end of year:
Funded status.................... $(155,032) $(189,793) $(181,791) $(144,122) $(202,861) $(193,655)
Unrecognized transition asset.... (40) (47) 1,533 1,759 -- --
Unrecognized actuarial loss...... 208,152 206,464 62,583 32,145 11,564 4,276
Unrecognized prior service costs. 285 348 30 2,479 (1,638) (4,617)
--------- --------- --------- --------- --------- ---------
NET AMOUNT RECOGNIZED............ $53,365 $16,972 $(117,645) $(107,739) $(192,935) $(193,996)
========= ========= ========= ========= ========= =========
Amounts recognized in the
consolidated balance sheets at
the end of year consist of:
Prepaid benefit costs............ $ 57,353 $ 24,271 $ 5,782 $ 4,971 $ -- $ --
Accrued benefit liabilities...... (200,659) (183,315) (173,372) (132,924) (192,935) (193,996)
Intangible assets................ 286 258 3,395 3,340 -- --
Accumulated other comprehensive loss 196,385 175,758 46,550 16,874 -- --
--------- --------- --------- --------- --------- ---------
NET AMOUNT RECOGNIZED............ $ 53,365 $ 16,972 $(117,645) $(107,739) $(192,935) $(193,996)
========= ========= ========= ========= ========= =========
The Company's prepaid benefit costs and intangible assets are included
in other assets in the consolidated balance sheets, while the accrued pension
benefit liabilities are included in other liabilities in the consolidated
balance sheets.
For pension plans with a projected and accumulated benefit obligation
in excess of plan assets and post-retirement health care plan obligation in
excess of plan assets, the projected benefit obligation, accumulated benefit
obligation and fair value of plan assets at the end of 2003 and 2002 were as
follows:
Projected and Accumulated Benefit Accumulated Post-Retirement
Obligation Exceeds the Fair Value Health Care Obligation Exceeds
of Plan Assets the Fair Value of Plan Assets
--------------------------------- ------------------------------
2003 2002 2003 2002
------ ------ ------ ------
(In thousands)
End of year:
Projected benefit obligation................ $949,141 $866,008 $ -- $ --
Accumulated benefit obligation.............. 920,588 814,066 208,487 199,814
Fair value of plan assets................... 612,156 529,674 -- --
F-27
NET PERIODIC COST
Defined Benefit Plans
-------------------------------------------------------------
International and Post-Retirement Health
Qualified Domestic Plans Non-Qualified Plans Care Plans
----------------------------- -------------------------- ---------------------------
2003 2002 2001 2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------ ------ ------ ------
(In thousands)
Components of net
periodic benefit cost
(credit):
Service cost.......... $6,518 $6,705 $6,819 $6,678 $6,537 $5,936 $1,294 $1,604 $1,539
Interest cost......... 40,896 42,245 43,185 13,729 11,796 11,021 14,533 14,497 15,148
Expected return on plan
assets............. (54,154) (56,244) (56,141) (6,857) (6,228) (6,094) (2,707) (3,179) (3,668)
Amortization of prior
service cost....... 62 63 414 858 955 978 (3,078) (2,838) (4,176)
Amortization of
unrecognized
transition
obligation......... (6) (6) (3) 218 189 190 -- -- --
Recognized actuarial
(gains) losses..... 1,386 164 (29) 735 161 (207) (469) (936) (1,447)
Curtailment (gain) loss
recognized......... -- 1,154 7,045 (243) -- (13,101) (2,287) -- (1,055)
Settlement (gain) loss
recognized......... -- -- 873 (3,580) 330 7,095 -- -- --
------- ------- ------ ------- ------- ------ ------ ------ ------
NET PERIODIC BENEFIT COST
(CREDIT)........... $(5,298) $(5,919) $2,163 $11,538 $13,740 $5,818 $7,286 $9,148 $6,341
======= ======= ====== ======= ======= ====== ====== ====== ======
Defined Benefit Plans
-------------------------------------------------------------
International and Post-Retirement Health
Qualified Domestic Plans Non-Qualified Plans Care Plans
----------------------------- -------------------------- ---------------------------
2003 2002 2001 2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------ ------ ------ ------
(In thousands)
Weighted-average
assumptions used to
determine net cost:
Discount rate......... 6.75% 7.00% 7.56% 5.96% 5.91% 6.52% 6.75% 7.00% 7.55%
Expected return on plan
assets............. 9.50% 9.50% 9.50% 7.04% 6.99% 7.22% 9.50% 9.50% 9.50%
Rate of compensation
increase........... 4.00% 4.00% 4.25% 3.25% 3.35% 3.45% -- -- --
The 9.5% expected rate of return on plan assets for the qualified
domestic pension plans for 2003 was based on an assumed long-term inflation rate
of 3%. The domestic expected rate of return on plan assets is derived by
applying the expected returns on the various asset classes to the Company's
assumed asset allocation. The expected returns are based on the expected
performance of the various asset classes and the expected benefit from active
fund management. They are further supported by historical investment returns for
various asset classes. The Company has assumed that normative investment returns
on long-term bonds will be 350 basis points above inflation, or 6.5%. The
assumed premiums for domestic and international equity investments over
long-term bonds are 400 and 450 basis points, respectively. In addition, the
Company has assumed an overall 50 basis point benefit from active fund
management. Actual returns for qualified domestic plans for the year ended
December 31, 2003 were 20.8%.
During 2003, the Company re-evaluated its investment strategy for
domestic plans. As a result of that review and the Company's assumption of
future returns, the Company will decrease its expected return on asset
assumption for 2004 to 9.0%. The adjusted domestic expected long-term rate of
return of 9.0% for 2004 is based on an assumed long-term inflation rate of 2.6%.
The Company has adjusted the normative investment returns on long-term bonds to
370 basis points above inflation or 6.3%. The assumed premiums for domestic and
international equity investments over long-term bonds have been adjusted to 340
and 420 basis points, respectively. The Company has assumed that the active fund
management benefit will remain at 50 basis points. The target asset allocation
is 60% equity securities and 40% fixed income securities.
The Company currently utilizes a 7.04% weighted average expected
long-term rate of return on its international plan assets. This international
rate is developed primarily based on the same factors considered in developing
the domestic long-term rate of return.
Assumed health care cost trend rates have a significant effect on the
service and interest cost components reported for the health care plans. A
one-percentage-point increase in assumed health care cost trend rates increase
the service and
F-28
interest cost components of net periodic post-retirement health care benefit
cost by $1.1 million for 2003. A one-percentage-point decrease in assumed health
care cost trend rates decrease the service and interest cost components of net
periodic post-retirement health care benefit cost by $0.9 million for 2003.
The Company's cost of its defined contribution plans was $15.4 million,
$15.8 million, and $15.2 million in 2003, 2002 and 2001, respectively.
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law. Through the Act,
companies that sponsor retiree health plans that cover prescription drugs are
entitled to a federal subsidy beginning in 2006 which is equal to 28% of certain
costs paid by both the employee and the Company for prescription drugs. The
three possible approaches to recognize the subsidy are as follows: immediate
recognition of all expected future subsidies when the Act is initially
recognized; amortize recognition through actuarial gains and losses; or
recognition of subsidies as received beginning in 2006. As a result of the
uncertainty regarding the possible accounting treatment, the Company has elected
to defer accounting for the effect of the Act until guidance is issued.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company's activities expose its earnings, cash flows and financial
position to a variety of market risks, including the effects of changes in
foreign currency exchange rates and interest rates. The Company maintains a
risk-management strategy that uses derivative instruments as needed to mitigate
risk against foreign currency movements and to manage interest rate volatility.
In accordance with FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and FASB Statement No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," the Company
recognizes in earnings changes in the fair value of all derivatives designated
as fair value hedging instruments that are highly effective and recognizes in
accumulated other comprehensive loss (AOCL) changes in the fair value of all
derivatives designated as cash flow hedging instruments that are highly
effective. The Company does not enter into derivative instruments for trading or
speculative purposes.
The Company used interest rate swap contracts, which expired in July
2003 concurrent with the maturity of the underlying debt securities, as cash
flow hedges to convert its Euro denominated variable rate debt to fixed rate
debt. Each interest rate swap contract was designated with the principal balance
and the term of the specific debt obligation. These contracts involved the
exchange of interest payments over the life of the contract without an exchange
of the notional amount upon which the payments were based. The differential to
be paid or received as interest rates changed was recognized as an adjustment to
interest expense.
The Company also had equity option contracts covering 3.2 million
shares of the Company's common stock to hedge the expense variability associated
with its obligations under its long-term incentive plans (LTIP). In February
2003, the Company settled its existing equity option contracts for $35.1
million, of which $33.8 million had been included in accrued expenses at
December 31, 2002, and entered into a new equity option contract. The new
contract consisted of a sold put option contract with a strike price of $5.66
and a purchased call option contract with a strike price of $5.75. The Company
had designated a portion of the equity option contract as a cash flow hedge of
the risk associated with the unvested, unpaid awards under its LTIP. Changes in
market value related to the portion of the option contract designated and
effective as a hedge were recorded as a component of AOCL. The amount included
in AOCL was subject to changes in the stock price and was being amortized
ratably to selling, general and administrative expense (SG&A) over the remaining
service periods of the hedged LTIP. Changes in market value related to the
remaining portion of the option contract were recognized in SG&A. During the
second quarter of 2003, the Company determined that one of its LTIP programs was
not achievable and accordingly amortized $3 million from AOCL to SG&A, which
represented the unamortized balance of the deferred loss on the portion of the
option contract that related to this plan. On May 11, 2003 the option contract
expired and resulted in a favorable net cash settlement of $3.7 million. As of
June 30, 2003, all of the deferred losses relating to these contracts had been
amortized to SG&A.
In prior years, the Company used an interest rate swap contract as a
fair value hedge to convert $300 million of its fixed rate 8.5% notes into
variable rate debt. On March 24, 2001, the swap contract was terminated and the
Company received cash proceeds of $21.9 million in settlement of the contract,
which represented the market value of the contract on the date of termination.
In accordance with FASB Statements No. 133 and 138, as they relate to fair value
hedge accounting, the $21.9 million was recorded as an increase to long-term
debt and is being amortized to interest expense over the life of the notes. The
unamortized balance at December 31, 2003 and 2002 was $6.6 million and $12.1
million, respectively.
F-29
The Company also has exposure to changes in foreign currency exchange
rates resulting from transactions entered into by the Company and its foreign
subsidiaries in currencies other than their local currency (primarily trade
payables and receivables). The Company is also exposed to currency risk on
intercompany transactions (including intercompany loans). The Company manages
these transactional currency risks on a consolidated basis, which allows it to
net its trade payable and receivable exposure. The Company purchases foreign
currency forward contracts, primarily denominated in Euros, Canadian dollars,
Hong Kong dollars, Swiss francs and Singapore dollars, to hedge its transaction
exposure. The aggregate notional amount of these contracts at December 31, 2003
and 2002 was approximately $474 million and $536 million, respectively. These
contracts are generally settled on a monthly basis. Realized and unrealized
gains and losses on foreign currency forward contracts are recognized in other
expense, net to offset the impact of valuing recorded foreign currency trade
payables, receivables and intercompany transactions. The Company has not
designated these derivatives as hedges, although it believes these instruments
reduce the Company's exposure to foreign currency risk. The net effect of the
realized and unrealized gains and losses on these derivatives and the underlying
transactions is not significant at December 31, 2003.
The following table summarizes the (gains)/losses resulting from
changes in the market value of the Company's fair value and cash flow hedging
instruments and the amortization of (gains)/losses related to certain cash flow
hedges for the years ended December 31, 2003 and 2002:
2003 2002
------- -------
(In thousands)
Fair value hedges (in other expense, net)................................ $ 38 $ (2)
======= =======
Cash flow hedges (in AOCL):
Balance at beginning of year............................................. $ 2,838 $ 2,546
Interest rate swap contracts.......................................... (883) (313)
Equity option contracts-change in market value........................ 1,836 6,558
Equity option contracts-amortization to SG&A.......................... (3,791) (5,953)
------- -------
BALANCE AT END OF YEAR................................................... $ -- $ 2,838
======= =======
FINANCIAL INSTRUMENTS
As discussed in the Derivative Instruments and Hedging Activities note
above, the Company enters into interest rate swap contracts to modify the
interest characteristics of some of its outstanding debt and purchases foreign
currency forward contracts to mitigate its exposure to changes in foreign
currency exchange rates of recorded transactions (principally foreign currency
trade receivables and payables and intercompany transactions).
At December 31, 2003, the Company had outstanding foreign currency
forward contracts with an aggregate notional amount of approximately $474
million to hedge foreign currency risk on foreign currency accounts receivable
and payable and intercompany loans. These forward contracts are generally
outstanding for one month and are primarily denominated in Euros, Canadian
dollars, Hong Kong dollars, Swiss francs and Singapore dollars. At December 31,
2002, the Company had outstanding foreign currency forward contracts with an
aggregate notional amount of approximately $536 million.
At December 31, 2002, the Company had outstanding interest rate swap
contracts with an aggregate notional amounts of $57.1 million. These contracts
were used to convert the Company's variable rate Euro denominated debt to fixed
rate debt. These contracts expired in July 2003.
All contracts have been entered into with major financial institutions.
The risk associated with these transactions is the cost of replacing these
agreements at current market rates, in the event of default by the
counterparties. Management believes the risk of incurring such losses is remote.
The carrying amounts for cash, accounts receivable, other current
assets, accounts payable and other current liabilities approximate their fair
value because of the short-term maturities of these instruments. The fair value
of long-term debt is based primarily on quoted market values. For long-term debt
that has no quoted market value, the fair value is estimated by discounting
projected future cash flows using the Company's incremental borrowing rate. The
fair value of interest rate swap and foreign currency forward contracts is the
amount at which the contracts could be settled based on quotes provided by
investment banking firms.
F-30
The following table presents the carrying amounts and estimated fair
values of material financial instruments used by the Company in the normal
course of its business. The carrying amounts of the interest rate swap contracts
and foreign currency forward contracts are included in either other assets or
other liabilities.
2003 2002
------------------------------ --------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
(In thousands)
Long-term debt.............................. $(754,018) $(791,660) $(1,253,149) $(1,216,443)
Interest rate swap contracts................ $ -- $ -- $ (884) $ (884)
Foreign currency forward contracts.......... $ -- $ -- $ 38 $ 38
ASSET RETIREMENT OBLIGATIONS
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." Statement No. 143 requires companies to record a
liability for asset retirement obligations in the period in which a legal
obligation is created. Such liabilities are recorded at fair value, with an
offsetting increase to the carrying value of the related long-lived assets. In
future periods, the liability is accreted to its present value and the
capitalized cost is depreciated over the useful life of the related asset.
Companies are also required to adjust the liability for changes resulting from
the passage of time and/or revisions to the timing or the amount of the original
estimate. Upon retirement of the long-lived asset, the Company either settles
the obligation for its recorded amount or incurs a gain or loss. The provisions
of Statement No. 143 are effective for fiscal years beginning after June 15,
2002. Effective January 1, 2003, the Company adopted the provisions of Statement
No. 143. As a result of the implementation of this Statement, the Company
recorded an after-tax charge of $0.4 million ($0.7 million pre-tax) as a
cumulative effect of accounting change. The Company's asset retirement
obligations are primarily the result of the legal obligation to remove leasehold
improvements upon termination of leases or sale of property at several of its
facilities. The initial measurement of such obligations has been recorded at
fair value, which the Company estimated by discounting projected cash flows
using a rate of 8.5%. The fair value of any future obligations will be measured
utilizing the Company's credit-adjusted risk-free rate applicable at that time.
During 2003, the Company recorded pre-tax accretion expense of $0.3 million and
has an asset retirement obligation liability of $0.7 million at December 31,
2003.
ANTITRUST INVESTIGATION AND RELATED MATTERS
On March 15, 2004, the Company entered into a plea agreement with the
United States of America with respect to a criminal antitrust investigation of
the Company by the Department of Justice (the "DOJ"). Under the terms of the
agreement, the Company agreed to plead guilty to a one-count information
charging the Company with participating in a combination and conspiracy to
suppress and eliminate competition by maintaining and increasing the price of
certain rubber chemicals sold in the United States during the period 1995 to
2001. The DOJ and the Company will jointly recommend that the court impose a
sentence requiring the Company to pay a fine of $50 million, payable in six
annual installments, without interest, beginning in 2004. If the court accepts
the joint recommendation at a hearing expected to occur in the next several
months, the DOJ's investigation of the Company with respect to rubber chemicals
will be resolved.
The Company also reached agreement with the Commissioner of Competition
and the Attorney General (the "Attorney General") of Canada on March 15, 2004,
regarding a criminal antitrust investigation of the Company. The Company has
agreed to plead guilty to one count of conspiring to lessen competition unduly
in the sale and marketing of certain rubber chemicals in Canada. The Attorney
General and the Company will jointly recommend that the court impose a sentence
requiring the Company to pay a fine of $9 million Canadian (U.S. $7 million),
payable in six annual installments, without interest, beginning in 2004. If the
court accepts the joint recommendation at a hearing expected to occur in the
next several months, the Canadian investigation of the Company with respect to
rubber chemicals will be resolved.
Expected cash payments for U.S. and Canadian fines total $2.3 million
in 2004; $2.3 million in 2005; $6.5 million in 2006; $11.2 million in 2007;
$16.2 million in 2008; and $18.5 million in 2009.
The Company and certain of its subsidiaries continue to be the subject
of a coordinated civil investigation by the European Commission (the "EC") with
respect to the sale and marketing of rubber chemicals. At this time, the Company
cannot predict the timing or outcome of that investigation, including the amount
of any fine that may be imposed by the EC.
F-31
The Company and certain of its subsidiaries are subjects of, and
continue to cooperate in coordinated criminal and civil investigations being
conducted by the DOJ, Canadian Competition Bureau and the EC (collectively, the
"Governmental Authorities") with respect to possible antitrust violations
relating to the sale and marketing of certain other products, including ethylene
propylene diene monomer (EPDM); heat stabilizers, including tin-based
stabilizers and precursors, mixed metal stabilizers and epoxidized soybean oil
(ESBO); nitrile rubber; and urethanes and urethane chemicals. The Company and
its affiliates that are subject to the investigations have received from each of
the Governmental Authorities verbal or written assurances of conditional amnesty
from prosecution and fines.
The Company recorded pre-tax charges of $77.7 million for antitrust
costs in its consolidated statement of operations at December 31, 2003. This
includes a $45.2 million charge to reserve for the payment of U.S. and Canadian
fines, which represents the present value of the expected payments of $57
million. The Company also incurred pre-tax antitrust costs of $32.5 million
associated with antitrust investigations and related civil lawsuits. The Company
expects to continue to incur substantial costs until all antitrust
investigations are concluded and civil claims are resolved.
The Company and certain of its subsidiaries, together with other
companies, are defendants in certain federal direct purchaser and state direct
and indirect purchaser class action lawsuits principally alleging that the
defendants conspired to fix, raise, maintain or stabilize prices for rubber
chemicals, EPDM, plastic additives, including impact modifiers and processing
aids, and nitrile rubber in violation of federal and state law. The Company and
certain of its officers and directors are also defendants in federal securities
class action lawsuits principally alleging that the defendants caused the
Company's shares to trade at artificially inflated levels through the issuance
of false and misleading financial statements in violation of federal securities
laws by inflating profits as result of engaging in an illegal price fixing
conspiracy with respect to rubber chemicals. In addition, the Company and its
board of directors are defendants in a shareholder derivative lawsuit
principally alleging that the directors breached their fiduciary duties by
causing the Company's shares to trade at artificially inflated levels through
the issuance of false and misleading financial statements by inflating profits
as a result of engaging in an illegal price fixing conspiracy with respect to
rubber chemicals. These federal and state actions are in early procedural stages
of litigation and, accordingly, the Company cannot predict their outcome. The
Company and its defendant subsidiaries believe that they have substantial
defenses to these actions and intend to defend vigorously all such actions.
The Company has not recorded a charge for potential liabilities and
expenses in connection with the coordinated civil investigation by the EC or
with the civil claims, because it is not yet able to reasonably estimate a
reserve for such potential costs. The resolution of the coordinated civil
investigation by the EC and any civil claims now pending or hereafter asserted
against the Company or any of its subsidiaries could have a material adverse
effect on the Company's financial condition, results of operations and
prospects.
CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company is involved in claims, litigation, administrative
proceedings and investigations of various types in various jurisdictions. A
number of such matters involve claims for a material amount of damages and
relate to or allege environmental liabilities, including clean-up costs
associated with hazardous waste disposal sites, natural resource damages,
property damage and personal injury. The Company and some of its subsidiaries
have been identified by federal, state or local governmental agencies, and by
other potentially responsible parties (each a "PRP") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, or
comparable state statutes, as a PRP with respect to costs associated with waste
disposal sites at various locations in the United States. In addition, the
Company is involved with environmental remediation and compliance activities at
some of its current and former sites in the United States and abroad.
Each quarter, the Company evaluates and reviews estimates for future
remediation, and operation and management costs directly related to remediation,
to determine appropriate environmental reserve amounts. For each site, a
determination is made of the specific measures that are believed to be required
to remediate the site, the estimated total cost to carry out the remediation
plan, the portion of the total remediation costs to be borne by the Company and
the anticipated time frame over which payments toward the remediation plan will
occur. The total amount accrued for such environmental liabilities at December
31, 2003 was $120.7 million. The Company estimates its potential environmental
liability to range from $109 million to $133 million at December 31, 2003. It is
possible that the Company's estimates for environmental remediation liabilities
may change in the future should additional sites be identified, further
remediation measures be required or
F-32
undertaken, the interpretation of current laws and regulations be modified or
additional environmental laws and regulations be enacted.
On May 21, 1997, the United States District Court, Eastern District of
Arkansas (the "Court"), entered an order finding that Uniroyal Chemical Co./Cie
(Uniroyal) (a wholly owned subsidiary of the Company) is jointly and severally
liable to the United States and Hercules Incorporated (Hercules) and Uniroyal
are liable to each other in contribution with respect to the remediation of the
Vertac Chemical Corporation site in Jacksonville, Arkansas. On October 23, 1998,
the Court entered an order granting the United State's motion for summary
judgment against Uniroyal and Hercules for removal and remediation costs of
$102.9 million at the Vertac site. On February 3, 2000, after trial on the
allocation of these costs, the Court entered an order finding Uniroyal liable to
the United States for approximately $2.3 million and liable to Hercules in
contribution for approximately $0.7 million. On April 10, 2001, the United
States Court of Appeals for the Eighth Circuit (the "Appeals Court") (i)
reversed a decision in favor of the United States and against Hercules with
regard to the issue of divisibility of harm and remanded the case back to the
Court for a trial on the issue; (ii) affirmed the finding of arranger liability
against Uniroyal; and (iii) set aside the findings of contribution between
Hercules and Uniroyal by the Court pending a decision upon remand. The Appeals
Court also deferred ruling on all constitutional issues raised by Hercules and
Uniroyal pending subsequent findings by the Court. On June 6, 2001, the Appeals
Court denied Uniroyal's petition for rehearing by the full Appeals Court on the
Appeals Court's finding of arranger liability against Uniroyal and on December
10, 2001, Uniroyal's Writ of Certiorari with the United States Supreme Court
with regard to the issues of its arranger liability was denied. On December 12,
2001, the Court concluded hearings pursuant to the April 10, 2001 remand by the
Appeals Court, and briefing on the issue of divisibility was completed in
January 2003. A decision from the Court is expected during the second quarter of
2004.
The Company intends to assert all meritorious legal defenses and all
other equitable factors which are available to it with respect to the above
matters. The Company believes that the resolution of these matters will not have
a material adverse effect on its consolidated financial position. While the
Company believes it is unlikely, the resolution of these matters could have a
material adverse effect on its consolidated results of operations in any given
year if a significant number of these matters are resolved unfavorably.
GUARANTEES
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 requires the
guarantor to recognize a liability for the non-contingent component of a
guarantee; that is, the obligation to stand ready to perform in the event that
specified triggering events or conditions occur. The initial measurement of this
liability is the fair value of the guarantee at its inception. The initial
recognition and measurement provisions apply to guarantees issued or modified
after December 31, 2002. The adoption of Interpretation No. 45 has not had a
material impact on the Company's results of operations or financial condition.
The Company has standby letters of credit and guarantees with various
financial institutions. At December 31, 2003, the Company had $58.2 million of
outstanding letters of credit and guarantees primarily related to its
environmental remediation liabilities, insurance obligations, a potential tax
exposure, and a customer guarantee. Of these items, one of the standby letters
of credit and the customer guarantee fall within the scope of Interpretation No.
45.
The standby letter of credit relates to a potential tax exposure that
existed prior to December 31, 2002. The amount of this letter of credit is $15.7
million. At December 31, 2003, the Company had accrued $7.1 million of this
amount, which represents the Company's estimate of the probable outcome of this
tax exposure.
For the customer guarantee, the Company has contingently guaranteed
certain debt obligations for one of its customers. At December 31, 2003, the
amount of this guarantee is $4.6 million. Based on past experience and on the
underlying circumstances, the Company does not expect to have to perform under
this guarantee. The fair value of the Company's obligation to stand-ready to
perform for the term of the guarantee is not material.
The Company provides for the estimated cost of product warranties
related to its Polymer Processing Equipment segment. The Company warrants repair
or replacement to the equipment purchased by the original buyer for a one-year
period from date of shipment if the equipment is either defective in material or
workmanship. In the case of components or units purchased by the Company from
other suppliers, the obligation of the Company shall be limited to give the
buyer
F-33
benefit of any warranty the Company may receive from the supplier of such
components or units. The product warranty liability at December 31, 2003 is $3.3
million.
In the ordinary course of business, the Company enters into contractual
arrangements under which the Company may agree to indemnify a third party to
such arrangement from any losses incurred relating to the services they perform
on behalf of the Company or for losses arising from certain events as defined
within the particular contract, which may include, for example, litigation,
claims or environmental matters relating to the Company's past performance. For
any losses that the Company believes are probable and which are estimable, the
Company has accrued for such amounts in its consolidated balance sheets.
BUSINESS SEGMENT DATA
Pursuant to Financial Accounting Standards Board Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," the
Company has defined its reporting segments into two major business categories,
"Polymer Products" and "Specialty Products." The accounting policies of the
operating segments are the same as those described in the Accounting Policies
footnote included in the Notes to Consolidated Financial Statements.
The Company evaluates a segment's performance based on several factors,
of which the primary factor is operating profit (loss). In computing operating
profit (loss) by segment, the following items have not been deducted: (1)
general corporate expense; (2) amortization; (3) unabsorbed overhead expense
from discontinued operations; (4) facility closures, severance and related
costs; (5) antitrust costs; and (6) impairment of long-lived assets. These items
have been excluded from the Company's presentation of segment operating profit
because they are not reported to the chief operating decision maker for purposes
of allocating resources among reporting segments or assessing segment
performance. General corporate expense includes costs and expenses that are of a
general corporate nature or managed on a corporate basis, including amortization
expense. These costs are primarily for corporate administration services, costs
related to corporate headquarters and management compensation plan expenses
related to executives and corporate managers. Unabsorbed overhead expense from
discontinued operations represents corporate costs that were previously
allocated to the OrganoSilicones business unit. Facility closures, severance and
related costs are costs related to the Company's cost reduction initiatives that
began in 2001 and 2003 and the relocation of the corporate headquarters that
began in 2002. The antitrust costs are primarily for fines and legal costs
associated with antitrust investigations and related civil lawsuits. The
impairment of long-lived assets was related to the rubber additives and trilene
businesses and was the result of changes in the marketplace, which caused the
carrying amount of the long-lived assets of these businesses to be impaired.
Corporate assets are principally cash, intangible assets (including goodwill)
and other assets maintained for general corporate purposes.
The GE Specialty Chemicals business that was acquired on July 31, 2003
has been added to the plastic additives business unit included in the Polymer
Additives reporting segment.
A summary of business data for the Company's reportable segments for
the years 2003, 2002 and 2001 is as follows:
INFORMATION BY BUSINESS SEGMENT
SALES 2003 2002 2001
---------- ---------- ----------
(In thousands)
Polymer Products
Polymer Additives................................................. $1,232,022 $1,110,804 $1,125,910
Polymers.......................................................... 285,669 270,954 292,092
Polymer Processing Equipment...................................... 166,539 172,702 202,653
Eliminations...................................................... (13,302) (15,064) (13,805)
---------- ---------- ----------
1,670,928 1,539,396 1,606,850
---------- ---------- ----------
Specialty Products
Crop Protection................................................... 270,870 240,142 245,562
Other............................................................. 243,245 310,733 434,131
---------- ---------- ----------
514,115 550,875 679,693
---------- ---------- ----------
$2,185,043 $2,090,271 $2,286,543
========== ========== ==========
OPERATING PROFIT (LOSS) 2003 2002 2001
---------- ---------- ----------
Polymer Products
Polymer Additives................................................. $ 24,392 $ 79,403 $ 55,723
Polymers.......................................................... 28,018 41,028 42,243
Polymer Processing Equipment...................................... 5,164 (13,766) (15,647)
---------- ---------- ----------
57,574 106,665 82,319
---------- ---------- ----------
F-34
2003 2002 2001
---------- ---------- ----------
(In thousands)
Specialty Products
Crop Protection................................................... 64,963 60,241 79,186
Other............................................................. (3,283) 7,960 10,779
---------- ---------- ----------
61,680 68,201 89,965
---------- ---------- ----------
Corporate............................................................ (34,030) (42,144) (46,277)
Amortization......................................................... (14,521) (11,557) (31,788)
Unabsorbed overhead expense from discontinued operations............. (8,445) (11,515) (10,841)
Facility closures, severance and related costs....................... (19,560) (17,969) (101,512)
Antitrust costs...................................................... (77,716) (6,306) --
Impairment of long-lived assets...................................... -- -- (80,366)
---------- ---------- ----------
$ (35,018) $ 85,375 $ (98,500)
========== ========== ==========
DEPRECIATION AND AMORTIZATION 2003 2002 2001
---------- ---------- ----------
Polymer Products
Polymer Additives................................................. $ 63,572 $ 59,805 $ 58,765
Polymers.......................................................... 15,712 16,030 17,347
Polymer Processing Equipment...................................... 2,059 2,584 2,765
---------- ---------- ----------
81,343 78,419 78,877
---------- ---------- ----------
Specialty Products
Crop Protection................................................... 7,696 8,081 8,004
Other............................................................. 4,496 9,902 16,644
---------- ---------- ----------
12,192 17,983 24,648
---------- ---------- ----------
Corporate............................................................ 21,834 15,024 47,305
---------- ---------- ----------
$ 115,369 $ 111,426 $ 150,830
========== ========== ==========
SEGMENT ASSETS 2003 2002 2001
---------- ---------- ----------
Polymer Products
Polymer Additives................................................. $ 879,047 $ 731,241 $ 728,640
Polymers.......................................................... 121,853 120,208 142,196
Polymer Processing Equipment...................................... 84,330 89,343 101,498
---------- ---------- ----------
1,085,230 940,792 972,334
---------- ---------- ----------
Specialty Products
Crop Protection................................................... 175,731 146,361 145,001
Other............................................................. 97,829 87,280 216,080
---------- ---------- ----------
273,560 233,641 361,081
---------- ---------- ----------
Assets held for sale................................................. -- 392,887 392,015
Corporate............................................................ 1,170,392 1,273,495 1,506,758
---------- ---------- ----------
$2,529,182 $2,840,815 $3,232,188
========== ========== ==========
CAPITAL EXPENDITURES 2003 2002 2001
---------- ---------- ----------
Polymer Products
Polymer Additives................................................. $ 54,299 $ 42,755 $ 52,614
Polymers.......................................................... 4,355 5,584 8,987
Polymer Processing Equipment...................................... 777 2,608 4,160
---------- ---------- ----------
59,431 50,947 65,761
---------- ---------- ----------
Specialty Products
Crop Protection................................................... 3,404 5,950 8,825
Other............................................................. 5,114 6,950 11,742
---------- ---------- ----------
8,518 12,900 20,567
---------- ---------- ----------
Corporate............................................................ 13,798 20,436 5,975
---------- ---------- ----------
$ 81,747 $ 84,283 $ 92,303
========== ========== ==========
EQUITY METHOD INVESTMENTS 2003 2002 2001
---------- ---------- ----------
Polymer Products
Polymer Additives................................................. $ 36,542 $ 40,267 $ 45,924
Polymers.......................................................... -- -- 1,134
Polymer Processing Equipment...................................... -- -- --
---------- ---------- ----------
36,542 40,267 47,058
---------- ---------- ----------
Specialty Products
Crop Protection................................................... 27,411 23,963 24,465
Other............................................................. -- -- 102
---------- ---------- ----------
27,411 23,963 24,567
---------- ---------- ----------
$ 63,953 $ 64,230 $ 71,625
========== ========== ==========
F-35
INFORMATION BY GEOGRAPHIC AREA
(In thousands)
Sales are based on location of customer.
Sales 2003 2002 2001
---------- ---------- ----------
United States........................................................ $1,081,344 $1,097,997 $1,228,264
Canada............................................................... 76,530 73,516 80,150
Latin America........................................................ 155,579 140,674 155,697
Europe/Africa........................................................ 597,132 539,529 562,158
Asia/Pacific......................................................... 274,458 238,555 260,274
---------- ---------- ----------
$2,185,043 $2,090,271 $2,286,543
========== ========== ==========
2003 2002 2001
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT
United States........................................................ $ 463,757 $ 429,535 $ 524,022
Canada............................................................... 58,725 48,522 44,894
Latin America........................................................ 9,686 8,329 9,488
Europe/Africa........................................................ 221,204 194,182 170,598
Asia/Pacific......................................................... 21,240 15,394 15,970
---------- ---------- ----------
$ 774,612 $ 695,962 $ 764,972
========== ========== ==========
F-36
GUARANTOR CONDENSED CONSOLIDATING FINANCIAL DATA
The Company's 9 7/8% Senior Notes due 2012 and the Senior Floating Rate
Notes due 2010 (the "Senior Notes") are jointly and severally, fully and
unconditionally guaranteed by certain wholly-owned domestic subsidiaries of the
Company that guarantee the Company's new $220 million revolving credit facility
that was entered into in August 2004 (the "Guarantor Subsidiaries"). The
Company's subsidiaries that do not guarantee the Senior Notes are referred to as
the "Non-Guarantor Subsidiaries". The Guarantor Condensed Consolidating
Financial Data presented below presents the statements of operations, balance
sheets and statements of cash flow data (i) for Crompton Corporation (the
"Parent Company"), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries
on a consolidated basis (which is derived from Crompton Corporation's historical
reported financial information); (ii) for the Parent Company, alone (accounting
for its Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on an equity
basis under which the investments are recorded by each entity owning a portion
of another entity at cost, adjusted for the applicable share of the subsidiary's
cumulative results of operations, capital contributions and distributions, and
other equity changes); (iii) for the Guarantor Subsidiaries alone; and (iv) for
the Non-Guarantor Subsidiaries alone.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ ----------- ------------ ------------
Net sales ........................................ $ 2,185,043 $ (494,743) $ 644,617 $ 835,628 $ 1,199,541
Cost of products sold ............................ 1,616,092 (494,743) 545,295 614,517 951,023
Selling, general and administrative .............. 353,026 -- 116,380 104,301 132,345
Depreciation and amortization .................... 115,369 -- 44,933 31,051 39,385
Research and development ......................... 51,467 -- 12,861 18,165 20,441
Equity income .................................... (13,169) -- (109) (10,199) (2,861)
Facility closures, severance and related
costs .......................................... 19,560 -- 8,837 6,800 3,923
Antitrust costs .................................. 77,716 -- -- 77,716 --
----------- ----------- ----------- ----------- -----------
Operating profit (loss) .......................... (35,018) -- (83,580) (6,723) 55,285
Interest expense ................................. 89,653 -- 81,425 8,990 (762)
Loss on early extinguishment of debt ............. 24,699 -- 24,699 -- --
Other (income) expense, net ...................... 5,383 -- 8,925 13,199 (16,741)
Equity in net (earnings) loss of
subsidiaries ................................... -- 41,209 (9,465) (32,200) 456
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before income taxes and cumulative
effect of accounting change .................... (154,753) (41,209) (189,164) 3,288 72,332
Income tax expense (benefit) ..................... (36,102) -- (70,513) 5,803 28,608
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before cumulative effect of accounting change .. (118,651) (41,209) (118,651) (2,515) 43,724
Earnings from discontinued operations ............ 26,314 -- 5,991 -- 20,323
Gain on sale of discontinued operations .......... 111,692 -- (9,859) -- 121,551
Cumulative effect of accounting change ........... (401) -- (401) -- --
----------- ----------- ----------- ----------- -----------
Net earnings (loss) .............................. $ 18,954 $ (41,209) $ (122,920) $ (2,515) $ 185,598
=========== =========== =========== =========== ===========
F-37
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2003
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ ----------- ------------ -------------
ASSETS
Current assets ................................. $ 810,454 $ -- $ 202,628 $ 147,401 $ 460,425
Intercompany receivables ....................... -- (7,614,816) 3,180,641 960,603 3,473,572
Investment in subsidiaries ..................... -- (3,762,303) 752,573 1,175,815 1,833,915
Property, plant and equipment .................. 774,612 -- 299,321 179,541 295,750
Cost in excess of acquired net assets .......... 418,607 -- 135,522 54,844 228,241
Other assets ................................... 525,509 -- 277,078 183,008 65,423
------------ ------------ ------------ ------------ ------------
Total assets ................................ $ 2,529,182 $(11,377,119) $ 4,847,763 $ 2,701,212 $ 6,357,326
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ............................ $ 701,245 $ -- $ 249,415 $ 221,213 $ 230,617
Intercompany payables .......................... -- (7,668,705) 3,969,182 996,226 2,703,297
Long-term debt ................................. 754,018 -- 754,018 -- --
Other long-term liabilities .................... 771,210 -- 337,335 255,274 178,601
------------ ------------ ------------ ------------ ------------
Total Liabilities ........................... 2,226,473 (7,668,705) 5,309,950 1,472,713 3,112,515
Stockholders' equity ........................... 302,709 (3,708,414) (462,187) 1,228,499 3,244,811
------------ ------------ ------------ ------------ ------------
Total liabilities and stockholders' equity .. $ 2,529,182 $(11,377,119) $ 4,847,763 $ 2,701,212 $ 6,357,326
============ ============ ============ ============ ============
F-38
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2003
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ --------- ------------ -------------
Increase (decrease) in cash
- ---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) .................................... $ 18,954 $ (41,209) $(122,920) $ (2,515) $ 185,598
Adjustments to reconcile net earnings
(loss) to net cash (used in) provided
by operations:
Cumulative effect of accounting change, net
of tax .......................................... 401 -- 401 -- --
(Gain) loss on sale of discontinued operations ....... (111,692) -- 9,859 -- (121,551)
Loss on early extinguishment of debt ................. 24,699 -- 24,699 -- --
Depreciation and amortization ........................ 136,087 -- 60,350 31,051 44,686
Equity income ........................................ (13,169) -- (109) (10,199) (2,861)
Changes in assets and liabilities, net ............... (70,110) 41,209 150,416 12,750 (274,485)
--------- --------- --------- --------- ---------
Net cash (used in) provided by operations ............. (14,830) -- 122,696 31,087 (168,613)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from divestments .......................... 633,427 -- 413,984 -- 219,443
Capital expenditures ................................... (87,591) -- (22,751) (26,046) (38,794)
Other investing activities ............................. 1,707 -- 1,779 -- (72)
--------- --------- --------- --------- ---------
Net cash (used in) provided by investing
activities ........................................ 547,543 -- 393,012 (26,046) 180,577
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term notes ............................ (478,380) -- (476,315) -- (2,065)
Proceeds from domestic credit facility ................. 32,000 -- 32,000 -- --
Payments on short-term borrowings ...................... (1,824) -- -- -- (1,824)
Premium paid on early extinguishment of debt ........... (23,804) -- (23,804) -- --
Dividends paid ......................................... (22,556) -- (22,556) -- --
Common shares acquired ................................. (22,080) -- (22,080) -- --
Other financing activities ............................. 2,323 -- 2,350 -- (27)
--------- --------- --------- --------- ---------
Net cash used in financing activities .................. (514,321) -- (510,405) -- (3,916)
--------- --------- --------- --------- ---------
CASH
Effect of exchange rates on cash ....................... 3,880 -- -- -- 3,880
--------- --------- --------- --------- ---------
Change in cash ......................................... 22,272 -- 5,303 5,041 11,928
Cash at beginning of period ............................ 16,941 -- (4,431) (2,984) 24,356
--------- --------- --------- --------- ---------
Cash at end of period .................................. $ 39,213 $ -- $ 872 $ 2,057 $ 36,284
========= ========= ========= ========= =========
F-39
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ ----------- ----------- -------------
Net sales ........................................ $ 2,090,271 $ (494,113) $ 642,955 $ 830,353 $ 1,111,076
Cost of products sold ............................ 1,468,268 (494,113) 504,323 612,410 845,648
Selling, general and administrative .............. 354,559 -- 133,531 105,982 115,046
Depreciation and amortization .................... 111,426 -- 44,824 31,429 35,173
Research and development ......................... 54,285 -- 14,523 21,958 17,804
Equity income .................................... (7,917) -- (89) (6,248) (1,580)
Facility closures, severance and related
costs ....................................... 17,969 -- 9,169 5,792 3,008
Antitrust costs .................................. 6,306 -- -- 6,306 --
----------- ----------- ----------- ----------- -----------
Operating profit (loss) .......................... 85,375 -- (63,326) 52,724 95,977
Interest expense ................................. 101,704 -- 83,975 11,312 6,417
Other (income) expense, net ...................... 38,021 -- 54,528 549 (17,056)
Equity in net (earnings) loss of subsidiaries .... -- 116,272 (89,583) (26,689) --
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before income taxes and cumulative effect of
accounting change ........................... (54,350) (116,272) (112,246) 67,552 106,616
Income tax expense (benefit) ..................... (18,904) -- (76,800) 15,396 42,500
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before cumulative effect of accounting
change ...................................... (35,446) (116,272) (35,446) 52,156 64,116
Earnings from discontinued operations ............ 50,920 -- 16,470 -- 34,450
Cumulative effect of accounting change ........... (298,981) -- (190,268) (3,782) (104,931)
----------- ----------- ----------- ----------- -----------
Net earnings (loss) .............................. $ (283,507) $ (116,272) $ (209,244) $ 48,374 $ (6,365)
=========== =========== =========== =========== ===========
F-40
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ ----------- ------------ -------------
ASSETS
Current assets ................................. $ 1,059,663 $ -- $ 323,066 $ 154,077 $ 582,520
Intercompany receivables ....................... -- (5,442,138) 2,769,835 519,240 2,153,063
Investment in subsidiaries ..................... -- (3,161,177) 396,818 1,158,883 1,605,476
Property, plant and equipment .................. 695,962 -- 261,241 182,547 252,174
Cost in excess of acquired net assets .......... 584,633 -- 116,088 54,843 413,702
Other assets ................................... 500,557 -- 240,972 196,731 62,854
----------- ----------- ----------- ----------- -----------
Total assets ................................ $ 2,840,815 $(8,603,315) $ 4,108,020 $ 2,266,321 $ 5,069,789
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ............................ $ 694,059 $ -- $ 254,556 $ 193,988 $ 245,515
Intercompany payables .......................... -- (5,485,315) 2,639,941 1,274,263 1,571,111
Long-term debt ................................. 1,253,149 -- 1,250,707 -- 2,442
Other long-term liabilities .................... 693,724 -- 351,351 207,527 134,846
----------- ----------- ----------- ----------- -----------
Total Liabilities ........................... 2,640,932 (5,485,315) 4,496,555 1,675,778 1,953,914
Stockholders' equity ........................... 199,883 (3,118,000) (388,535) 590,543 3,115,875
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity .................................... $ 2,840,815 $(8,603,315) $ 4,108,020 $ 2,266,321 $ 5,069,789
=========== =========== =========== =========== ===========
F-41
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ ---------- ------------ ------------
Increase (decrease) in cash
- ---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ................................ $(283,507) $(116,272) $(209,244) $ 48,374 $ (6,365)
Adjustments to reconcile net earnings (loss)
to net cash provided by operations:
Cumulative effect of accounting change,
net of tax .................................. 298,981 -- 190,268 3,782 104,931
Loss (gain) on sale of business units ............ 34,705 -- 40,374 -- (5,669)
Depreciation and amortization .................... 146,550 -- 71,846 31,429 43,275
Equity income .................................... (7,917) -- (89) (6,248) (1,580)
Changes in assets and liabilities, net ........... 12,942 116,272 35,095 (42,341) (96,084)
--------- --------- --------- --------- ---------
Net cash provided by operations ................... 201,754 -- 128,250 34,996 38,508
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from divestments ...................... 80,000 -- 63,819 -- 16,181
Capital expenditures ............................... (100,309) -- (29,954) (34,499) (35,856)
Other investing activities ......................... (1,526) -- 2,497 -- (4,023)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities .................................... (21,835) -- 36,362 (34,499) (23,698)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term notes ........................ (11,742) -- -- -- (11,742)
Payments on domestic credit facility ............... (130,000) -- (130,000) -- --
Payments on short-term borrowings .................. (27,186) -- (25,880) -- (1,306)
Dividends paid ..................................... (22,698) -- (22,698) -- --
Other financing activities ......................... 6,415 -- 6,487 -- (72)
--------- --------- --------- --------- ---------
Net cash used in financing activities .............. (185,211) -- (172,091) -- (13,120)
--------- --------- --------- --------- ---------
CASH
Effect of exchange rates on cash ................... 727 -- -- -- 727
--------- --------- --------- --------- ---------
Change in cash ..................................... (4,565) -- (7,479) 497 2,417
Cash at beginning of period ........................ 21,506 -- 3,048 (3,481) 21,939
--------- --------- --------- --------- ---------
Cash at end of period .............................. $ 16,941 $ -- $ (4,431) $ (2,984) $ 24,356
========= ========= ========= ========= =========
F-42
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------- ------------ ----------- ------------ -------------
Net sales ........................................ $ 2,286,543 $ (500,392) $ 726,423 $ 948,919 $ 1,111,593
Cost of products sold ............................ 1,626,667 (500,392) 563,926 700,125 863,008
Selling, general and administrative .............. 378,916 -- 154,175 115,698 109,043
Depreciation and amortization .................... 150,830 -- 61,147 45,683 44,000
Research and development ......................... 56,030 -- 16,648 19,942 19,440
Equity income .................................... (9,278) -- (103) (5,955) (3,220)
Facility closures, severance and related costs ... 101,512 -- 6,020 83,955 11,537
Impairment of long-lived assets .................. 80,366 -- -- 66,318 14,048
----------- ----------- ----------- ----------- -----------
Operating profit (loss) .......................... (98,500) -- (75,390) (76,847) 53,737
Interest expense ................................. 109,877 -- 80,756 26,778 2,343
Other (income) expense, net ...................... 27,265 -- 11,927 15,719 (381)
Equity in net (earnings) loss of subsidiaries .... -- (47,155) 49,686 (2,531) --
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before income taxes ......................... (235,642) 47,155 (217,759) (116,813) 51,775
Income tax expense (benefit) ..................... (79,883) -- (62,000) (43,721) 25,838
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations ....... (155,759) 47,155 (155,759) (73,092) 25,937
Earnings from discontinued operations ............ 31,815 -- 14,935 -- 16,880
----------- ----------- ----------- ----------- -----------
Net earnings (loss) .............................. $ (123,944) $ 47,155 $ (140,824) $ (73,092) $ 42,817
=========== =========== =========== =========== ===========
F-43
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ --------- ------------ ------------
Increase (decrease) in cash
- ---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ................................. $(123,944) $ 47,155 $(140,824) $ (73,092) $ 42,817
Adjustments to reconcile net earnings (loss)
to net cash (used in) provided by operations:
Impairment of long-lived assets ................. 80,366 -- -- 66,318 14,048
Loss on sale of business units .................. 19,121 -- -- 19,121 --
Depreciation and amortization ................... 185,570 -- 84,000 45,683 55,887
Equity income ................................... (9,278) -- (103) (5,955) (3,220)
Changes in assets and liabilities, net .......... 53,172 (47,155) 238,911 (59,852) (78,732)
--------- --------- --------- --------- ---------
Net cash (used in) provided by operations ........... 205,007 -- 181,984 (7,777) 30,800
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from divestments ....................... 35,061 -- -- 35,061 --
Capital expenditures ................................ (136,642) -- (63,652) (25,008) (47,982)
Other investing activities .......................... 933 -- (4,575) 7,038 (1,530)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities ..................................... (100,648) -- (68,227) 17,091 (49,512)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term notes ......................... (169) -- -- -- (169)
Proceeds from long-term notes ....................... 2,003 -- -- -- 2,003
Payments on domestic credit facility ................ (105,000) -- (105,000) -- --
Payments on short-term borrowings ................... (672) -- 23 -- (695)
Dividends paid ...................................... (22,542) -- (22,542) -- --
Proceeds from interest rate swap contract ........... 21,870 -- 21,870 -- --
Other financing activities .......................... 1,555 -- 1,621 -- (66)
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing
activities ..................................... (102,955) -- (104,028) -- 1,073
--------- --------- --------- --------- ---------
CASH
Effect of exchange rates on cash .................... (675) -- -- -- (675)
--------- --------- --------- --------- ---------
Change in cash ...................................... 729 -- 9,729 9,314 (18,314)
Cash at beginning of period ......................... 20,777 -- (6,681) (12,795) 40,253
--------- --------- --------- --------- ---------
Cash at end of period ............................... $ 21,506 $ -- $ 3,048 $ (3,481) $ 21,939
========= ========= ========= ========= =========
F-44
SUMMARIZED UNAUDITED QUARTERLY FINANCIAL DATA
2003
----------------------------------------------------
First Second Third Fourth
--------- --------- --------- --------
(In thousands, except per share data)
Net sales ............................................................ $ 531,972 $ 532,901 $ 559,189 $ 560,981
Gross profit ......................................................... $ 147,014 $ 138,264 $ 148,935 $ 134,738
Loss from continuing operations before cumulative effect of
accounting change ................................................. $ (6,718) $ (19,402) $ (34,502) $ (58,029)
Earnings from discontinued operations ................................ 12,965 10,292 3,057 --
Gain on sale of discontinued operations .............................. -- -- 111,692 --
Cumulative effect of accounting change ............................... (401) -- -- --
--------- --------- --------- ---------
NET EARNINGS (LOSS) .................................................. $ 5,846 $ (9,110) $ 80,247 $ (58,029)
========= ========= ========= =========
Basic and diluted per share data (a):
Loss from continuing operations before cumulative effect of
accounting change ............................................. $ (0.06) $ (0.17) $ (0.31) $ (0.52)
Earnings from discontinued operations ........................... 0.11 0.09 0.03 --
Gain on sale of discontinued operations ......................... -- -- 1.00 --
Cumulative effect of accounting change .......................... -- -- -- --
--------- --------- --------- ---------
NET EARNINGS (LOSS) ............................................. $ 0.05 $ (0.08) $ 0.72 $ (0.52)
========= ========= ========= =========
- ----------
(a) The sum of the earnings per common share for the four quarters does not
equal the total earnings per common share for 2003 due to quarterly
changes in the average number of shares outstanding.
2002
----------------------------------------------------
First Second Third Fourth
--------- --------- --------- --------
(In thousands, except per share data)
Net sales ............................................................ $ 531,082 $ 571,489 $ 507,936 $ 479,764
Gross profit ......................................................... $ 150,945 $ 173,392 $ 158,559 $ 139,107
Loss from continuing operations before cumulative effect of
accounting change ............................................. $ (1,453) $ (16,854) $ (2,300) $ (14,839)
Earnings from discontinued operations ........................... 8,208 10,560 14,888 17,264
Cumulative effect of accounting change .......................... (298,981) -- -- --
--------- --------- --------- ---------
NET EARNINGS (LOSS) .................................................. $(292,226) $ (6,294) $ 12,588 $ 2,425
========= ========= ========= =========
Basic and diluted per share data:
Loss from continuing operations before cumulative effect of
accounting change ............................................. $ (0.01) $ (0.15) $ (0.02) $ (0.13)
Earnings from discontinued operations ........................... 0.07 0.09 0.13 0.15
Cumulative effect of accounting change .......................... (2.63) -- -- --
--------- --------- --------- ---------
NET EARNINGS (LOSS) ............................................. $ (2.57) $ (0.06) $ 0.11 $ 0.02
========= ========= ========= =========
F-45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Crompton Corporation:
We have reviewed the condensed consolidated balance sheet of Crompton
Corporation and subsidiaries (the Company) as of June 30, 2004, the related
condensed consolidated statements of operations for the three and six-month
periods ended June 30, 2004 and 2003, and the statements of cash flows for the
six-month periods ended June 30, 2004 and 2003. These condensed consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements referred
to above for them to be in conformity with U.S. generally accepted accounting
principles.
We have previously audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated
balance sheet of Crompton Corporation and subsidiaries as of December 31, 2003,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated January 30, 2004, except as to the "Antitrust Investigations and Related
Matters" note, which is as of March 15, 2004, and except as to the "Guarantor
Condensed Consolidating Financial Data" note, which is as of October 5, 2004, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2003, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
As discussed in the Asset Retirement Obligations note to the
consolidated financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 143, "Asset Retirement
Obligations" on January 1, 2003.
/s/ KPMG LLP
Stamford, Connecticut
July 22, 2004, except as to the "Guarantor Condensed Consolidating Financial
Data" note, which is as of October 5, 2004
F-46
CROMPTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited) Second quarter and six months ended June
30, 2004 and 2003
(In thousands of dollars, except per share data)
Second quarter ended Six months ended
----------------------------- -----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net sales ................................................ $ 646,740 $ 532,901 $ 1,271,087 $ 1,064,873
Cost of products sold .................................... 482,624 394,637 954,880 779,595
Selling, general and administrative ...................... 92,179 84,757 188,599 172,100
Depreciation and amortization ............................ 30,986 27,379 61,840 54,498
Research and development ................................. 13,065 12,726 24,862 24,786
Equity income ............................................ (66) (2,228) (9,693) (7,842)
Facility closures, severance and
related costs ......................................... 3,278 2,686 5,689 3,505
Antitrust costs .......................................... 4,350 12,386 8,403 20,875
----------- ----------- ----------- -----------
Operating profit ......................................... 20,324 558 36,507 17,356
Interest expense ......................................... 17,162 25,559 35,087 52,274
Other (income) expense, net .............................. 3,098 3,827 (89,812) 4,040
----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before income taxes and cumulative effect of
accounting change ..................................... 64 (28,828) 91,232 (38,958)
Income tax expense (benefit) ............................. (1,020) (9,426) 29,195 (12,838)
----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before cumulative effect of accounting
change ................................................ 1,084 (19,402) 62,037 (26,120)
Earnings from discontinued operations .................... -- 10,292 -- 23,257
Cumulative effect of accounting change ................... -- -- -- (401)
----------- ----------- ----------- -----------
Net earnings (loss) ...................................... $ 1,084 $ (9,110) $ 62,037 $ (3,264)
=========== =========== =========== ===========
Basic and diluted earnings (loss) per common share:
Earnings (loss) from continuing operations
before cumulative effect of accounting change ......... $ 0.01 $ (0.17) $ 0.54 $ (0.23)
Earnings from discontinued operations .................... -- 0.09 -- 0.20
Cumulative effect of accounting change ................... -- -- -- --
----------- ----------- ----------- -----------
Net earnings (loss) ...................................... $ 0.01 $ (0.08) $ 0.54 $ (0.03)
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
F-47
CROMPTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2004 (Unaudited) and December 31, 2003
(In thousands of dollars)
June 30, December 31,
2004 2003
----------- -----------
ASSETS
CURRENT ASSETS
Cash ................................................................... $ 55,178 $ 39,213
Accounts receivable .................................................... 246,207 210,190
Inventories ............................................................ 383,287 390,199
Other current assets ................................................... 147,300 170,852
----------- -----------
Total current assets ................................................ 831,972 810,454
----------- -----------
NON-CURRENT ASSETS
Property, plant and equipment .......................................... 730,473 774,612
Cost in excess of acquired net assets .................................. 417,263 418,607
Other assets ........................................................... 476,523 525,509
----------- -----------
$ 2,456,231 $ 2,529,182
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings .................................................. $ 8,102 $ 60,695
Current portion of long-term debt ...................................... 349,514 --
Accounts payable ....................................................... 213,597 232,127
Accrued expenses ....................................................... 242,706 267,472
Income taxes payable ................................................... 139,409 130,284
Other current liabilities .............................................. 15,316 10,667
----------- -----------
Total current liabilities ........................................... 968,644 701,245
----------- -----------
NON-CURRENT LIABILITIES
Long-term debt ......................................................... 400,033 754,018
Pension and post-retirement health care liabilities .................... 566,039 566,966
Other liabilities ...................................................... 193,390 204,244
STOCKHOLDERS' EQUITY
Common stock ........................................................... 1,192 1,192
Additional paid-in capital ............................................. 1,033,622 1,034,027
Accumulated deficit .................................................... (539,574) (590,157)
Accumulated other comprehensive loss ................................... (122,303) (96,463)
Treasury stock at cost ................................................. (44,812) (45,890)
----------- -----------
Total stockholders' equity .......................................... 328,125 302,709
----------- -----------
$ 2,456,231 $ 2,529,182
=========== ===========
See accompanying notes to condensed consolidated financial statements.
F-48
CROMPTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2004 and 2003
(In thousands of dollars)
2004 2003
--------- ---------
Increase (decrease) in cash
- ---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ...................................................... $ 62,037 $ (3,264)
Adjustments to reconcile net earnings (loss) to net
cash (used in) provided by operations:
Gain on sale of Gustafson joint venture ............................. (90,938) --
Cumulative effect of accounting change, net of tax .................. -- 401
Depreciation and amortization ....................................... 61,840 72,407
Equity income ....................................................... (9,693) (7,842)
Changes in assets and liabilities, net:
Accounts receivable .............................................. (59,090) 3,688
Accounts receivable - securitization ............................. 11,105 14,641
Inventories ...................................................... (2,251) (4,832)
Accounts payable ................................................. (15,924) (26,095)
Other ............................................................ 19,097 (17,959)
--------- ---------
Net cash (used in) provided by operations ................................ (23,817) 31,145
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from divestments ............................................ 137,696 --
Capital expenditures ..................................................... (29,495) (32,721)
Other investing activities ............................................... 309 (154)
--------- ---------
Net cash provided by (used in) investing activities ...................... 108,510 (32,875)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments)/proceeds from domestic credit facility ........................ (57,000) 192,800
Proceeds from short-term borrowings ...................................... 574 5,855
Payments on long term borrowings ......................................... -- (164,687)
Dividends paid ........................................................... (11,455) (11,433)
Treasury stock acquired .................................................. -- (22,080)
Other financing activities ............................................... (80) 1,036
--------- ---------
Net cash (used in) provided by financing activities ...................... (67,961) 1,491
--------- ---------
CASH
Effect of exchange rates on cash ......................................... (767) 1,664
--------- ---------
Change in cash ........................................................... 15,965 1,425
Cash at beginning of period .............................................. 39,213 16,941
--------- ---------
Cash at end of period .................................................... $ 55,178 $ 18,366
========= =========
See accompanying notes to condensed consolidated financial statements.
F-49
CROMPTON CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
ACCOUNTING POLICIES
Presentation of Condensed Consolidated Financial Statements
- -----------------------------------------------------------
The information in the foregoing condensed consolidated financial
statements for the second quarter and six months ended June 30, 2004 and June
30, 2003 is unaudited, but reflects all adjustments, which in the opinion of
management, are necessary for a fair presentation of the results of operations
for the interim periods presented. The foregoing condensed consolidated
financial statements include the accounts of Crompton Corporation and its
wholly-owned and majority owned subsidiaries, which are collectively referred to
as "the Company." Other affiliates in which the Company has a 20% to 50%
ownership are accounted for in accordance with the equity method.
On April 24, 2003, the Company entered into an agreement to sell
certain assets and assign certain liabilities of the OrganoSilicones business
unit to the Specialty Materials division of General Electric Company (GE) and to
acquire GE's Specialty Chemicals business. The transaction closed on July 31,
2003. As a result, the accompanying financial statements reflect the
OrganoSilicones business unit as a discontinued operation for the periods ending
prior to July 31, 2003. The operations of the OrganoSilicones business unit have
been classified as earnings from discontinued operations (net of tax) in the
condensed consolidated statements of operations. The condensed consolidated
statements of cash flows have not been adjusted to reflect the discontinued
operations and thus include the cash flows of the OrganoSilicones business for
the six months ended June 30, 2003. Refer to the Discontinued Operations
footnote for further information.
Certain financial information and footnote disclosures included in the
annual financial statements have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission for reporting on Form
10-Q. It is suggested that the interim consolidated financial statements be read
in conjunction with the consolidated financial statements and notes included in
the Company's 2003 Annual Report on Form 10-K. The consolidated results of
operations for the six months ended June 30, 2004 are not necessarily indicative
of the results expected for the full year.
Operating Costs and Expenses
- ----------------------------
Cost of products sold includes all costs incurred in manufacturing
products, including raw materials, direct manufacturing costs and manufacturing
overhead. Cost of products sold also includes warehousing, distribution,
customer service, engineering (other than polymer processing equipment design
engineering), purchasing, and environmental, health and safety functions.
Selling, general and administrative expenses (SG&A) include costs and expenses
related to the following functions and activities: selling, advertising, polymer
processing equipment design engineering, shipping costs for out-bound product
shipments, information technology, legal, provision for doubtful accounts,
corporate facilities and corporate administration. SG&A also includes
accounting, finance and human resources, excluding direct support in
manufacturing operations, which is included as cost of products sold. Research
and development expenses (R&D) include basic and applied research and
development activities of a technical and non-routine nature. R&D costs are
expensed as incurred. Costs of products sold, SG&A, and R&D expenses exclude
depreciation and amortization expenses, which are presented on a separate line
in the condensed consolidated statements of operations.
Included in SG&A are shipping costs of $22.8 million and $21.6 million
for the second quarters ended June 30, 2004 and June 30, 2003, respectively, and
$45.3 million and $40.0 million for the six months ended June 30, 2004 and June
30, 2003, respectively.
Equity Investments
- ------------------
Included among the Company's equity investments at December 31, 2003
were a 50 percent ownership in Gustafson LLC and a 50 percent ownership in
Gustafson Partnership, which were sold on March 31, 2004. Refer to the
Divestitures footnote for further information. The Company accounted for these
investments in accordance with the equity method. The combined assets and
liabilities of these two investments were $93.4 million and $38.3 million,
respectively, as of December 31, 2003. The combined pre-tax income of the two
investments for the first quarter ended March 31, 2004 and six months ended June
30, 2003 were $18 million and $15.2 million, respectively, of which the
Company's 50 percent share is $9 million and $7.6 million, respectively.
F-50
Other
- -----
Included in the Company's condensed consolidated balance sheets at June
30, 2004 and December 31, 2003, is approximately $18 million and $13 million,
respectively, of restricted cash that is required to be on deposit to support
certain letters of credit and performance guarantees, the majority of which will
be settled within one year.
Included in accounts receivable are allowances for doubtful accounts of
$18.6 million at June 30, 2004 and $17.8 million at December 31, 2003.
Accumulated depreciation amounted to $833.6 million at June 30, 2004
and $828.0 million at December 31, 2003.
INDEBTEDNESS AND REFINANCING
- ----------------------------
The Company had a five-year credit facility of $300 million, which is
scheduled to mature in October 2004. There were no outstanding borrowings under
this facility at June 30, 2004. Effective July 1, 2004, the Company reduced
borrowings available under this facility to $250 million. During the first
quarter of 2004, the Company reclassified the carrying value of its outstanding
$350 million of 8.5% Senior Notes to short-term due to a scheduled maturity date
of March 2005. As a result, the Company had a working capital deficit of $136.7
million as of June 30, 2004. The Company does not anticipate that its operating
cash flows during the nine months following June 30, 2004 will be sufficient to
repay the amounts outstanding under the $350 million of 8.5% Senior Notes due in
March 2005.
As a result, on July 21, 2004, the Company announced that it is
planning to offer approximately $600 million aggregate principal amount of new
senior notes (the "New Senior Notes"), which will be offered in a combination of
three series with various interest rates and maturity dates. The offering of the
New Senior Notes is part of a refinancing that includes the replacement of the
Company's existing domestic credit facility with a new domestic revolving credit
facility with a principal amount of at least $200 million and up to $250 million
and a three year extension of the Company's domestic accounts receivable
securitization program with the ability to sell up to $125 million of domestic
receivables.
In addition, on July 19, 2004, the Company announced that it has
commenced a cash tender offer to purchase and consent solicitation for all of
its outstanding $350 million aggregate principal amount of 8.5% Senior Notes due
2005 and all of its outstanding $150 million aggregate principal amount of
6.125% Senior Notes due 2006 (collectively the "Notes"). The purchase price for
the 8.5% Senior Notes is $1,025.88 per $1,000 principal amount, and the purchase
price for the 6.125% Senior Notes is $1,038.35 per $1,000 principal amount of
the 6.125% Senior Notes, payable in cash. In addition, Crompton will pay accrued
and unpaid interest on validly tendered Notes up to but excluding the settlement
date. Furthermore, under certain circumstances, Crompton will pay a consent
payment of $10.00 per $1,000 principal amount of each series of Notes to
tendering holders of the Notes.
The closing of the new domestic revolving credit facility, the offering
of the New Senior Notes, the consent solicitation and tender offer for the Notes
and the amendment of the Company's domestic accounts receivable securitization
program are conditioned on the completion of one another (collectively referred
to as the "Refinancing Transaction") and are subject to market and other
customary conditions. The Company expects the Refinancing Transaction to be
completed during the third quarter of 2004.
The Company intends to use the net proceeds from the sale of the New
Senior Notes to (i) repay outstanding borrowings under its existing domestic
revolving credit facility, (ii) fund its concurrent tender offer and consent
solicitation for its 8.5% Senior Notes due 2005 and 6.125% Senior Notes due
2006, including tender premiums, consent payments, and accrued and unpaid
interest, and (iii) fund working capital and general corporate purposes.
STOCK-BASED COMPENSATION
- ------------------------
As permitted under Financial Accounting Standards Board (FASB)
Statements No. 123, "Accounting for Stock-Based Compensation" and No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," the
Company elected to continue its historical method of accounting for stock-based
compensation in accordance with APB 25, "Accounting for Stock Issued to
Employees." Under APB 25, compensation expense for fixed plans is recognized
based on the difference between the exercise price and the stock price on the
date of grant. Since the Company's fixed plan awards have been granted with an
exercise price equal to the stock price on the date of grant, no compensation
expense has been recognized in the statement of operations for these awards.
However, compensation expense has been recognized for the
F-51
restricted stock awards under the Company's long-term incentive programs in
accordance with the provisions of APB 25, which would be unchanged under FASB
Statements No. 123 and No. 148. The following table illustrates the effect on
net earnings and related per share amounts as if the Company had applied the
fair value recognition provisions of Statements No. 123 and No. 148 to all
stock-based employee compensation awards.
Second quarter ended Six months ended
------------------------- -------------------------
(In thousands, except per share data) 2004 2003 2004 2003
- ------------------------------------- -------- -------- -------- --------
Net earnings (loss), as reported ............................. $ 1,084 $ (9,110) $ 62,037 $ (3,264)
Stock-based employee compensation expense
included in net earnings, net of tax .................... 750 (237) 1,064 317
Total stock-based employee compensation
determined under fair value based
accounting method for all awards, net of
tax ..................................................... (1,791) (874) (2,978) (2,941)
-------- -------- -------- --------
Pro forma net earnings (loss) ................................ $ 43 $(10,221) $ 60,123 $ (5,888)
======== ======== ======== ========
Earnings per share:
Basic and diluted - as reported .............................. $ 0.01 $ (0.08) $ 0.54 $ (0.03)
Basic and diluted - pro forma ................................ $ 0.00 $ (0.09) $ 0.52 $ (0.05)
FACILITY CLOSURES, SEVERANCE AND RELATED COSTS
- ----------------------------------------------
During the first quarter of 2004, the Company appointed a new President
and CEO, and the former President and CEO, Senior Vice President and CFO, and
certain other executives elected to retire. As a result of this reorganization,
during the second quarter of 2004, the Company completed the separation
agreements for the former Chairman, President and CEO, Senior Vice President and
CFO, and other executives and recorded a pre-tax charge of $2.6 million for
severance and related costs. Such costs are included in facility closures,
severance and related costs in the condensed consolidated statements of
operations. Payments related to this charge will begin during the third quarter
of 2004.
In July 2003, the Company announced a cost reduction program to further
eliminate overhead expenses. In order to achieve this goal, the Company expects
to reduce its global workforce by approximately 375 positions, of which
approximately 345 positions had been eliminated as of June 30, 2004. During the
first six months of 2004, the Company recorded an additional pre-tax charge of
$0.2 million for facility closures, severance and related costs relating to the
July 2003 program in the condensed consolidated statements of operations. A
summary of this charge is as follows:
Severance Other
And Facility
Related Asset Closure
(In thousands) Costs Write-offs Costs Total
- -------------- --------- ---------- --------- -------
2003 charge .................................. $ 12,585 $ 396 $ 988 $ 13,969
Cash payments ................................ (2,859) -- (383) (3,242)
Non-cash charges ............................. -- (396) -- (396)
-------- -------- -------- --------
Balance at December 31, 2003 ................. 9,726 -- 605 10,331
2004 charge .................................. 198 -- -- 198
Cash payments ................................ (5,909) -- (180) (6,089)
-------- -------- -------- --------
Balance at June 30, 2004 ..................... $ 4,015 $ -- $ 425 $ 4,440
======== ======== ======== ========
As a result of the cost reduction initiative that began in 2001 and the
relocation of the Company's corporate headquarters from Greenwich, CT to
Middlebury, CT that began in 2002, the Company recorded pre-tax charges of $0.8
million and $3.5 million for facility closures, severance and related costs for
the six months ended June 30, 2004 and June 30, 2003, respectively. The related
reserve activity is summarized as follows:
F-52
Severance Asset Other
And Write-offs Facility
Related and Closure
(In thousands) Costs (a) Impairments (b) Costs (c) Total
- -------------- --------- --------------- --------- --------
Balance at December 31, 2002 .............. $ 24,233 $ -- $ 11,338 $ 35,571
2003 charge:
Continuing operations ................ 2,711 183 2,697 5,591
Discontinued operations .............. 15 -- 15 30
Cash payments ............................. (17,457) -- (9,695) (27,152)
Non-cash charges .......................... (1,110) (183) (280) (1,573)
-------- -------- -------- --------
Balance at December 31, 2003 .............. 8,392 -- 4,075 12,467
2004 charge ............................... 124 559 112 795
Cash payments ............................. (3,499) -- (1,367) (4,866)
Non-cash charges .......................... -- (559) -- (559)
-------- -------- -------- --------
Balance at June 30, 2004 .................. $ 5,017 $ -- $ 2,820 $ 7,837
======== ======== ======== ========
- ----------------
(a) Includes severance at various sites, including severance resulting from
the corporate relocation, and pension curtailments related to closed
sites.
(b) Includes the write-off of the net book value of assets at the
Greenwich, CT location that were disposed of.
(c) Includes primarily demolition, decontamination and decommissioning
costs and inventory charges related to closed sites.
In addition, during the first quarter of 2004, the Company completed
the sale of its manufacturing facility in Freeport, Grand Bahama Island and
recorded a $2.1 million facility closure charge primarily for asset write-offs.
DISCONTINUED OPERATIONS
- -----------------------
On July 31, 2003, the Company sold certain assets and assigned certain
liabilities of its OrganoSilicones business unit to the Specialty Materials
division of GE and acquired GE's Specialty Chemicals business. The transaction
resulted in a gain of $111.7 million (net of income taxes of $175.3 million).
The Company received net cash proceeds in 2003 of $633.4 million, which included
proceeds from its first quarterly earn-out payment of $8.75 million less certain
transaction-related fees of $18.4 million. In addition, the Company acquired the
GE Specialty Chemicals business with a value of $160 million. The Company will
continue to receive quarterly earn-out proceeds through September 2006 based on
the combined performance of GE's existing Silicones business and the
OrganoSilicones business that GE acquired from the Company. The total of such
earn-out proceeds will be a minimum of $105 million and a maximum of $250
million. In addition to the earn-out proceeds received in 2003, the Company
received a total of $17.5 million of earn-out proceeds for the six months ended
June 30, 2004. Based on audited results reported by GE, the Company did not
receive any additional earn-out proceeds in the first quarter of 2004 related to
the combined performance of GE's existing Silicones business and the
OrganoSilicones business that GE acquired from the Company for the fourth
quarter of 2003. The results reported by GE for the first quarter of 2004 did
not result in the receipt of any proceeds in excess of the minimum earn-out
proceeds in the second quarter of 2004.
PRO FORMA FINANCIAL INFORMATION
- -------------------------------
The following pro forma unaudited results of operations for the second
quarter and six months ended June 30, 2003 assume that the divestiture of the
OrganoSilicones business unit and the acquisition of the GE Specialty Chemicals
business had been consummated as of the beginning of 2003:
F-53
Second quarter Six months
ended ended
(In thousands, except per share data) 2003 2003
- ------------------------------------- -------------- ------------
Net sales .................................................. $ 573,828 $ 1,145,440
=========== ===========
Earnings (loss) from continuing operations before
cumulative effect of accounting change ................. $ (11,953) $ (11,334)
=========== ===========
Net earnings (loss) ........................................ $ (11,953) $ (11,735)
=========== ===========
Second quarter Six months
ended ended
(In thousands, except per share data) 2003 2003
- ------------------------------------- -------------- -----------
Basic and diluted earnings per common share:
Earnings before cumulative effect of
accounting change ...................................... $ (0.11) $ (0.10)
=========== ===========
Net earnings ............................................. $ (0.11) $ (0.10)
=========== ===========
Weighted average shares outstanding:
Basic and diluted ........................................ 112,639 113,389
=========== ===========
The unaudited pro forma information above has been prepared for
comparative purposes only and does not purport to be indicative of the results
of operations that would have occurred had the divestiture of the
OrganoSilicones business unit and the acquisition of the GE Specialty Chemicals
business been consummated at the beginning of 2003.
DIVESTITURES
- ------------
On March 22, 2004, the Company entered into an agreement with Bayer
CropScience LP in the U.S. and Bayer CropScience Inc. in Canada to sell its 50
percent interest in the Gustafson seed treatment joint venture for $124 million,
of which $2 million is contingent upon transfer of a certain license agreement,
which the Company expects to occur by the end of the year. In addition, the
Company will receive a deferred dividend of approximately $4.7 million by the
end of 2004. The transaction closed on March 31, 2004 and resulted in a pre-tax
gain of $90.9 million.
ACCOUNTS RECEIVABLE PROGRAMS
- ----------------------------
On April 15, 2004, the Company amended its receivables sale agreement
to reduce its domestic accounts receivable securitization program from $150
million to $115 million. Accounts receivable sold under this program were $115
million and $106.1 million as of June 30, 2004 and December 31, 2003,
respectively. In addition, the Company's European subsidiaries have a separate
program to sell their eligible accounts receivable to agent banks, which
approximated $125 million at June 30, 2004. International accounts receivable
sold under this program were $95.5 million and $93.3 million as of June 30, 2004
and December 31, 2003, respectively. The total costs associated with these
programs of $4.3 million and $3.2 million for the six months ended June 30, 2004
and June 30, 2003, respectively, are included in other (income) expense, net in
the condensed consolidated statements of operations. In connection with the
Refinancing Transaction (see the Indebtedness and Refinancing note included
herein), the Company is in the process of amending its domestic accounts
receivable securitization program to provide an additional three years of
funding for up to $125 million of domestic receivables.
Under the domestic program, certain subsidiaries of the Company sell
their receivables to a special purpose entity (SPE) that has been created as a
separate legal entity for the purpose of acquiring such receivables and selling
an undivided interest therein to agent banks. In accordance with the domestic
sale agreement, the agent banks purchase an undivided ownership interest in the
accounts receivable owned by the SPE. The amount of such undivided ownership
interest will vary based on the level of eligible accounts receivable as defined
in the agreement. In addition, the agent banks retain a security interest in all
of the receivables owned by the SPE, which was $78.6 million and $43.3 million
as of June 30, 2004 and December 31, 2003, respectively. The balance of the
unsold receivables owned by the SPE is included in the Company's
F-54
accounts receivable balance on the condensed consolidated balance sheet. Under
the international program, certain foreign subsidiaries of the Company sell
eligible accounts receivable directly to agent banks. During the period, the
Company had an obligation to service the accounts receivable sold under its
domestic and international programs. The Company has treated the transfer of
receivables under its domestic and international receivable programs as a sale
of accounts receivable.
INVENTORIES
- -----------
Components of inventories are as follows:
(Unaudited)
June 30, December 31,
(In thousands) 2004 2003
- -------------- ---------- ------------
Finished goods.......................... $ 280,532 $ 293,846
Work in process......................... 18,905 20,175
Raw materials and supplies.............. 83,850 76,178
---------- ----------
$ 383,287 $ 390,199
========== ==========
GOODWILL AND INTANGIBLE ASSETS
- ------------------------------
The Company's intangible assets (excluding goodwill) are included in other
assets on the balance sheet and comprise the following:
(Unaudited)
(In thousands) June 30, 2004 December 31, 2003
- -------------- -------------------------- --------------------------
Gross Accumulated Gross Accumulated
Cost Amortization Cost Amortization
--------- ----------- --------- ----------
Patents ............................. $ 65,387 $ (21,634) $ 60,824 $ (18,877)
Trademarks .......................... 84,715 (34,015) 83,718 (31,334)
Other ............................... 85,836 (38,442) 89,364 (37,444)
--------- --------- --------- ---------
$ 235,938 $ (94,091) $ 233,906 $ (87,655)
========= ========= ========= =========
The gross cost of the Company's intangible assets increased $2 million
primarily due to the capitalization of fees associated with the renewal of
patents, trademarks and registrations of $5.2 million, partially offset by asset
retirements of $2.3 million and unfavorable foreign currency translation of $0.9
million.
Amortization expense related to intangible assets amounted to $4.4
million and $3.1 million for the second quarter ended June 30, 2004 and June 30,
2003, respectively, and $9.0 million and $6.2 million for the six months ended
June 30, 2004 and June 30, 2003. Estimated amortization expense as of June 30,
2004 for the next five fiscal years is as follows: $17.5 million (2004), $16.3
million (2005), $16.1 million (2006), $15.9 million (2007) and $15.4 million
(2008).
F-55
Goodwill by reportable segment is as follows:
(Unaudited)
June 30, December 31,
(In thousands) 2004 2003
- -------------- ------------ ------------
Polymer Products
Polymer Additives..................... $ 309,812 $ 310,785
Polymers ............................. 17,299 17,299
Polymer Processing Equipment.......... 34,355 34,637
--------- ---------
361,466 362,721
--------- ---------
Specialty Products
Crop Protection ...................... 55,797 55,886
--------- ---------
$ 417,263 $ 418,607
========= =========
The decrease in goodwill is primarily due to foreign currency
translation.
The Company has elected to perform its annual goodwill impairment
procedures for all of its reporting units in accordance with FASB Statement No.
142, "Goodwill and Other Intangible Assets" as of July 31, or sooner, if events
occur or circumstances change that could reduce the fair value of a reporting
unit below its carrying value. The Company is not aware of any events or changes
in circumstances during the six months ended June 30, 2004 that would have
required an impairment review to be performed, and therefore, will update its
review as of July 31, 2004.
COMMON STOCK
- ------------
The Company is authorized to issue 500 million shares of $.01 par value
common stock. There were 119,152,254 common shares issued at June 30, 2004 and
December 31, 2003, of which 4,550,953 and 4,660,158 shares were held as treasury
stock at June 30, 2004 and December 31, 2003, respectively.
During the first half of 2004, the Company issued 109,205 treasury
shares, primarily pursuant to its compensation programs.
EARNINGS (LOSS) PER COMMON SHARE
- --------------------------------
The computation of basic earnings (loss) per common share is based on
the weighted average number of common shares outstanding. The computation of
diluted earnings (loss) per common share is based on the weighted average number
of common and common equivalent shares outstanding. The computation of diluted
earnings (loss) per common share equals the basic earnings (loss) per common
share for the second quarter and six months ended June 30, 2004 because the
dilutive stock options and other equivalents were not significant. The
computation of diluted earnings (loss) per common share equals the basic
earnings (loss) per common share for the second quarter and six months ended
June 30, 2003 since the common stock equivalents were antidilutive. Common stock
equivalents amounted to 146,500 for the second quarter ended 2003 and 165,596
for the six months ended June 30, 2003.
The following is a reconciliation of the shares used in the
computations:
Second quarter ended Six months ended
--------------------- ----------------------
(In thousands) 2004 2003 2004 2003
- -------------- ------- ------- ------- -------
Weighted average common shares outstanding...................... 114,574 112,639 114,550 113,389
Effect of dilutive stock options and other equivalents.......... 201 -- 255 --
------- ------- ------- -------
Weighted average common shares adjusted for dilution............ 114,775 112,639 114,805 113,389
======= ======= ======= =======
F-56
COMPREHENSIVE INCOME (LOSS)
---------------------------
An analysis of the Company's comprehensive income (loss) follows:
Second quarter ended Six months ended
-------------------------- --------------------------
(In thousands) 2004 2003 2004 2003
- -------------- -------- --------- -------- ---------
Net earnings (loss) ................................ $ 1,084 $ (9,110) $ 62,037 $ (3,264)
Other comprehensive income (loss):
Foreign currency translation adjustments ........ (16,270) 47,046 (31,520) 82,437
Minimum pension liability adjustments ........... 1,190 3,254 1,190 3,254
Change in fair value of derivatives ............. 1,277 3,616 4,468 2,815
Other ........................................... 8 -- 22 100
-------- -------- -------- --------
Comprehensive income (loss) ........................ $(12,711) $ 44,806 $ 36,197 $ 85,342
======== ======== ======== ========
The components of accumulated other comprehensive loss at June 30, 2004 and
December 31, 2003 are as follows:
(Unaudited)
June 30, December 31,
(In thousands) 2004 2003
- -------------- ---------- -----------
Foreign currency translation adjustment.......... $ 18,085 $ 49,605
Minimum pension liability adjustment............. (141,563) (142,753)
Other............................................ 1,175 (3,315)
---------- -----------
Accumulated other comprehensive loss............. $ (122,303) $ (96,463)
========== ===========
PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
- -----------------------------------------------
Components of net periodic benefit cost (credit) for the second quarter
ended June 30, 2004 and June 30, 2003 are as follows:
International and
Qualified Domestic Non-Qualified Post-Retirement
Defined Benefit Plans Defined Benefit Plans Health Care Plans
---------------------- --------------------- ---------------------
Second quarter ended Second quarter ended Second quarter ended
---------------------- ---------------------- ----------------------
(In thousands) 2004 2003 2004 2003 2004 2003
- -------------- -------- -------- -------- -------- -------- --------
Service cost ................................ $ 2,161 $ 2,326 $ 1,827 $ 1,902 $ 296 $ 452
Interest cost ............................... 9,750 10,596 3,895 3,498 3,110 3,687
Expected return on plan assets .............. (13,004) (13,733) (1,870) (1,774) (612) (698)
Amortization of unrecognized
transition obligation .................... (2) (2) 33 56 -- --
Amortization of prior service cost .......... 14 19 94 227 (694) (701)
Amortization of net (gain) loss ............. 1,389 204 413 137 (153) (66)
-------- -------- -------- -------- -------- --------
Net periodic benefit cost (credit) ......... $ 308 $ (590) $ 4,392 $ 4,046 $ 1,947 $ 2,674
======== ======== ======== ======== ======== ========
F-57
Components of net periodic benefit cost (credit) for the six months ended June
30, 2004 and June 30, 2003 are as follows:
International and
Qualified Domestic Non-Qualified Post-Retirement
Defined Benefit Plans Defined Benefit Plans Health Care Plans
------------------------ ----------------------- ------------------------
Six months ended Six months ended Six months ended
------------------------ ----------------------- ------------------------
(In thousands) 2004 2003 2004 2003 2004 2003
- -------------- -------- -------- -------- -------- -------- --------
Service cost .......................... $ 4,322 $ 4,652 $ 3,745 $ 3,804 $ 591 $ 904
Interest cost ......................... 19,500 21,192 7,663 6,996 6,220 7,374
Expected return on plan assets ........ (26,008) (27,466) (3,740) (3,548) (1,224) (1,396)
Amortization of unrecognized
transition obligation .............. (4) (4) 79 112 -- --
Amortization of prior
service cost ....................... 28 38 302 454 (1,387) (1,402)
Amortization of net (gain) loss ....... 2,778 408 906 274 (306) (131)
Curtailments .......................... -- -- 5,889 -- -- --
-------- -------- -------- -------- -------- --------
Net periodic benefit cost
(credit) ........................... $ 616 $ (1,180) $ 14,844 $ 8,092 $ 3,894 $ 5,349
======== ======== ======== ======== ======== ========
During the first quarter of 2004, the Company recorded a curtailment
loss of $5.9 million, which is primarily the result of the Company's former
Chairman, President and CEO, Senior Vice President and CFO, and certain other
executives electing to retire. The impact of this election will result in lump
sum payments of approximately $23 million, of which at least $17 million will be
paid in the third quarter of 2004 and the remainder in years 2005 through 2008.
The Company expects to contribute $3.2 million to its domestic pension
plans in 2004, of which $2.0 million was contributed to the plans as of June 30,
2004. The estimated contribution was updated from the previously disclosed
amount of $4.6 million for the year ended December 31, 2004 and assumes pension
funding relief and no other significant changes with regards to demographics,
legislation, plan provisions, or actuarial assumption or methods to determine
the estimated funding requirements. The Pension Funding Equity Act of 2004 was
signed into law on April 10, 2004 and will provide the Company a two-year
temporary replacement of the benchmark interest rate for determining funding
liabilities and will establish temporary alternative minimum funding
requirements for certain underfunded pension plans.
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law. Through the Act,
companies that sponsor retiree health plans that cover prescription drugs are
entitled to a tax-free federal subsidy beginning in 2006 which is equal to 28%
of certain costs paid by both the employee and the Company for prescription
drugs. On May 19, 2004, the FASB issued FASB Staff Position (FSP) No. 106-2,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003." FSP No. 106-2 supersedes FSP
No. 106-1, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003." FSP No. 106-2
provides guidance on the accounting for the effects of the Act for employers
that sponsor post-retirement health care plans that provide prescription drug
benefits, and requires employers to provide certain disclosures regarding the
effect of the federal subsidy provided by the Act. The Company has determined
that most of its post-retirement health care plans that provide prescription
drug benefits are actuarially equivalent to Medicare Part D based on a
reasonable interpretation of what the regulations will likely require and,
therefore, the Company will be eligible to receive the federal subsidy. As a
result, the Company adopted FSP No. 106-2 during the second quarter of 2004 and
recorded a reduction to the net periodic post-retirement benefit cost of $0.5
million and $1.0 million for the second quarter and six months ended June 30,
2004, respectively.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
- ---------------------------------------------
The Company's activities expose its earnings, cash flows and financial
position to a variety of market risks, including the effects of changes in
foreign currency exchange rates and interest rates. The Company maintains a
risk-management strategy that uses derivative instruments as needed to mitigate
risk against foreign currency movements and to manage interest rate volatility
and commodity price volatility. In accordance with FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," FASB Statement
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," and FASB Statement No. 149, "Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities," the Company recognizes in
earnings changes in the fair value of all derivatives designated as fair value
hedging instruments that are highly effective and recognizes in accumulated
other comprehensive
F-58
loss (AOCL) changes in the fair value of all derivatives designated as cash flow
hedging instruments that are highly effective. The Company does not enter into
derivative instruments for trading or speculative purposes.
The Company uses price swap contracts as cash flow hedges to convert a
portion of its forecasted natural gas purchases from variable price to fixed
price purchases. In January 2004, these contracts were designated as hedges of a
portion of the Company's forecasted natural gas purchases for a rolling two-year
period. These contracts involve the exchange of payments over the life of the
contracts without an exchange of the notional amount upon which the payments are
based. The differential paid or received as natural gas prices change is
recognized as an adjustment to cost of products sold.
The Company used interest rate swap contracts, which expired in July
2003 concurrent with the maturity of the underlying debt securities, as cash
flow hedges to convert its Euro denominated variable rate debt to fixed rate
debt. Each interest rate swap contract was designated with the principal balance
and the term of the specific debt obligation. These contracts involved the
exchange of interest payments over the life of the contract without an exchange
of the notional amount upon which the payments were based. The differential paid
or received as interest rates changed was recognized as an adjustment to
interest expense.
In 2003, the Company also had equity option contracts covering 3.2
million shares of the Company's common stock to hedge the expense variability
associated with its obligations under its long-term incentive plans (LTIP). In
February 2003, the Company settled its existing equity option contracts for
$35.1 million, of which $33.8 million had been included in accrued expenses at
December 31, 2002, and entered into a new equity option contract. The new
contract consisted of a sold put option contract with a strike price of $5.66
and a purchased call option contract with a strike price of $5.75. The Company
had designated a portion of the equity option contract as a cash flow hedge of
the risk associated with the unvested, unpaid awards under its LTIP. Changes in
market value related to the portion of the option contract designated and
effective as a hedge were recorded as a component of AOCL. The amount included
in AOCL was subject to changes in the stock price and was being amortized
ratably to SG&A over the remaining service periods of the hedged LTIP. Changes
in market value related to the remaining portion of the option contract were
recognized in SG&A. During the second quarter of 2003, the Company determined
that one of its LTIP programs was not achievable and accordingly amortized $3
million from AOCL to SG&A, which represented the unamortized balance of the
deferred loss on the portion of the option contract that related to this plan.
On May 11, 2003, the option contract expired and resulted in a favorable net
cash settlement of $3.7 million. As of June 30, 2003, all of the deferred gains
and losses relating to these contracts had been amortized to SG&A.
The following table summarizes the (gains)/losses resulting from
changes in the market value of the Company's fair value and cash flow hedging
instruments and the amortization of (gains)/losses related to certain cash flow
hedges for the second quarter and six months ended June 30, 2004 and June 30,
2003.
Second quarter ended Six months ended
----------------------- ------------------------
(In thousands) 2004 2003 2004 2003
- -------------- ------- ------- -------- -------
Fair value hedges (in other (income)
expense, net) ....................................... $ -- $ 7 $ -- $ (70)
======= ======= ======== =======
Cash flow hedges (in AOCL):
Balance at beginning of period ........................ $(3,191) $ 3,639 $ -- $ 2,838
Price swap contracts ............................... (1,277) -- (4,468) --
Interest rate swap contracts ....................... -- (636) -- (860)
Equity option contracts-change in
market value ..................................... -- (487) -- 1,836
Equity option contracts-amortization to
SG&A ............................................. -- (2,493) -- (3,791)
------- ------- -------- -------
Balance at end of period .............................. $(4,468) $ 23 $ (4,468) $ 23
======= ======= ======== =======
ASSET RETIREMENT OBLIGATIONS
- ----------------------------
Effective January 1, 2003, the Company adopted the provisions of FASB
Statement No. 143, "Accounting for Asset Retirement Obligations." Statement No.
143 requires companies to record a liability for asset retirement obligations in
the period in which a legal obligation is created. Such liabilities are recorded
at fair value, with an offsetting increase to the carrying value of the related
long-lived assets. In future periods, the liability is accreted to its present
value and the capitalized cost is depreciated over the useful life of the
related asset. Companies are also required to adjust the liability for
F-59
changes resulting from the passage of time and/or revisions to the timing or the
amount of the original estimate. Upon retirement of the long-lived asset, the
Company either settles the obligation for its recorded amount or incurs a gain
or loss. As a result of the implementation of this Statement, the Company
recorded an after-tax charge of $0.4 million ($0.7 million pre-tax) as a
cumulative effect of accounting change. The Company's asset retirement
obligations are primarily the result of the legal obligation to remove leasehold
improvements upon termination of leases at several of its facilities. Such
obligations have been recorded at fair value, which the Company estimated by
discounting projected cash flows using a rate of 8.5%. The depreciation and
accretion expenses recorded for the second quarter and six month periods ended
June 30, 2004 and June 30, 2003 were not significant.
ANTITRUST INVESTIGATION AND RELATED MATTERS
- -------------------------------------------
On May 27, 2004, the Company pled guilty to violation of the U.S.
antitrust laws in connection with the sale of certain rubber chemicals, and the
court imposed a fine of $50.0 million, payable in six annual installments,
without interest, beginning in 2004. On May 28, 2004, the Company pled guilty to
violation of the Canadian competition laws, and the court imposed a fine of CDN
$9.0 million (approximately U.S. $7.0 million), payable in six annual
installments, without interest, beginning in 2004. The Company recorded pre-tax
charges of $45.2 million in the Company's consolidated statements of operations
at December 31, 2003 to reserve for the payment of these U.S. and Canadian
fines, which represents the present value of the expected payments of $57.0
million. Expected cash payments for U.S. and Canadian fines total $2.3 million
in 2004; $2.3 million in 2005; $6.5 million in 2006; $11.2 million in 2007;
$16.2 million in 2008; and $18.5 million in 2009.
The Company and certain of its subsidiaries continue to be the subject
of a coordinated civil investigation by the European Commission (the "EC") with
respect to the sale and marketing of rubber chemicals. At this time, the Company
cannot predict the timing or outcome of that investigation, including the amount
of any fine that may be imposed by the EC.
The Company and certain of its subsidiaries are subjects of, and
continue to cooperate in, coordinated criminal and civil investigations being
conducted by the U.S. Department of Justice, the Canadian Competition Bureau and
the EC (collectively, the "Governmental Authorities") with respect to possible
antitrust violations relating to the sale and marketing of certain other
products, including ethylene propylene diene monomer (EPDM); heat stabilizers,
including tin-based stabilizers and precursors, mixed metal stabilizers, and
epoxidized soybean oil (ESBO); nitrile rubber; and urethanes and urethane
chemicals. The Company and its subsidiaries that are subject to the
investigations have received from each of the Governmental Authorities verbal or
written assurances of conditional amnesty from prosecution and fines.
The Company and certain of its subsidiaries, together with other
companies, are defendants in certain U.S. federal direct purchaser and state
direct and indirect purchaser lawsuits principally alleging that the defendants
conspired to fix, raise, maintain, or stabilize prices for rubber chemicals,
EPDM, polychloroprene, plastic additives, including impact modifiers and
processing aids, nitrile rubber, and urethanes and urethane chemicals in
violation of federal and state law. In addition, two motions for authorization
to commence a class action were filed in May 2004 in Superior Court in Quebec,
Canada. One action is against the Company, one of the Company's Canadian
subsidiaries and other companies and was filed in the District of St. Francois,
and the other action is against the Company and other companies and was filed in
the District of Montreal. The motions were filed on behalf of persons and
entities that purchased rubber chemicals directly or indirectly from the parties
respondent during various periods commencing in July 1995. The Company and
certain of its officers and directors are also defendants in a consolidated
federal securities class action lawsuit principally alleging that the Company
and certain of its current and former officers and directors caused the
Company's shares to trade at artificially inflated prices by issuing false and
misleading statements that violated the federal securities laws by reporting
inflated profits resulting from an alleged illegal, undisclosed price-fixing
conspiracy. In addition, the Company and its board of directors are defendants
in a shareholder derivative lawsuit principally alleging that the directors
breached their fiduciary duties by causing the Company's shares to trade at
artificially inflated levels through the issuance of false and misleading
financial statements by inflating profits as a result of engaging in an illegal
price-fixing conspiracy with respect to rubber chemicals. These federal and
state actions are in early procedural stages of litigation and, accordingly, the
Company cannot predict their outcome. The Company will seek cost-effective
resolutions to the various pending and threatened legal proceedings and
governmental investigations regarding the Company's operations.
The Company's antitrust costs slightly increased from $4.1 million
(pre-tax) during the immediately prior fiscal quarter ended March 31, 2004 to
$4.4 million (pre-tax) for the fiscal quarter ended June 30, 2004. The Company
expects to continue to incur substantial costs until all antitrust
investigations are concluded and civil claims are resolved.
F-60
The Company has not recorded a charge for potential liabilities and
expenses in connection with the coordinated civil investigation by the EC or
with the civil claims, because it is not yet able to reasonably estimate a
reserve for such potential costs. The resolution of the coordinated civil
investigation by the EC and any civil claims now pending or hereafter asserted
against the Company or any of its subsidiaries could have a material adverse
effect on the Company's financial condition, results of operations and
prospects.
BUSINESS SEGMENT DATA
- ---------------------
The Company evaluates a segment's performance based on several factors,
of which the primary factor is operating profit (loss). In computing operating
profit (loss) by segment, the following items have not been deducted: (1)
general corporate expense; (2) amortization; (3) unabsorbed overhead expense
from discontinued operations; (4) facility closures, severance and related
costs; and (5) antitrust costs. These items have been excluded from the
Company's presentation of segment operating profit (loss) because they are not
reported to the chief operating decision maker for purposes of allocating
resources among reporting segments or assessing segment performance.
General corporate expense includes costs and expenses that are of a
general corporate nature or managed on a corporate basis, including amortization
expense. These costs are primarily for corporate administration services, costs
related to corporate headquarters and management compensation plan expenses
related to executives and corporate managers. Unabsorbed overhead expense from
discontinued operations represents corporate costs that were previously
allocated to the OrganoSilicones business unit (sold on July 31, 2003). Facility
closures, severance and related costs are costs related to the Company's cost
reduction initiatives that began in 2001 and 2003, the relocation of the
corporate headquarters that began in 2002 and severance and other related costs
for executives retiring under the 2004 reorganization. The antitrust costs are
primarily for fines and legal costs associated with antitrust investigations and
related civil lawsuits.
The GE Specialty Chemicals business that was acquired on July 31, 2003
has been added to the plastic additives business unit included in the Polymer
Additives reporting segment.
Second quarter ended Six months ended
(In thousands) ------------------------------- -------------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net Sales
Polymer Products
Polymer Additives ............................ $ 369,759 $ 294,562 $ 733,102 $ 596,136
Polymers ..................................... 83,183 70,282 164,395 138,465
Polymer Processing Equipment ................. 45,926 40,640 84,354 81,748
Eliminations ................................. (3,681) (3,523) (7,629) (7,176)
----------- ----------- ----------- -----------
495,187 401,961 974,222 809,173
----------- ----------- ----------- -----------
Specialty Products
Crop Protection .............................. 86,224 71,581 162,698 131,961
Refined Products ............................. 65,329 59,359 134,167 123,739
----------- ----------- ----------- -----------
151,553 130,940 296,865 255,700
----------- ----------- ----------- -----------
Total Net Sales ............................. $ 646,740 $ 532,901 $ 1,271,087 $ 1,064,873
=========== =========== =========== ===========
F-61
(In thousands) Second quarter ended Six months ended
- -------------- ------------------------- -------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Operating Profit (Loss)
Polymer Products
Polymer Additives ........................................ $ 7,897 $ 6,914 $ 16,845 $ 20,427
Polymers ................................................. 11,641 4,875 21,836 14,149
Polymer Processing Equipment ............................. 1,508 982 (256) 2,060
-------- -------- -------- --------
21,046 12,771 38,425 36,636
-------- -------- -------- --------
Specialty Products
Crop Protection .......................................... 21,329 14,203 49,770 33,854
Refined Products ......................................... 974 (605) (1,206) (157)
-------- -------- -------- --------
22,303 13,598 48,564 33,697
-------- -------- -------- --------
General corporate expense, including
amortization ............................................. (15,397) (6,172) (36,390) (21,381)
Unabsorbed overhead expense from
discontinued operations .................................. - (4,567) - (7,216)
Facility closures, severance and related costs .............. (3,278) (2,686) (5,689) (3,505)
Antitrust costs ............................................. (4,350) (12,386) (8,403) (20,875)
-------- -------- -------- --------
Total Operating Profit ................................. $ 20,324 $ 558 $ 36,507 $ 17,356
======== ======== ======== ========
F-62
GUARANTOR CONDENSED CONSOLIDATING FINANCIAL DATA
- ------------------------------------------------
The Company's 9 7/8% Senior Notes due 2012 and the Senior Floating Rate
Notes due 2010 (the "Senior Notes") are jointly and severally, fully and
unconditionally guaranteed by certain wholly-owned domestic subsidiaries of the
Company that guarantee the Company's new $220 million revolving credit facility
that was entered into in August 2004 (the "Guarantor Subsidiaries"). The
Company's subsidiaries that do not guarantee the Senior Notes are referred to as
the "Non-Guarantor Subsidiaries". The Guarantor Condensed Consolidating
Financial Data presented below presents the statements of operations, balance
sheets and statements of cash flow data (i) for Crompton Corporation (the
"Parent Company"), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries
on a consolidated basis (which is derived from Crompton Corporation's historical
reported financial information); (ii) for the Parent Company, alone (accounting
for its Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on an equity
basis under which the investments are recorded by each entity owning a portion
of another entity at cost, adjusted for the applicable share of the subsidiary's
cumulative results of operations, capital contributions and distributions, and
other equity changes); (iii) for the Guarantor Subsidiaries alone; and (iv) for
the Non-Guarantor Subsidiaries alone.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SECOND QUARTER ENDED JUNE 30, 2004
(In thousands)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ ------- ------------ ------------
Net sales .......................................... $ 646,740 $(153,767) $ 205,855 $ 236,257 $ 358,395
Cost of products sold .............................. 482,624 (153,767) 182,236 170,132 284,023
Selling, general and administrative ................ 92,179 -- 29,517 24,721 37,941
Depreciation and amortization ...................... 30,986 -- 10,348 9,941 10,697
Research and development ........................... 13,065 -- 2,453 5,373 5,239
Equity income ...................................... (66) -- (26) (40) --
Facility closures, severance and related costs ..... 3,278 -- 2,626 652 --
Antitrust costs .................................... 4,350 -- -- 4,350 --
--------- --------- --------- --------- ---------
Operating profit (loss) ............................ 20,324 -- (21,299) 21,128 20,495
Interest expense ................................... 17,162 -- 19,012 (2,135) 285
Other (income) expense, net ........................ 3,098 -- 898 8,088 (5,888)
Equity in net (earnings) loss of subsidiaries ...... -- 41,312 (26,187) (11,392) (3,733)
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes ................ 64 (41,312) (15,022) 26,567 29,831
Income tax expense (benefit) ....................... (1,020) -- (16,106) 5,986 9,100
--------- --------- --------- --------- ---------
Net earnings (loss) ................................ $ 1,084 $ (41,312) $ 1,084 $ 20,581 $ 20,731
========= ========= ========= ========= =========
F-63
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004
(In thousands)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ ----------- ------------ ------------
Net sales ............................ $ 1,271,087 $ (300,674) $ 408,929 $ 455,937 $ 706,895
Cost of products sold ................ 954,880 (300,674) 368,996 333,711 552,847
Selling, general and administrative .. 188,599 -- 55,003 54,638 78,958
Depreciation and amortization ........ 61,840 -- 24,930 15,466 21,444
Research and development ............. 24,862 -- 4,666 9,627 10,569
Equity income ........................ (9,693) -- (51) (7,485) (2,157)
Facility closures, severance and
related costs ...................... 5,689 -- 3,159 2,227 303
Antitrust costs ...................... 8,403 -- -- 8,403 --
----------- ----------- ----------- ----------- -----------
Operating profit (loss) .............. 36,507 -- (47,774) 39,350 44,931
Interest expense ..................... 35,087 -- 36,156 (1,435) 366
Other (income) expense, net .......... (89,812) -- 514 (63,249) (27,077)
Equity in net (earnings) loss of
subsidiaries -- 151,921 (104,753) (31,424) (15,744)
----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes .. 91,232 (151,921) 20,309 135,458 87,386
Income tax expense (benefit) ......... 29,195 -- (41,728) 48,491 22,432
----------- ----------- ----------- ----------- -----------
Net earnings (loss) .................. $ 62,037 $ (151,921) $ 62,037 $ 86,967 $ 64,954
=========== =========== =========== =========== ===========
F-64
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2004
(In thousands)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ ------------ ------------ ------------
ASSETS
Current assets ............................. $ 831,972 $ -- $ 211,078 $ 150,508 $ 470,386
Intercompany receivables ................... -- (7,794,006) 3,293,913 1,233,508 3,266,585
Investment in subsidiaries ................. -- (3,820,419) 847,860 1,175,039 1,797,520
Property, plant and equipment .............. 730,473 -- 278,910 175,891 275,672
Cost in excess of acquired net assets....... 417,263 -- 134,952 54,847 227,464
Other assets ............................... 476,523 -- 289,894 169,917 16,712
------------ ------------ ------------ ------------ ------------
Total assets .......................... $ 2,456,231 $(11,614,425) $ 5,056,607 $ 2,959,710 $ 6,054,339
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ........................ $ 968,644 $ -- $ 552,821 $ 194,421 $ 221,402
Intercompany payables ...................... -- (7,846,798) 4,227,166 1,153,814 2,465,818
Long-term debt ............................. 400,033 -- 400,033 -- --
Other long-term liabilities ................ 759,429 -- 333,292 253,455 172,682
------------ ------------ ------------ ------------ ------------
Total Liabilities ..................... 2,128,106 (7,846,798) 5,513,312 1,601,690 2,859,902
Stockholders' equity ....................... 328,125 (3,767,627) (456,705) 1,358,020 3,194,437
------------ ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity ................ $ 2,456,231 $(11,614,425) $ 5,056,607 $ 2,959,710 $ 6,054,339
============ ============ ============ ============ ============
F-65
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004
(In thousands)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ --------- ------------ -------------
Increase (decrease) in cash
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) .......................... $ 62,037 $(151,921) $ 62,037 $ 86,967 $ 64,954
Adjustments to reconcile net earnings
(loss) to net cash (used in) provided by
operations:
Gain on sale of Gustafson joint
venture ............................. (90,938) -- -- (72,707) (18,231)
Depreciation and amortization ............ 61,840 -- 24,930 15,466 21,444
Equity income ............................ (9,693) -- (51) (7,485) (2,157)
Changes in assets and liabilities, net ... (47,063) 151,921 (8,256) (116,980) (73,748)
--------- --------- --------- --------- ---------
Net cash (used in) provided by
operations ............................... (23,817) -- 78,660 (94,739) (7,738)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from divestments ................ 137,696 -- 16,074 100,542 21,080
Capital expenditures ......................... (29,495) -- (6,878) (11,169) (11,448)
Other investing activities ................... 309 -- 363 -- (54)
--------- --------- --------- --------- ---------
Net cash (used in) provided by investing
activities ................................. 108,510 -- 9,559 89,373 9,578
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on domestic credit facility ......... (57,000) -- (57,000) -- --
Proceeds from short-term borrowings .......... 574 -- -- -- 574
Dividends paid ............................... (11,455) -- (11,455) -- --
Other financing activities ................... (80) -- (80) -- --
--------- --------- --------- --------- ---------
Net cash used in financing activities ........ (67,961) -- (68,535) -- 574
--------- --------- --------- --------- ---------
CASH
Effect of exchange rates on cash ............. (767) -- -- -- (767)
--------- --------- --------- --------- ---------
Change in cash ............................... 15,965 -- 19,684 (5,366) 1,647
Cash at beginning of period .................. 39,213 -- 872 2,057 36,284
--------- --------- --------- --------- ---------
Cash at end of period ........................ $ 55,178 $ -- $ 20,556 $ (3,309) $ 37,931
========= ========= ========= ========= =========
F-66
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SECOND QUARTER ENDED JUNE 30, 2003
(In thousands)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ --------- ------------ -------------
Net sales ................................ $ 532,901 $(133,879) $ 151,709 $ 217,896 $ 297,175
Cost of products sold .................... 394,637 (133,879) 128,045 158,508 241,963
Selling, general and administrative ...... 84,757 -- 22,131 27,413 35,213
Depreciation and amortization ............ 27,379 -- 9,914 7,893 9,572
Research and development ................. 12,726 -- 2,862 4,695 5,169
Equity income ............................ (2,228) -- (4) (1,183) (1,041)
Facility closures, severance and
related costs .......................... 2,686 -- 2,862 208 (384)
Antitrust costs .......................... 12,386 -- -- 12,386 --
--------- --------- --------- --------- ---------
Operating profit (loss) .................. 558 -- (14,101) 7,976 6,683
Interest expense ......................... 25,559 -- 21,738 5,782 (1,961)
Other (income) expense, net .............. 3,827 -- 5,411 2,670 (4,254)
Equity in net (earnings) loss of
subsidiaries ........................... -- 15,113 (7,598) (6,407) (1,108)
--------- --------- --------- --------- ---------
Earnings (loss) from continuing operations
before income taxes ................... (28,828) (15,113) (33,652) 5,931 14,006
Income tax expense (benefit) ............. (9,426) -- (14,250) (175) 4,999
--------- --------- --------- --------- ---------
Earnings (loss) from continuing operations (19,402) (15,113) (19,402) 6,106 9,007
Earnings from discontinued operations .... 10,292 -- 1,971 -- 8,321
--------- --------- --------- --------- ---------
Net earnings (loss) ...................... $ (9,110) $ (15,113) $ (17,431) $ 6,106 $ 17,328
========= ========= ========= ========= =========
F-67
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003
(In thousands)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
----------- ----------- ----------- ----------- -----------
Net sales .................................. $ 1,064,873 $ (259,593) $ 310,161 $ 428,691 $ 585,614
Cost of products sold ...................... 779,595 (259,593) 257,734 309,005 472,449
Selling, general and administrative ........ 172,100 -- 58,764 49,932 63,404
Depreciation and amortization .............. 54,498 -- 19,701 15,414 19,383
Research and development ................... 24,786 -- 5,985 8,765 10,036
Equity income .............................. (7,842) -- (58) (4,875) (2,909)
Facility closures, severance and related
costs .................................... 3,505 -- 3,414 381 (290)
Antitrust costs ............................ 20,875 -- -- 20,875 --
----------- ----------- ----------- ----------- -----------
Operating profit (loss) .................... 17,356 -- (35,379) 29,194 23,541
Interest expense ........................... 52,274 -- 44,760 8,924 (1,410)
Other (income) expense, net ................ 4,040 -- 11,644 (3,810) (3,794)
Equity in net (earnings) loss of
subsidiaries ............................. -- 49,750 (33,022) (11,785) (4,943)
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before income taxes and cumulative effect
of accounting change .................... (38,958) (49,750) (58,761) 35,865 33,688
Income tax expense (benefit) ............... (12,838) -- (32,641) 8,611 11,192
----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
before cumulative effect of accounting
change................................... (26,120) (49,750) (26,120) 27,254 22,496
Earnings from discontinued operations ...... 23,257 -- 6,264 -- 16,993
Cumulative effect of accounting change ..... (401) -- (401) -- --
----------- ----------- ----------- ----------- -----------
Net earnings (loss) ........................ $ (3,264) $ (49,750) $ (20,257) $ 27,254 $ 39,489
=========== =========== =========== =========== ===========
F-68
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2003
(In thousands)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ ----------- ------------ ------------
ASSETS
Current assets .................................... $ 1,068,080 $ -- $ 297,498 $ 144,609 $ 625,973
Intercompany receivable ........................... -- (5,864,776) 3,140,628 347,783 2,376,365
Investment in subsidiaries ........................ -- (3,094,740) 351,123 1,138,479 1,605,138
Property, plant and equipment ..................... 705,158 -- 256,424 179,716 269,018
Cost in excess of acquired net assets ............. 586,115 -- 116,088 54,844 415,183
Other assets ...................................... 500,701 -- 246,334 191,580 62,787
----------- ----------- ----------- ----------- -----------
Total assets ................................. $ 2,860,054 $(8,959,516) $ 4,408,095 $ 2,057,011 $ 5,354,464
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ............................... $ 625,114 $ -- $ 207,738 $ 189,468 $ 227,908
Intercompany payables ............................. -- (5,912,278) 3,077,619 1,090,328 1,744,331
Long-term debt .................................... 1,286,709 -- 1,284,076 -- 2,633
Other long-term liabilities ....................... 693,401 -- 347,744 196,408 149,249
----------- ----------- ----------- ----------- -----------
Total liabilities ............................ 2,605,224 (5,912,278) 4,917,177 1,476,204 2,124,121
Stockholders' equity .............................. 254,830 (3,047,238) (509,082) 580,807 3,230,343
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity.... $ 2,860,054 $(8,959,516) $ 4,408,095 $ 2,057,011 $ 5,354,464
=========== =========== =========== =========== ===========
F-69
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003
(In thousands)
PARENT GUARANTOR NON-GUARANTOR
CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES
------------ ------------ --------- ------------ --------------
Increase (decrease) in cash
- ---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ............................... $ (3,264) $ (49,750) $ (20,257) $ 27,254 $ 39,489
Adjustments to reconcile net earnings (loss)
to net cash provided by operations:
Cumulative effect of accounting change,
net of tax................................. 401 -- 401 -- --
Depreciation and amortization ............... 72,407 -- 33,061 15,414 23,932
Equity income ............................... (7,842) -- (58) (4,875) (2,909)
Changes in assets and liabilities, net ...... (30,557) 49,750 (2,952) (25,690) (51,665)
--------- --------- --------- --------- ---------
Net cash provided by operations ................... 31,145 -- 10,195 12,103 8,847
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .............................. (32,721) -- (7,138) (10,435) (15,148)
Other investing activities ........................ (154) -- (154) -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities ............. (32,875) -- (7,292) (10,435) (15,148)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from domestic credit facility ............ 192,800 -- 192,800 -- --
Proceeds from short-term borrowings ............... 5,855 -- -- -- 5,855
(Payments) proceeds on long-term borrowings ....... (164,687) -- (165,000) -- 313
Dividends paid .................................... (11,433) -- (11,433) -- --
Common shares acquired ............................ (22,080) -- (22,080) -- --
Other financing activities ........................ 1,036 -- 1,071 -- (35)
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing activities 1,491 -- (4,642) -- 6,133
--------- --------- --------- --------- ---------
CASH
Effect of exchange rates on cash .................. 1,664 -- -- -- 1,664
--------- --------- --------- --------- ---------
Change in cash .................................... 1,425 -- (1,739) 1,668 1,496
Cash at beginning of period ....................... 16,941 -- (4,431) (2,984) 24,356
--------- --------- --------- --------- ---------
Cash at end of period ............................. $ 18,366 $ -- $ (6,170) $ (1,316) $ 25,852
========= ========= ========= ========= =========
F-70
OFFER TO EXCHANGE
$375,000,000 AGGREGATE PRINCIPAL AMOUNT OF
9 7/8% SENIOR NOTES DUE 2012
AND THE RELATED SUBSIDIARY GUARANTEES
AND
$225,000,000 AGGREGATE PRINCIPAL AMOUNT OF
SENIOR FLOATING RATE NOTES DUE 2010
AND THE RELATED SUBSIDIARY GUARANTEES
THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
FOR
OUTSTANDING 9 7/8% SENIOR NOTES DUE 2012
AND THE RELATED SUBSIDIARY GUARANTEES
AND
SENIOR FLOATING RATE NOTES DUE 2010
AND THE RELATED SUBSIDIARY GUARANTEES
OF
CROMPTON CORPORATION
Prospectus
Dated , 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Connecticut. Subsection (a) of Section 33-771 of the Connecticut
Business Corporation Act, or the CBCA, provides that a corporation may indemnify
an individual who is a party to a proceeding because he is a director against
liability incurred in the proceeding if: (1)(A) he conducted himself in good
faith; (B) he reasonably believed (i) in the case of conduct in his official
capacity, that his conduct was in the best interests of the corporation; and
(ii) in all other cases, that his conduct was at least not opposed to the best
interests of the corporation; and (C) in the case of any criminal proceeding, he
has no reasonable cause to believe his conduct was unlawful; or (2) he engaged
in conduct for which broader indemnification has been made permissible or
obligatory under a provision of the certificate of incorporation as authorized
by the CBCA. Subsection (b) of Section 33-771 of the CBCA provides that a
director's conduct with respect to an employee benefit plan for a purpose he
reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement that his
conduct was at least not opposed to the best interest of the corporation.
Subsection (c) of Section 33-771 of the CBCA provides that the termination of a
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent is not, of itself, determinative that the director
did not meet the relevant standard of conduct described in Section 33-771 of the
CBCA. Subsection (d) of Section 33-771 of the CBCA provides that, unless ordered
by a court, a corporation may not indemnify a director: (1) in connection with a
proceeding by or in the right of the corporation except for reasonable expenses
incurred in connection with the proceeding if it is determined that the director
has met the relevant standard of conduct under Section 33-771(a) of the CBCA; or
(2) in connection with any proceeding with respect to conduct for which he was
adjudged liable on the basis that he received a financial benefit to which he
was not entitled, whether or not involving action in his official capacity.
Section 33-772 of the CBCA provides that a corporation shall indemnify
a director of the corporation who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
was a director of the corporation, against reasonable expenses incurred by him
in connection with the proceeding.
Subsection (a) of Section 33-776 of the CBCA provides that a
corporation may indemnify an officer of the corporation who is a party to a
proceeding because he is an officer of the corporation (1) to the same extent as
a director, and (2) if he is an officer but not a director, to such further
extent, consistent with public policy, as may be provided by contract, the
certificate of incorporation, the bylaws or a resolution of the board of
directors. Subsection (c) of Section 33-776 of the CBCA provides that an officer
of the corporation who is not a director is entitled to mandatory
indemnification under Section 33-772 to the same extent to which a director may
be entitled to indemnification.
Article FIFTH of the Certificate of Incorporation of Naugatuck
Treatment Company provides that the corporation shall indemnify any and all
persons whom it has power to indemnify under Section 33-320 of the Stock
Corporation Act (predecessor to the CBCA), as amended and supplemented, against
any and all expenses, liabilities and other matters referred to in or covered by
this section.
Delaware. Under Section 145 of the Delaware General Corporation Law
("DGCL"), a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding (i)
if such person acted in good faith and in a manner that person reasonably
believed to be in or not opposed to the best interests of the corporation and
(ii) with respect to any criminal action or proceeding, if he or she had no
reasonable cause to believe such conduct was unlawful. In actions brought by or
in the right of the corporation, a corporation may indemnify such person against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner that person reasonable believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
that person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all circumstances of
the case, such person in fairly and reasonable entitled to indemnification for
such expenses which the Court of Chancery or other such court shall deem proper.
To the extent that such person has been successful on the merits or otherwise in
defending any such action, suit or proceeding referred to above or any claim,
issue or matter therein, he or she is entitled to indemnification for expenses
(including attorneys' fees) actually
and reasonable incurred by such person in connection therewith. The
indemnification and advancement of expenses provided for or granted pursuant to
Section 145 is not exclusive of any other rights of indemnification or
advancement of expenses to which those seeking indemnification or advancement of
expenses may be entitled, and a corporation may purchase and maintain insurance
against liabilities asserted against any former or current, director, officer,
employee or agent of the corporation, or a person who is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, whether or
not the power to indemnify is provided by the statute.
Article X of the Amended and Restated Certificate of Incorporation and
Article VI of the By-laws of Crompton Corporation provide for the
indemnification of directors and officers as authorized by Section 145 of the
DGCL. The directors and officers of Crompton Corporation and our subsidiaries
are insured (subject to certain exceptions and deductions) against liabilities
which they may incur in their capacity as such including liabilities under the
Securities Act, under liability insurance policies carried by us.
Article VI of the By-laws of Crompton Colors Corporation provide for
the indemnification of directors and officers to the maximum extent permitted by
the DGCL.
Article VI of the By-laws of Crompton Europe Financial Services Company
provide that the corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if he
acted in good faith and in a manner that person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if he or she had no reasonable cause to believe
such conduct was unlawful.
Article VI of the By-laws of Crompton Sales Company, Inc. provide for
the indemnification of directors and officers to the maximum extent permitted by
the DGCL.
Article VI of the By-laws of Uniroyal Chemical Company, Inc. provide
for the indemnification of directors and officers to the maximum extent
permitted by the DGCL.
Article VI of the By-laws of Uniroyal Chemical Export Limited provide
that the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if he
acted in good faith and in a manner that person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if he or she had no reasonable cause to believe
such conduct was unlawful.
Article VI of the By-laws of Uniroyal Chemical Leasing Company, Inc.
provide that the corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if he
acted in good faith and in a manner that person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if he or she had no reasonable cause to believe
such conduct was unlawful.
Paragraph 140 of the Articles of Association of Uniroyal Chemical
Company Limited (Delaware) provides for the indemnifications of directors,
managers, and other officers of the Company against all costs, losses, and
expenses which any such person may incur or become liable to by reason of any
contract entered into, or act or thing done by him in his capacity, or in any
way in the discharge of his duties, including traveling expenses. Paragraph 140
of the Articles of Association of Uniroyal Chemical Company Limited (Delaware)
provides that no Director or other officer of the Company shall be liable for
the acts, receipts, neglects or defaults of any other Director or officer or for
joining in any receipt of other act for
conformity or for any loss or expense happening to the Company through the
insufficiency or deficiency of title to any property acquired by order of the
Directors for or on behalf of the Company, or for the insufficiency or
deficiency of any security in or upon which any of the moneys of the Company
shall be invested, or for any loss or damage arising from the bankruptcy,
insolvency, or tortious act of any person with whom any money, securities, or
effects shall be deposited, or for any loss occasioned by an error of judgment,
omission, default or oversight on his art, or for any other loss, damage or
misfortune whatever which shall happen in the execution of his office or in
relation thereto, unless the same happen through his own dishonesty.
Neither the Certificate of Incorporation nor the By-laws of Crompton
Holding Corporation or of Davis-Standard Corporation contain provisions
regarding the indemnification of directors and officers.
Georgia. Subsection (a) of Section 14-2-851 of the Georgia Business
Corporation Code provides that a corporation may indemnify or obligate itself to
indemnify an individual made a party to a proceeding because he or she is or was
a director against liability incurred in the proceeding if: (1) such individual
conducted himself or herself in good faith; and (2) such individual reasonably
believed: (A) in the case of conduct in his or her official capacity, that such
conduct was in the best interests of the corporation; (B) in all other cases,
that such conduct was at least not opposed to the best interests of the
corporation; and (C) in the case of any criminal proceeding, that the individual
had no reasonable cause to believe such conduct was unlawful. Subsection (d) of
Section 14-2-851 of the Georgia Business Corporation Code provides that a
corporation may not indemnify a director: (1) in connection with a proceeding by
or in the right of the corporation, except for reasonable expenses incurred in
connection with the proceeding if it is determined that the director has met the
relevant standard of conduct; or (2) or in connection with any proceeding with
respect to conduct for which he or she was adjudged liable on the basis that
personal benefit was improperly received by him or her, whether or not involving
action in his or her official capacity. Notwithstanding the foregoing, pursuant
to Section 14-2-854, a court shall order a corporation to indemnify or give an
advance for expenses to a director if such court determines the director is
entitled to indemnification under Section 14-2-854 or if it determines that in
view of all relevant circumstances, it is fair and reasonable, even if the
director has not met the standard of conduct set forth in subsections (a) and
(b) of Section 14-2-851 of the Georgia Business Corporation Code or was adjudged
liable in a proceeding referred to in subsection (d) of Section 14-2-851 of the
Georgia Business Corporation Code.
Section 14-2-852 of the Georgia Business Corporation Code provides that
a corporation shall indemnify a director who was wholly successful, on the
merits or otherwise, in the defense of any proceeding to which the director was
a party because he or she was a director of the corporation against reasonable
expenses incurred by the director in connection with the proceeding.
Subsection (c) of Section 14-2-857 of the Georgia Business Corporation
Code provides that an officer of the corporation who is not a director is
entitled to mandatory indemnification under Section 14-2-852 and may apply to a
court under Section 14-2-854 for indemnification or advances for expenses, in
each case to the same extent to which a director may be entitled to
indemnification or advances for expenses under those provisions. In addition,
subsection (d) of Section 14-2-857 provides that a corporation may also
indemnify and advance expenses to an employee or agent who is not a director to
the extent, consistent with public policy, that may be provided by its articles
of incorporation, bylaws, action of its board of directors or contract.
Article VI of the Bylaws of Kem Manufacturing Corporation provides that
the corporation shall indemnify its currently acting and former directors and
officers to the maximum extent permitted by the provisions of Title 14 of the
Georgia Business Corporation Code.
Louisiana. Section 83A(1) of the Louisiana Business Corporation Law
permits corporations to indemnify any person who was or is a party or is
threatened to be made a party to any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, including any action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
business, foreign or nonprofit corporation, partnership, joint venture, or other
enterprise, against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 83A(2) provides that, in case of actions by or in the right of
the corporation, the indemnity shall be limited to expenses, including attorneys
fees and amounts paid in settlement not exceeding, in the judgment of the board
of directors, the estimated expense of litigating the action to conclusion,
actually and reasonably incurred in connection with the defense
or settlement of such action, and that no indemnification shall be made in
respect of any claim, issue, or matter as to which such person shall have been
adjudged by a court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable for willful or intentional misconduct in the performance
of his duty to the corporation, unless, and only to the extent that the court
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, he is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 83(B) provides that to the extent that a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in defense of any such action, suit or proceeding, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Any indemnification under Section 83A, unless ordered by the court,
shall be made by the corporation only as authorized in a specific case upon a
determination that the applicable standard of conduct has been met, and such
determination shall be made:
o by the board of directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit, or
proceeding, or
o if such a quorum is not obtainable and the board of directors so
directs, by independent legal counsel, or
o by the stockholders.
The indemnification provided for by Section 83 shall not be deemed
exclusive of any other rights to which the person indemnified is entitled under
any bylaw, agreement, authorization of stockholders or directors, regardless of
whether directors authorizing such indemnification are beneficiaries thereof, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of his heirs and legal representative; however, no such other
indemnification measure shall permit indemnification of any person for the
results of such person's willful or intentional misconduct.
Section 24 of the Louisiana Business Corporation Law provides that the
articles of incorporation of a corporation may contain a provision eliminating
or limiting the personal liability of a director or officer to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director or officer, provided that such provision shall not eliminate or limit
the liability of a director or officer:
o for any breach of the director's or officer's duty of loyalty to the
corporation or its stockholders.
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law.
o who knowingly or without the exercise of reasonable care and inquiry
votes in favor of a dividend paid in violation of Louisiana law, any
other unlawful distribution, payment or return of assets to be made
to the stockholders, or stock purchases or redemptions in violation
of Louisiana law.
o for any transaction from which the director or officer derived an
improper personal benefit.
Article V of the Articles of Incorporation of Crompton Monochem, Inc.
provides that, subject to several exceptions, officers and directors shall not
be liable to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director or officer. Additionally, the Articles of
Incorporation indemnify its directors and officers to the fullest extent
permitted by law against any expenses and costs, including attorney's fees, in
connection with any threatened, pending or completed claim, action, suit or
proceeding. Article VI of the Bylaws of Crompton Monochem, Inc. provides that
the corporation shall indemnify its currently acting and former directors and
officers to the maximum extent permitted by the provisions of the Louisiana
Business Corporation Law.
Section 1314 of the Louisiana Limited Liability Company Act provides
that members or managers of a limited liability company shall not be personally
liable to the limited liability company or its members for monetary damages
unless the member or manager acted in a grossly negligent manner, or engaged in
conduct which demonstrates a greater disregard of the duty of care than gross
negligence, including but not limited to intentional tortious conduct or
intentional breach of his duty of loyalty. Section 1315 of the Louisiana Limited
Liability Company Act provides that a limited liability company may
(1) Eliminate or limit the personal liability of a member or members, if
management is reserved to the members, or a manager or managers, if management
is vested in one or more managers, for monetary damages for breach of any duty,
and (2) Provide for indemnification of a member or members, or a manager or
managers, for judgments, settlements, penalties, fines, or expenses incurred
because he is or was a member or manager; provided that no limited liability
company shall limit or eliminate the liability of a member or manager for the
amount of a financial benefit received by a member or manager to which he is not
entitled or for an intentional violation of a criminal law.
Pursuant to Article 6 of the Articles of Organization of Weber City
Road LLC, the members of the company claim the benefits of limitation of
liability to the fullest extent allowed by law. Section 14.3 of the operating
agreement of Weber City Road LLC provides that the company may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was a director, officer, employee or agent of the company, or is or was serving
at the request of the company, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if he acted in
good faith and in a manner that person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if he or she had no reasonable cause to believe
such conduct was unlawful.
Neither the Articles of Incorporation nor the By-laws of Monochem, Inc.
contain provisions regarding the indemnification of directors and officers.
Minnesota. Section 302A.521 of the Minnesota Business Corporation Act
provides that a corporation shall indemnify any person who is made or is
threatened to be made a party to any proceeding by reason of the former or
present official capacity (as defined) of such person against judgments,
penalties, fines (including, without limitation, excise taxes assessed against
such person with respect to any employee benefit plan), settlements and
reasonable expenses, including attorneys' fees and disbursements, incurred by
such person in connection with the proceeding if, with respect to the acts or
omissions of such person complained of in the proceeding, such person (1) has
not been indemnified therefor by another organization or employee benefit plan;
(2) acted in good faith; (3) received no improper personal benefit and Section
302A.255 (with respect to director conflicts of interest), if applicable, has
been satisfied; (4) in the case of a criminal proceeding, had no reasonable
cause to believe the conduct was unlawful; and (5) reasonably believed that the
conduct was in the best interests of the corporation in the case of acts or
omissions in such person's official capacity for the corporation or reasonably
believed that the conduct was not opposed to the best interests of the
corporation in the case of acts or omissions in such person's official capacity
for other affiliated organizations. "Proceeding" means a threatened, pending or
completed civil, criminal, administrative, arbitration or investigative
proceeding, including one by or in the right of the corporation.
Section 4.02(j) of the Articles of Incorporation of GT Seed Treatment
Inc., as amended, provides for the indemnification of its officers and
directors, to the extent permitted by the laws of the State of Minnesota.
New Jersey. Subsection (2) of Section 3-5, Title 14A of the New Jersey
Business Corporation Act empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a corporate agent (i.e., a
director, officer, employee or agent of the corporation or a director, officer,
trustee, employee or agent of another related corporation or enterprise),
against reasonable costs (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal proceedings, had no
reasonable cause to believe that such conduct was unlawful.
Subsection (3) of Section 3-5 empowers a corporation to indemnify a
corporate agent against reasonable costs (including attorneys' fees) incurred by
him in connection with any proceeding by or in the right of the corporation to
procure a judgment in its favor which involves such corporate agent by reason of
the fact that he is or was a corporate agent if he acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect to any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Superior Court of New
Jersey or the court in which such action or suit was brought shall determine
that despite the adjudication of liability, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Subsection (4) of Section 3-5 provides that to the extent that a
corporate agent has been successful in the defense of any action, suit or
proceeding referred to in subsections (2) and (3) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) incurred by him in connection therewith; subsection
(8) of
Section 3-5 provides that indemnification provided for by Section 3-5 shall not
be deemed exclusive of any rights to which the indemnified party may be
entitled; and subsection (9) of Section 3-5 empowers a corporation to purchase
and maintain insurance on behalf of a director or officer of the corporation
against any liability asserted against him or expenses incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities and
expenses under Section 3-5.
Article FIFTH of the Certificate of Incorporation of Uniroyal Chemical
Company, Inc. (New Jersey) provides that the corporation shall have the power to
indemnify every corporate agent to the full extent permitted by Section 305, and
as otherwise permitted by law. Article IX of the By-Laws of Uniroyal Chemical
Company, Inc. (New Jersey) provides for the indemnification of each and every
individual who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was a director, officer, or employee of the corporation, or is or was serving at
the request of the corporation, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding to the full
extent permitted under New Jersey law.
Pennsylvania. Pursuant to Sections 1741-1743 of the Pennsylvania
Business Corporation Law (the "PBCL"), a corporation has the power to indemnify
its directors and officers against liabilities they may incur in such capacities
provided certain standards are met, including good faith and the belief that the
particular action is in, or not opposed to, the best interests of the
corporation and, with respect to a criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful. In general, this power to indemnify
does not exist in the case of actions against a director or officer by or in the
right of the corporation if the person entitled to indemnification will have
been adjudged to be liable to the corporation unless and to the extent that the
person is adjudged to be fairly and reasonably entitled to indemnity. A
corporation is required to indemnify directors and officers against expenses
they may incur in defending actions against them in such capacities if they are
successful on the merits or otherwise in the defense of such actions.
Section 1746 of the PBCL provides that the foregoing provisions shall
not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under, among other things, any by-law provision,
provided that no indemnification may be made in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness.
Article VI of the Bylaws of CNK Chemical Realty Corporation provides
that the corporation shall indemnify its currently acting and former directors
and officers to the maximum extent permitted by the provisions of the PBCL.
Texas. Article 2.02-1 of the Texas Business Corporation Act provides
that any director or officer of a Texas corporation may be indemnified against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by him in connection with or in defending any action, suit or
proceeding in which he was, is, or is threatened to be made a named defendant by
reason of his position as director or officer, provided that he conducted
himself in good faith and reasonably believed that, in the case of conduct in
his official capacity as a director or officer of the corporation, such conduct
was in the corporation's best interests; and, in all other cases, that such
conduct was at least not opposed to the corporation's best interests. In the
case of a criminal proceeding, a director or officer may be indemnified only if
he had no reasonable cause to believe his conduct was unlawful. If a director or
officer is wholly successful, on the merits or otherwise, in connection with
such a proceeding, such indemnification is mandatory.
Article VII of the Articles of Incorporation of GT Seed International
Inc. provides that the corporation shall indemnify (and insure, upon approval by
a majority of the directors) each person who was or is an officer, director,
employee or agent of the corporation, for amounts incurred in connection with an
action, suit or proceeding in connection with such person's position with the
corporation, to the fullest extent permitted by the Texas Business Corporation
Act and any other applicable law. Article VI of the Bylaws of GT Seed
International Company provides that the corporation shall indemnify its
currently acting and former directors and officers to the maximum extent
permitted by the provisions of the Texas Business Corporation Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit Incorporated by
Numbers Description Reference to
- ------- ----------- ------------
3.1a Amended and Restated Certificate of Incorporation of Crompton Corporation Exhibit 3(i)(a) to the Form 10-K for the
dated September 1, 1999 fiscal year ended December 31, 2001 (the
"2001 Form 10-K")
3.1b Certificate of Amendment of Amended and Restated Certificate of Exhibit 3(i)(b) to the 2001 Form 10-K
Incorporation of Crompton Corporation dated April 27, 2000
3.1c Certificate of Change of Location of Registered Office and of Registered Exhibit 3(i)(c) to the 2001 Form 10-K
Agent dated May 18, 2000
3.2 By-laws Exhibit 3(ii) to the 2001 Form 10-K
4.1 Rights Agreement dated as of September 2, 1999, by and between the Exhibit 4.1 to the Form 8-A dated
Registrant and ChaseMellon Shareholder Services, L.L.C., as Rights Agent September 28, 1999
4.2 Form of Indenture, dated as of February 1, 1993, by and between Witco and Post-Effective Amendment No. 2 to the
the Chase Manhattan Bank, N.A., as Trustee, relating to Witco's 6.60% Registration Statement on Form S-3,
Notes due 2003, 7.75% Debentures due 2023, 6 1/8% Notes due 2006 and 6 Registration No. 33-58066, filed March
7/8% Debentures due 2026, including form of securities (the "1993 19, 1993
Indenture")
4.3 Form of First Supplemental Indenture, dated February 1, 1996, by and among Registration Statement on Form S-3,
Witco, Chase Manhattan Bank, N.A., the Initial Trustee, and Fleet National Registration Number 33-065203, filed
Bank of Connecticut, the Note Trustee, to the 1993 Indenture, relating to January 25, 1996
Witco's 6 1/8% Notes due 2006 and 6 7/8% Notes due 2026
4.4 Second Supplemental Indenture, dated as of August 5, 2004, between Filed herewith
Crompton Corporation and U.S. Bank, National Association, to the 1993
Indenture
4.5 Indenture, dated as of August 16, 2004, among Crompton Corporation, the Filed herewith
Guarantors listed on Schedule A thereto, Wells Fargo Bank, National
Association, as trustee and Deutsche Bank Trust Company Americas as Note
Custodian, Paying Agent and Registrar, relating to the Company's 9 7/8%
Senior Notes due 2012
4.6 Indenture, dated as of August 16, 2004, among Crompton Corporation, the Filed herewith
Guarantors listed on Schedule A thereto, Wells Fargo Bank, National
Association, as trustee and Deutsche Bank Trust Company Americas as Note
Custodian, Paying Agent and Registrar, relating to the Company's Senior
Floating Rate Notes due 2010
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP To be filed by amendment
10.1 Supplemental Medical Reimbursement Plan Exhibit 10(n) to the Crompton & Knowles
Form 10-K for the fiscal year ended
December 27, 1980 (the "1980 Form
10-K")
10.2 Supplemental Dental Reimbursement Plan Exhibit 10(o) to the 1980 Form 10-K
10.3 Form of Employment Agreement dated as of July 29, 2002, by and between Exhibit 10.1 to the Form 10-Q for the
Crompton Corporation and various of its executive officers period ended September 30, 2002
(the "September 30, 2002 Form 10-Q")
10.4 Form of Employment Agreement dated as of August 21, 1996, between a Exhibit 10.28 to the Uniroyal Chemical
subsidiary of Crompton Corporation and three executive officers of Company Form 10-K for the fiscal year
Crompton Corporation ended September 28, 1996 (the "1996 Form
10-K")
10.5 Form of Supplemental Retirement Agreement dated as of August 21, 1996, Exhibit 10.30 to the 1996 Form 10-K
between a subsidiary of Crompton Corporation and two executive officers of
Crompton Corporation
10.6 Supplemental Retirement Agreement Trust Agreement dated October 20, 1993, Exhibit 10(I) to the Crompton & Knowles
between Crompton Corporation (as successor to Crompton & Knowles) and Form 10-K for the fiscal year ended
Shawmut Bank, N.A. December 25, 1993
10.7 Crompton Corporation Benefit Equalization Plan, amended as of April 30, Exhibit 10.2 to the Form 10-Q for the
2002 period ended March 31, 2002 (the "March
31, 2002 Form 10-Q")
10.8 Crompton Corporation Amended Benefit Equalization Plan, dated October 22, Exhibit 10.2 to the September 30, 2002
2002 Form 10-Q
10.9 Amended Benefit Equalization Plan Trust Agreement dated October 20, 1993, Exhibit 10(n) to the Crompton & Knowles
between Crompton Corporation (as successor to Crompton & Knowles) and Form 10-K for the fiscal year ended
Shawmut Bank, N.A. December 25, 1993
10.10 Amended Crompton Corporation 1988 Long Term Incentive Plan Exhibit 10.10 to the 2001 Form 10-K
10.11 Trust Agreement dated as of May 15, 1989, between Crompton Corporation (as Exhibit 10(w) to the Crompton & Knowles
successor to Crompton & Knowles) and Shawmut Worcester County Bank, N.A. Form 10-K for the fiscal year ended
and First Amendment thereto dated as of February 8, 1990 December 30, 1989
10.12 Restricted Stock Plan for Directors of Crompton Corporation (as successor Exhibit 10(z) to the Crompton & Knowles
to Crompton & Knowles) approved by the stockholders on April 9, 1991 Form 10-K for the fiscal year ended
December 28, 1991
10.13 Amended 1993 Stock Option Plan for Non-Employee Directors Exhibit 10.21 to the Crompton & Knowles
Form 10-K for the fiscal year ended
December 26, 1998 (the "1998 Form
10-K")
10.14 UCC Purchase Right Plan, as amended and restated as of March 16, 1995 Exhibit 10.1 to the Uniroyal Chemical
Company Form 10-Q for the period ended
April 2, 1995
10.15 Form of Amended and Restated 1996-1998 Long Term Performance Award Exhibit 10.27 to the Crompton & Knowles
Agreement entered into in 1996 between Crompton Corporation (as successor Form 10-K for the fiscal year ended
to Crompton & Knowles) or one of its subsidiaries and thirteen of the December 27, 1997
executive officers of Crompton & Knowles
10.16 Second Amended and Restated Lease Agreement between the Middlebury Exhibit 10 to the Uniroyal Chemical
Partnership, as Lessor, and Uniroyal, as Lessee, dated as of August 28, Company Form 10-Q for the quarter ended
1997 September 27, 1997
10.17 Form of Receivables Sale Agreement, dated as of December 11, 1998, by and Exhibit 10.291 to the 1998 Form 10-K
among Crompton Corporation (as successor to Crompton & Knowles), as
Initial Collection Agent, Crompton & Knowles Receivables Corporation, as
Seller, ABN AMRO Bank N.V., as Agent, the Enhancer, and the Liquidity
Provider, and Windmill Funding Corporation
10.18 Amended and Restated Receivables Sale Agreement, dated as of January 18, Exhibit 10.201 to the 2001 Form 10-K
2002, among Crompton & Knowles Receivables Corporation, as the Seller,
Crompton Corporation, as the Initial Collection Agent, ABN AMRO Bank N.V.,
as the Agent, certain liquidity providers, ABN AMRO Bank, N.V., as the
Enhancer, and Amsterdam Funding Corporation
10.19 First Amendment dated as of January 17, 2003, to the Amended and Restated Exhibit 10.202 to the Form 10-K for the
Receivables Sale Agreement, dated as of January 18, 2002, among Crompton & fiscal year ended December 31, 2002
Knowles Receivables Corporation, as the Seller, Crompton Corporation, as
the Initial Collection Agent, ABN AMRO Bank N.V., as the Agent, certain
liquidity providers, ABN AMRO Bank, N.V., as the Enhancer, and Amsterdam
Funding Corporation
10.20 Form of Receivables Purchase Agreement, dated as of December 11, 1998, by Exhibit 10.292 to the 1998 Form 10-K
and among Crompton & Knowles, as Initial Collection Agent, and certain of
its subsidiaries, as Sellers, Crompton & Knowles Receivables Corporation,
as Buyer, and ABN AMRO Bank N.V., as Agent
10.21 Amendment Number 1 dated as of December 9, 1999, to the Receivables Exhibit 10.265 to Form 10-K for the
Purchase Agreement, dated as of December 11, 1998, by and among Crompton fiscal year ended December 31, 2000 (the
Corporation (f/k/a/ CK Witco Corporation (as successor by merger to "2000 Form 10-K")
Crompton & Knowles)), as Initial Collection Agent, and certain of its
subsidiaries, as Sellers, Crompton & Knowles Receivables Corporation, as
Buyer, and ABN AMRO Bank N.V., as Agent
10.22 Amendment Number 2 dated as of November 20, 2000, to the Receivables Exhibit 10.266 to the 2000 Form 10-K
Purchase Agreement, dated as of December 11, 1998, by and among Crompton
Corporation (as successor to Crompton & Knowles), as Initial Collection
Agent, and certain of its subsidiaries, as Sellers, Crompton & Knowles
Receivables Corporation, as Buyer, and ABN AMRO Bank N.V., as Agent
10.23 Amendment Number 3 dated as of February 1, 2001, to the Receivables Exhibit 10.267 to the 2000 Form 10-K
Purchase Agreement dated as of December 11, 1998, by and among Crompton
Corporation (as successor to Crompton & Knowles), as Initial Collection
Agent, and certain of its subsidiaries, as Sellers, Crompton & Knowles
Receivables Corporation, as Buyer, and ABN AMRO Bank N.V., as Agent
10.24 Amendment Number 4 dated as of April 15, 2003, to the Receivables Purchase Exhibit 10.2 to the 10-Q for the quarter
Agreement dated as of December 11, 1998, by and among Crompton Corporation ended March 31, 2003 (the "March 31,
(as successor to Crompton & Knowles), as initial Collection Agent, and 2003 10-Q")
certain of its subsidiaries, as Sellers, Crompton & Knowles Receivables
Corporation, as Buyer, and ABN AMRO Bank N.V., as Agent
10.25 Letter Agreement dated as of January 18, 2002, to the Receivables Purchase Exhibit 10.206 to the 2001 Form 10-K
Agreement dated as of December 11, 1998, by an among Crompton Corporation
(as successor to Crompton & Knowles), as Initial Collection Agent, and
certain of its subsidiaries, as Sellers, Crompton & Knowles Receivables
Corporation, as Buyer, and Crompton Sales Company, Inc. and ABN AMRO Bank
N.V., as Agent
10.26 Letter Agreement dated as of April 15, 2003, to the Receivables Purchase Exhibit 10.3 to the March 31, 2003 10-Q
Agreement dated as of December 11, 1998, by and among Crompton Corporation
(as successor to Crompton & Knowles), as Initial Collection Agent, and
certain of its subsidiaries, as Sellers, Crompton & Knowles Receivables
Corporation, as Buyer, and Crompton Europe B.V., Crompton B.V. and ABN
AMRO Bank N.V. as Agent
10.27 Amended Crompton Corporation 1998 Long Term Incentive Plan Exhibit 10.21 to the 2001 Form 10-K
10.28 Amended and Restated Employment Agreement by and between Crompton Exhibit 10.1 to the Crompton & Knowles
Corporation (as successor to Crompton & Knowles) and Vincent A. Calarco Form 10-Q for the quarter ended June 26,
dated May 31, 1999 1999
10.29 Form of Merger Synergy Restricted Stock Agreement, dated as of October 19, Exhibit 10.32 to the 1999 Form 10-K
1999, by and between Crompton Corporation and various of its executive
officers
10.30 Form of Supplemental Retirement Agreement, dated as of October 21, 1999, Exhibit 10.35 to the 1999 Form 10-K
by and between Crompton Corporation and various of its executive officers
10.31 Form of 2001-2002 Long Term Incentive Award Agreement, dated as of January Exhibit 10 to the Form 10-Q for the
31, 2001, by and between Crompton Corporation and various of its executive quarter ended March 31, 2001
officers
10.32 Form of 2002-2004 Long-Term Incentive Award Agreement, dated as of March Exhibit 10.1 to the Form 10-Q for the
26, 2002, by and between Crompton Corporation and various of its executive quarter ended March 31, 2002
officers
10.33 Form of Amendment 2003-1 to the Supplemental Retirement Agreement dated Exhibit 10.27 to the 2003 Form 10-K
various dates in December 2003 by and between Crompton Corporation and
various of its executive officers
10.34 Employment Agreement by and between Crompton Corporation and Robert L. Exhibit 10.28 to the 2003 Form 10-K
Wood dated January 7, 2004
10.35 Form of 2004 Management Incentive Plan dated as of February 18, 2004 by Exhibit 10.29 to the 2003 Form 10-K
and between Crompton Corporation and various key management personnel
10.36 Form of 2004-2006 Long Term Incentive Award Agreement dated February 3, Exhibit 10.30 to the 2003 Form 10-K
2004 by and between Crompton Corporation and various of its executive
officers
10.37 Sixth Amendment dated as of April 15, 2004, to the Amended and Restated Exhibit 10.2 to the March 31, 2004 10-Q
Receivables Sale Agreement dated as of January 18, 2002, by and
among Crompton & Knowles Receivables Corporation, as Seller,
Crompton Corporation, as the Initial Collection Agent, and ABN
AMRO Bank, N.V., as Enhancer and Agent
10.38 Supplement No. 1 dated as of March 26, 2004, to the Security Agreement Exhibit 10.3 to the March 31, 2004 10-Q
dated as of December 21, 2001, among Crompton Corporation, various
subsidiaries of Crompton Corporation, and Citicorp USA, Inc., as
Collateral Agent
10.39 Separation Agreement dated April 27, 2004 by and between Crompton Exhibit 10.2 to the June 30, 2004 10-Q
Corporation and Vincent A. Calarco
10.40 Separation Agreement dated June 22, 2004 by and between Crompton Exhibit 10.3 to the June 30, 2004 10-Q
Corporation and Peter Barna
10.41 Consulting Agreement dated June 7, 2004 by and between Crompton Exhibit 10.4 to the June 30, 2004 10-Q
Corporation and Vincent A. Calarco
10.42 Change In Control Agreement dated as of September 13, 2004, between Exhibit 10.1 to the Form 8-K filed on
Crompton Corporation and each of Karen R. Osar, Myles S. Odaniell, Lynn A. September 15, 2004
Schefsky, and Gregory E. McDaniel
10.43 Credit Agreement, dated as of August 16, 2004, among Crompton Corporation, Filed herewith
a Delaware corporation, the Lenders from time to time party thereto,
Deutsche Bank AG, Cayman Islands Branch, as Deposit Bank, and Deutsche
Bank AG New York Branch, as Administrative Agent
10.44 Second Amended and Restated Receivables Sale Agreement, dated as of August Filed herewith
16, 2004, among Crompton & Knowles Receivables Corporation, as the Seller,
Crompton Corporation, as the Initial Collection Agent, ABN AMRO Bank N.V.,
as the Agent, the Liquidity Providers from time to time party thereto, and
Amsterdam Funding Corporation
10.45 Amendment Number 5 dated as of August 16, 2004, to the Receivables Filed herewith
Purchase Agreement dated as of December 11, 1998, by and among Crompton
Corporation (as successor to Crompton & Knowles), as initial Collection
Agent, and certain of its subsidiaries, as Sellers, Crompton & Knowles
Receivables Corporation, as Buyer, and ABN AMRO Bank N.V., as Agent
10.46 Registration Rights Agreement, dated as of August 16, 2004, among Crompton Filed herewith
Corporation, and the subsidiaries of Crompton Corporation listed on
Schedule I attached thereto, Deutsche Bank Securities Inc., Bank Of
America Securities LLC, Citigroup Global Markets Inc. And Credit Suisse
First Boston LLC as initial purchasers
10.47 Security Agreement, dated as of August 16, 2004, among Crompton Filed herewith
Corporation, certain of its subsidiaries from time to time party thereto
and Deutsche Bank AG New York Branch, as Collateral Agent
10.48 Pledge Agreement, dated as of August 16, 2004, among Crompton Corporation, Filed herewith
certain of its subsidiaries from time to time to time party thereto and
Deutsche Bank AG New York Branch, as Pledgee
10.49 Subsidiaries Guaranty, dated as of August 16, 2004, among certain Filed herewith
subsidiaries of Crompton Corporation and Deutsche Bank AG New York Branch,
as Administrative Agent
15 Accountants' acknowlegment Filed herewith
21 Subsidiaries of the registrant Exhibit 21 to the 2003 Form 10-K
23 Consent of KPMG LLP Filed herewith
25.1 Statement of Eligibility of Trustee regarding the 9 7/8% Senior Notes due Filed herewith
2012
25.2 Statement of Eligibility of Trustee regarding the Senior Floating Rate Filed herewith
Notes due 2010
99.1 Form of Letter to Clients Filed herewith
99.2 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Filed herewith
Other Nominees
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13 (a) or 15 (d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of
post- effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
CROMPTON CORPORATION
By: /s/ Robert L. Wood
------------------------
Name: Robert L. Wood
Title: President, Chief Executive Officer
and Chairman of the Board of Directors
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert L. Wood President, Chief Executive Officer and October 4, 2004
- -------------------------------------------- Chairman of the Board of Directors
Robert L. Wood (Principal Executive Officer)
/s/ Karen R. Osar
- -------------------------------------------- Executive Vice President and Chief October 4, 2004
Karen R. Osar Financial Officer
(Principal Financial Officer)
/s/ Robert A. Fox
- -------------------------------------------- Director October 4, 2004
Robert A. Fox
/s/ Roger L. Headrick
- -------------------------------------------- Co-Lead Director October 4, 2004
Roger L. Headrick
/s/ Leo I. Higdon, Jr.
- -------------------------------------------- Director October 4, 2004
Leo I. Higdon, Jr.
/s/ C.A. (Lance) Piccolo
- -------------------------------------------- Co-Lead Director October 4, 2004
C.A. (Lance) Piccolo
/s/ Bruce F. Wesson
- ------------------------------------------- Director October 4, 2004
Bruce F. Wesson
/s/ Patricia K. Woolf
- ------------------------------------------- Director October 4, 2004
Patricia K. Woolf
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
CNK CHEMICAL REALTY CORPORATION
CROMPTON COLORS INCORPORATED
GT SEED INTERNATIONAL COMPANY
UNIROYAL CHEMICAL EXPORT LIMITED
By: /s/ John R. Jepsen
-----------------------------------------
Name: John R. Jepsen
Title: Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Lynn A. Schefsky
- -------------------------------------------- President and Director October 4, 2004
Lynn A. Schefsky (Principal Executive Officer)
/s/ John R. Jepsen
- -------------------------------------------- Treasurer October 4, 2004
John R. Jepsen (Principal Financial Officer)
/s/ Karen R. Osar
- ------------------------------------------- Director October 4, 2004
Karen R. Osar
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
CROMPTON HOLDING CORPORATION
CROMPTON SALES COMPANY, INC.
By: /s/ John R. Jepsen
---------------------------------------
Name: John R. Jepsen
Title: Vice President and Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Lynn A. Schefsky
- ------------------------------------------ President and Director October 4, 2004
Lynn A. Schefsky (Principal Executive Officer)
/s/ John R. Jepsen
- ------------------------------------------ Vice President and Treasurer October 4, 2004
John R. Jepsen (Principal Financial Officer)
/s/ Karen R. Osar
- ------------------------------------------ Director October 4, 2004
Karen R. Osar
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
UNIROYAL CHEMICAL COMPANY, INC.
(DELAWARE)
UNIROYAL CHEMICAL COMPANY, INC.
(NEW JERSEY)
By: /s/ John R. Jepsen
-----------------------------------------
Name: John R. Jepsen
Title: Vice President and Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President October 4, 2004
/s/ Syl W. Turicchi
- ------------------------------------------ (Principal Executive Officer)
Syl W. Turicchi
/s/ John R. Jepsen
- ------------------------------------------ Vice President and Treasurer October 4, 2004
John R. Jepsen (Principal Financial Officer)
/s/ Karen R. Osar
- ------------------------------------------ Director October 4, 2004
Karen R. Osar
/s/ Lynn A. Schefsky
- ------------------------------------------ Director October 4, 2004
Lynn A. Schefsky
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
UNIROYAL CHEMICAL COMPANY LIMITED (DELAWARE)
By: /s/ John R. Jepsen
----------------------------------------
Name: John R. Jepsen
Title: Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President October 4, 2004
/s/ Syl W. Turicchi
- ------------------------------------------ (Principal Executive Officer)
Syl W. Turicchi
/s/ John R. Jepsen
- ------------------------------------------ Treasurer October 4, 2004
John R. Jepsen (Principal Financial Officer)
/s/ Karen R. Osar
- ------------------------------------------ Director October 4, 2004
Karen R. Osar
/s/ Lynn A. Schefsky
- ------------------------------------------ Director October 4, 2004
Lynn A. Schefsky
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
CROMPTON MONOCHEM, INC.
MONOCHEM, INC.
NAUGATUCK TREATMENT COMPANY
By: /s/ John R. Jepsen
------------------------------------
Name: John R. Jepsen
Title: Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President October 4, 2004
/s/ Frederick R. Sell
- ------------------------------------------ (Principal Executive Officer)
Frederick R. Sell
/s/ John R. Jepsen
- ------------------------------------------ Treasurer October 4, 2004
John R. Jepsen (Principal Financial Officer)
/s/ Karen R. Osar
- ------------------------------------------ Director October 4, 2004
Karen R. Osar
/s/ Lynn A. Schefsky
- ------------------------------------------ Director October 4, 2004
Lynn A. Schefsky
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
DAVIS-STANDARD CORPORATION
By: /s/ John R. Jepsen
------------------------------------
Name: John R. Jepsen
Title: Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President October 4, 2004
/s/ Robert W. Ackley
- ------------------------------------------ (Principal Executive Officer)
Robert W. Ackley
/s/ John R. Jepsen
- ------------------------------------------ Treasurer October 4, 2004
John R. Jepsen (Principal Financial Officer)
/s/ Karen R. Osar
- ------------------------------------------ Director October 4, 2004
Karen R. Osar
/s/ Lynn A. Schefsky
- ------------------------------------------ Director October 4, 2004
Lynn A. Schefsky
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
KEM MANUFACTURING CORPORATION
By: /s/ John R. Jepsen
-------------------------------------
Name: John R. Jepsen
Title: Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President and Director October 4, 2004
/s/ Lynn A. Schefsky
- ------------------------------------------ (Principal Executive Officer)
Lynn A. Schefsky
/s/ John R. Jepsen
- ------------------------------------------ Treasurer October 4, 2004
John R. Jepsen (Principal Financial Officer)
/s/ Karen R. Osar
- ------------------------------------------ Director October 4, 2004
Karen R. Osar
/s/ Arthur C. Fullerton
- ------------------------------------------ Director October 4, 2004
Arthur C. Fullerton
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
CROMPTON EUROPE FINANCIAL SERVICES COMPANY
By: /s/ John R. Jepsen
---------------------------------------
Name: John R. Jepsen
Title: Vice President and Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President and Director October 4, 2004
/s/ Karen R. Osar
- ------------------------------------------ (Principal Executive Officer)
Karen R. Osar
/s/ John R. Jepsen
- ------------------------------------------ Vice President and Treasurer October 4, 2004
John R. Jepsen (Principal Financial Officer)
/s/ Lynn A. Schefsky
- ------------------------------------------ October 4, 2004
Lynn A. Schefsky Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
UNIROYAL CHEMICAL LEASING COMPANY, INC.
By: /s/ John R. Jepsen
-----------------------------------------
Name: John R. Jepsen
Title: President and Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John R. Jepsen President and Treasurer October 4, 2004
- ------------------------------------------ (Principal Executive Officer and
John R. Jepsen Principal Financial Officer)
/s/ Karen R. Osar
- ------------------------------------------ Vice President and Director October 4, 2004
Karen R. Osar
/s/ Lynn A. Schefsky
- ------------------------------------------ Director October 4 , 2004
Lynn A. Schefsky
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middlebury, State of
Connecticut, on October 4, 2004.
WEBER CITY ROAD LLC
By: /s/ John R. Jepsen
---------------------------------
Name: John R. Jepsen
Title: Treasurer
Each person whose signature appears below hereby constitutes and appoints John
R. Jepsen his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all (1) amendments (including
post-effective amendments) and additions to this Registration Statement and (2)
Registration Statements, and any and all amendments thereto (including
post-effective amendments), relating to the offering contemplated pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President October 4, 2004
/s/ Syl W. Turicchi
- ------------------------------------------ (Principal Executive Officer)
Syl W. Turicchi
/s/ John R. Jepsen
- ------------------------------------------ Treasurer October 4, 2004
John R. Jepsen (Principal Financial Officer)
/s/ Arthur C. Fullerton
- ------------------------------------------ Secretary, Uniroyal Chemical Company Inc. October 4, 2004
Arthur C. Fullerton (Sole Member)
EXHIBIT INDEX
Exhibit Incorporation by
Numbers Description Reference to
- --------- ----------------------------------------------------------- --------------------------------------
3.1a Amended and Restated Certificate of Incorporation of Exhibit 3(i)(a) to the Form 10-K
Crompton Corporation dated September 1, 1999 for the fiscal year ended December
31, 2001 (the "2001 Form 10-K")
3.1b Certificate of Amendment of Amended and Restated Certificate Exhibit 3(i)(b) to the 2001 Form
of Incorporation of Crompton Corporation dated April 27, 2000 10-K
3.1c Certificate of Change of Location of Registered Office and Exhibit 3(i)(c) to the 2001 Form
of Registered Agent dated May 18, 2000 10-K
3.2 By-laws Exhibit 3(ii) to the 2001 Form 10-K
4.1 Rights Agreement dated as of September 2, 1999, by and Exhibit 4.1 to the Form 8-A dated
between the Registrant and ChaseMellon Shareholder Services, September 28, 1999
L.L.C., as Rights Agent
4.2 Form of Indenture, dated as of February 1, 1993, by and Post-Effective Amendment No. 2 to
between Witco and the Chase Manhattan Bank, N.A., as the Registration Statement on Form
Trustee, relating to Witco's 6.60% Notes due 2003, 7.75% S-3, Registration No. 33-58066,
Debentures due 2023, 6 1/8% Notes due 2006 and 6 7/8% filed March 19, 1993
Debentures due 2026, including form of securities (the "1993
Indenture")
4.3 Form of First Supplemental Indenture, dated February 1, Registration Statement on Form S-3,
1996, by and among Witco, Chase Manhattan Bank, N.A., the Registration Number 33-065203,
Initial Trustee, and Fleet National Bank of Connecticut, the filed January 25, 1996
Note Trustee, to the 1993 Indenture, relating to Witco's 6
1/8% Notes due 2006 and 6 7/8% Notes due 2026
4.4 Second Supplemental Indenture, dated as of August 5, Filed herewith
2004, between Crompton Corporation and U.S. Bank, National
Association, to the 1993 Indenture
4.5 Indenture, dated as of August 16, 2004, among Crompton Filed herewith
Corporation, the Guarantors listed on Schedule A thereto,
Wells Fargo Bank, National Association, as trustee and
Deutsche Bank Trust Company Americas as Note Custodian,
Paying Agent and Registrar, relating to the Company's 9 7/8%
Senior Notes due 2012
4.6 Indenture, dated as of August 16, 2004, among Crompton Filed herewith
Corporation, the Guarantors listed on Schedule A thereto,
Wells Fargo Bank, National Association, as trustee and
Deutsche Bank Trust Company Americas as Note Custodian,
Paying Agent and Registrar, relating to the Company's Senior
Floating Rate Notes due 2010
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP To be filed by amendment
10.1 Supplemental Medical Reimbursement Plan Exhibit 10(n) to the Crompton &
Knowles Form 10-K for the
fiscal year ended December 27, 1980
(the "1980 Form 10-K"))
10.2 Supplemental Dental Reimbursement Plan Exhibit 10(o) to the 1980 Form 10-K
10.3 Form of Employment Agreement dated as of July 29, 2002, by Exhibit 10.1 to the Form 10-Q for
and between Crompton Corporation and various of its the period ended September 30, 2002
executive officers (the "September 30, 2002 Form 10-Q")
Exhibit Incorporation by
Numbers Description Reference to
- --------- ----------------------------------------------------------- --------------------------------------
10.4 Form of Employment Agreement dated as of August 21, 1996, Exhibit 10.28 to the Uniroyal
between a subsidiary of Crompton Corporation and three Chemical Company Form 10-K for the
executive officers of Crompton Corporation fiscal year ended September 28,
1996 (the "1996 Form 10-K")
10.5 Form of Supplemental Retirement Agreement dated as of August Exhibit 10.30 to the 1996 Form 10-K
21, 1996, between a subsidiary of Crompton Corporation and
two executive officers of Crompton Corporation
10.6 Supplemental Retirement Agreement Trust Agreement dated Exhibit 10(I) to the Crompton &
October 20, 1993, between Crompton Corporation (as successor Knowles Form 10-K for the fiscal
to Crompton & Knowles) and Shawmut Bank, N.A. year ended December 25, 1993
10.7 Crompton Corporation Benefit Equalization Plan, amended as Exhibit 10.2 to the Form 10-Q for
of April 30, 2002 the period ended March 31, 2002
(the "March 31, 2002 Form 10-Q")
10.8 Crompton Corporation Amended Benefit Equalization Plan, Exhibit 10.2 to the September 30,
dated October 22, 2002 2002 Form 10-Q
10.9 Amended Benefit Equalization Plan Trust Agreement dated Exhibit 10(n) to the Crompton &
October 20, 1993, between Crompton Corporation (as successor Knowles Form 10-K for the fiscal
to Crompton & Knowles) and Shawmut Bank, N.A. year ended December 25, 1993
10.10 Amended Crompton Corporation 1988 Long Term Incentive Plan Exhibit 10.10 to the 2001 Form 10-K
10.11 Trust Agreement dated as of May 15, 1989, between Crompton Exhibit 10(w) to the Crompton &
Corporation (as successor to Crompton & Knowles) and Knowles Form 10-K for the fiscal
Shawmut Worcester County Bank, N.A. and First Amendment year ended December 30, 1989
thereto dated as of February 8, 1990
10.12 Restricted Stock Plan for Directors of Crompton Corporation Exhibit 10(z) to the Crompton &
(as successor to Crompton & Knowles) approved by the Knowles Form 10-K for the fiscal
stockholders on April 9, 1991 year ended December 28, 1991
10.13 Amended 1993 Stock Option Plan for Non-Employee Directors Exhibit 10.21 to the Crompton &
Knowles Form 10-K for the fiscal
year ended December 26, 1998 (the
"1998 Form 10-K"))
10.14 UCC Purchase Right Plan, as amended and restated as of March Exhibit 10.1 to the Uniroyal
16, 1995 Chemical Company Form 10-Q for the
period ended April 2, 1995
10.15 Form of Amended and Restated 1996-1998 Long Term Performance Exhibit 10.27 to the Crompton &
Award Agreement entered into in 1996 between Crompton Knowles Form 10-K for the fiscal
Corporation (as successor to Crompton & Knowles) or one of year ended December 27, 1997
its subsidiaries and thirteen of the executive officers of
Crompton & Knowles
10.16 Second Amended and Restated Lease Agreement between the Exhibit 10 to the Uniroyal Chemical
Middlebury Partnership, as Lessor, and Uniroyal, as Lessee, Company Form 10-Q for the quarter
dated as of August 28, 1997 ended September 27, 1997
10.17 Form of Receivables Sale Agreement, dated as of December 11, Exhibit 10.291 to the 1998 Form 10-K
1998, by and among Crompton Corporation (as successor to
Crompton & Knowles), as Initial Collection Agent, Crompton &
Knowles Receivables Corporation, as Seller, ABN AMRO Bank
N.V., as Agent, the Enhancer, and the Liquidity Provider,
and Windmill Funding Corporation
10.18 Amended and Restated Receivables Sale Agreement, dated as of Exhibit 10.201 to the 2001 Form 10-K
January 18, 2002, among Crompton & Knowles Receivables
Corporation, as the Seller, Crompton Corporation, as the
Initial Collection Agent, ABN AMRO Bank N.V., as the Agent,
certain liquidity providers, ABN AMRO Bank, N.V., as the
Enhancer, and Amsterdam Funding Corporation
Exhibit Incorporation by
Numbers Description Reference to
- --------- ----------------------------------------------------------- --------------------------------------
10.19 First Amendment dated as of January 17, 2003, to the Amended Exhibit 10.202 to the Form 10-K for
and Restated Receivables Sale Agreement, dated as of January the fiscal year ended December 31,
18, 2002, among Crompton & Knowles Receivables Corporation, 2002
as the Seller, Crompton Corporation, as the Initial
Collection Agent, ABN AMRO Bank N.V., as the Agent, certain
liquidity providers, ABN AMRO Bank, N.V., as the Enhancer,
and Amsterdam Funding Corporation
10.20 Form of Receivables Purchase Agreement, dated as of December Exhibit 10.292 to the 1998 Form 10-K
11, 1998, by and among Crompton & Knowles, as Initial
Collection Agent, and certain of its subsidiaries, as
Sellers, Crompton & Knowles Receivables Corporation, as
Buyer, and ABN AMRO Bank N.V., as Agent
10.21 Amendment Number 1 dated as of December 9, 1999, to the Exhibit 10.265 to Form 10-K for the
Receivables Purchase Agreement, dated as of December 11, fiscal year ended December 31, 2000
1998, by and among Crompton Corporation (f/k/a/ CK Witco (the "2000 Form 10-K")
Corporation (as successor by merger to Crompton & Knowles)),
as Initial Collection Agent, and certain of its
subsidiaries, as Sellers, Crompton & Knowles Receivables
Corporation, as Buyer, and ABN AMRO Bank N.V., as Agent
10.22 Amendment Number 2 dated as of November 20, 2000, to the Exhibit 10.266 to the 2000 Form 10-K
Receivables Purchase Agreement, dated as of December 11,
1998, by and among Crompton Corporation (as successor to
Crompton & Knowles), as Initial Collection Agent, and
certain of its subsidiaries, as Sellers, Crompton & Knowles
Receivables Corporation, as Buyer, and ABN AMRO Bank N.V.,
as Agent
10.23 Amendment Number 3 dated as of February 1, 2001, to the Exhibit 10.267 to the 2000 Form 10-K
Receivables Purchase Agreement dated as of December 11,
1998, by and among Crompton Corporation (as successor to
Crompton & Knowles), as Initial Collection Agent, and
certain of its subsidiaries, as Sellers, Crompton & Knowles
Receivables Corporation, as Buyer, and ABN AMRO Bank N.V.,
as Agent
10.24 Amendment Number 4 dated as of April 15, 2003, to the Exhibit 10.2 to the 10-Q for the
Receivables Purchase Agreement dated as of December 11, quarter ended March 31, 2003 (the
1998, by and among Crompton Corporation (as successor to "March 31, 2003 10-Q")
Crompton & Knowles), as initial Collection Agent, and
certain of its subsidiaries, as Sellers, Crompton & Knowles
Receivables Corporation, as Buyer, and ABN AMRO Bank N.V.,
as Agent
10.25 Letter Agreement dated as of January 18, 2002, to the Exhibit 10.206 to the 2001 Form 10-K
Receivables Purchase Agreement dated as of December 11,
1998, by an among Crompton Corporation (as successor to
Crompton & Knowles), as Initial Collection Agent, and
certain of its subsidiaries, as Sellers, Crompton & Knowles
Receivables Corporation, as Buyer, and Crompton Sales
Company, Inc. and ABN AMRO Bank N.V., as Agent
Exhibit Incorporation by
Numbers Description Reference to
- --------- ----------------------------------------------------------- --------------------------------------
10.26 Letter Agreement dated as of April 15, 2003, to the Exhibit 10.3 to the March 31, 2003
Receivables Purchase Agreement dated as of December 11, 10-Q
1998, by and among Crompton Corporation (as successor to
Crompton & Knowles), as Initial Collection Agent, and
certain of its subsidiaries, as Sellers, Crompton & Knowles
Receivables Corporation, as Buyer, and Crompton Europe B.V.,
Crompton B.V. and ABN AMRO Bank N.V. as Agent
10.27 Amended Crompton Corporation 1998 Long Term Incentive Plan Exhibit 10.21 to the 2001 Form 10-K
10.28 Amended and Restated Employment Agreement by and between Exhibit 10.1 to the Crompton &
Crompton Corporation (as successor to Crompton & Knowles) Knowles Form 10-Q for the quarter
and Vincent A. Calarco dated May 31, 1999 ended June 26, 1999
10.29 Form of Merger Synergy Restricted Stock Agreement, dated as Exhibit 10.32 to the 1999 Form 10-K
of October 19, 1999, by and between Crompton Corporation and
various of its executive officers
10.30 Form of Supplemental Retirement Agreement, dated as of Exhibit 10.35 to the 1999 Form 10-K
October 21, 1999, by and between Crompton Corporation and
various of its executive officers
10.31 Form of 2001-2002 Long Term Incentive Award Agreement, dated Exhibit 10 to the Form 10-Q for the
as of January 31, 2001, by and between Crompton Corporation quarter ended March 31, 2001
and various of its executive officers
10.32 Form of 2002-2004 Long-Term Incentive Award Agreement, dated Exhibit 10.1 to the Form 10-Q for
as of March 26, 2002, by and between Crompton Corporation the quarter ended March 31, 2002
and various of its executive officers
10.33 Form of Amendment 2003-1 to the Supplemental Retirement Exhibit 10.27 to the 2003 Form 10-K
Agreement dated various dates in December 2003 by and
between Crompton Corporation and various of its
executive officers
10.34 Employment Agreement by and between Crompton Corporation and Exhibit 10.28 to the 2003 Form 10-K
Robert L. Wood dated January 7, 2004
10.35 Form of 2004 Management Incentive Plan dated as of February Exhibit 10.29 to the 2003 Form 10-K
18, 2004 by and between Crompton Corporation and various key
management personnel
10.36 Form of 2004-2006 Long Term Incentive Award Agreement dated Exhibit 10.30 to the 2003 Form 10-K
February 3, 2004 by and between Crompton Corporation and
various of its executive officers
10.37 Sixth Amendment dated as of April 15, 2004, to the Amended Exhibit 10.2 to the March 31, 2004
and Restated Receivables Sale Agreement dated as of January 10-Q
18, 2002, by and among Crompton & Knowles Receivables
Corporation, as Seller, Crompton Corporation, as the Initial
Collection Agent, and ABN AMRO Bank, N.V., as Enhancer and
Agent
10.38 Supplement No. 1 dated as of March 26, 2004, to the Security Exhibit 10.3 to the March 31, 2004
Agreement dated as of December 21, 2001, among Crompton 10-Q
Corporation, various subsidiaries of Crompton Corporation,
and Citicorp USA, Inc., as Collateral Agent
10.39 Separation Agreement dated April 27, 2004 by and between Exhibit 10.2 to the June 30, 2004
Crompton Corporation and Vincent A. Calarco 10-Q
10.40 Separation Agreement dated June 22, 2004 by and between Exhibit 10.3 to the June 30, 2004
Crompton Corporation and Peter Barna 10-Q
10.41 Consulting Agreement dated June 7, 2004 by and between Exhibit 10.4 to the June 30, 2004
Crompton Corporation and Vincent A. Calarco 10-Q
Exhibit Incorporation by
Numbers Description Reference to
- --------- ----------------------------------------------------------- --------------------------------------
10.42 Change In Control Agreement dated as of September 13, 2004, Exhibit 10.1 to the Form 8-K filed
between Crompton Corporation and each of Karen R. Osar, on September 15, 2004
Myles S. Odaniell, Lynn A. Schefsky, and Gregory E. McDaniel
10.43 Credit Agreement, dated as of August 16, 2004, among Filed herewith
Crompton Corporation, a Delaware corporation, the Lenders
from time to time party thereto, Deutsche Bank AG, Cayman
Islands Branch, as Deposit Bank, and Deutsche Bank AG New
York Branch, as Administrative Agent
10.44 Second Amended and Restated Receivables Sale Agreement, Filed herewith
dated as of August 16, 2004, among Crompton & Knowles
Receivables Corporation, as the Seller, Crompton
Corporation, as the Initial Collection Agent, ABN AMRO Bank
N.V., as the Agent, the Liquidity Providers from time to
time party thereto, and Amsterdam Funding Corporation
10.45 Amendment Number 5 dated as of August 16, 2004, to the Filed herewith
Receivables Purchase Agreement dated as of December 11,
1998, by and among Crompton Corporation (as successor to
Crompton & Knowles), as initial Collection Agent, and
certain of its subsidiaries, as Sellers, Crompton & Knowles
Receivables Corporation, as Buyer, and ABN AMRO Bank N.V.,
as Agent
10.46 Registration Rights Agreement, dated as of August 16, 2004, Filed herewith
among Crompton Corporation, and the subsidiaries of Crompton
Corporation listed on Schedule I attached thereto, Deutsche
Bank Securities Inc., Bank Of America Securities LLC,
Citigroup Global Markets Inc. And Credit Suisse First Boston
LLC as initial purchasers
10.47 Security Agreement, dated as of August 16, 2004, among Filed herewith
Crompton Corporation, certain of its subsidiaries from time
to time party thereto and Deutsche Bank AG New York Branch,
as Collateral Agent
10.48 Pledge Agreement, dated as of August 16, 2004, among Filed herewith
Crompton Corporation, certain of its subsidiaries from time
to time to time party thereto and Deutsche Bank AG New York
Branch, as Pledgee
10.49 Subsidiaries Guaranty, dated as of August 16, 2004, among Filed herewith
certain subsidiaries of Crompton Corporation and Deutsche
Bank AG New York Branch, as Administrative Agent
15 Accountants' acknowlegment Filed herewith
21 Subsidiaries of the registrant Exhibit 21 to the 2003 Form 10-K
23 Consent of KPMG LLP Filed herewith
25.1 Statement of Eligibility of Trustee regarding the 9 7/8% Filed herewith
Senior Notes due 2012
25.2 Statement of Eligibility of Trustee regarding the Senior Filed herewith
Floating Rate Notes due 2010
99.1 Form of Letter to Clients Filed herewith
99.2 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Filed herewith
Companies and Other Nominees