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PROSPECTUS
OCTOBER 6, 1998
OFFER TO EXCHANGE
$219,893,171 OF 10 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
[LOGO]
(INCLUDING $44,893,171 OF ADDITIONAL NOTES)
FOR ALL OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2008
GREAT LAKES CARBON CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON NOVEMBER 3, 1998, UNLESS EXTENDED.
Great Lakes Carbon Corporation (the "Company") hereby offers the holders
(the "Holders") of its issued and outstanding 10 1/4% Senior Subordinated Notes
due 2008 (the "Old Notes"), upon the terms and subject to the conditions set
forth in this prospectus (this "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal," which together with this Prospectus
constitute the "Exchange Offer"), to exchange an aggregate principal amount at
maturity of up to $219,893,171 (including $44,893,171 of Additional Notes (as
defined)) of its 10 1/4% Series B Senior Subordinated Notes due 2008 (the "New
Notes" and, together with the Old Notes, the "Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount at maturity of its Old Notes. The Company is the
surviving corporation of a merger (the "Merger") between Great Lakes Merger Sub
Corp. ("Merger Sub"), a wholly owned subsidiary of Great Lakes Acquisition Corp.
("Holdings"), which was formed by American Industrial Partners Capital Fund II,
L.P. ("AIP"), and the Company. The terms of the New Notes are identical in all
material respects to the Old Notes except (i) that the New Notes have been
registered under the Securities Act, (ii) for certain transfer restrictions and
registration rights relating to the Old Notes and (iii) that the New Notes will
not contain certain provisions relating to Liquidated Damages (as defined) to be
paid to the Holders of Old Notes under certain circumstances relating to the
timing of the Exchange Offer and other registration requirements. The Company
issued $175,000,000 aggregate principal amount of Old Notes on May 22, 1998
pursuant to exemptions from, or transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws (the
"Offering").
Concurrent with the Exchange Offer, Holdings will offer (the "Holdings
Exchange Offer") the holders of its issued and outstanding 13 1/8% Senior
Discount Debentures due 2009 (the "Old Holdings Debentures") upon the terms and
subject to the conditions set forth in a prospectus and the accompanying Letter
of Transmittal to exchange an aggregate principal amount at maturity of up to
$56,600,000 of its 13 1/8% Series B Senior Discount Debentures due 2009 (the
"New Holdings Debentures" and, together with the Old Holdings Debentures, the
"Holdings Debentures"), which have been registered under the Securities Act, for
a like principal amount at maturity of the Old Holdings Debentures.
Interest on the Old Notes are and the New Notes will be payable in cash
semiannually, in arrears, on May 15 and November 15 of each year, commencing on
November 15, 1998. For interest payments due through May 15, 2003, the Company
may, at its option, make up to four semiannual interest payments through the
issuance of Additional Notes in an aggregate principal amount equal to up to
$41,893,171, which is the amount of the interest that would be payable if the
rate per annum were equal to 11 3/4% (provided, that incremental amounts of less
than $1,000 shall be payable in cash). Additional Notes shall have the same
terms as the Notes and all references to Notes herein shall include the
Additional Notes. For each Old Note accepted for exchange, the Holder of such
Old Note will receive a New Note having a principal amount equal to that of the
surrendered Old Note. The New Notes will bear interest from the most recent date
to which interest has been paid on the Old Notes or, if no interest has been
paid on the Old Notes, from May 22, 1998. Old Notes accepted for exchange will
cease to accrue interest from and after the date of consummation of the Exchange
Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not
receive any payment in respect of accrued interest on such Old Notes. Old Notes
not accepted for exchange will continue to accrue interest.
The Notes will mature on May 15, 2008. The Old Notes are and the New Notes
will be redeemable at the option of the Company, in whole or in part, at any
time on or after May 15, 2003, at the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption. In addition, at any time prior to May 15, 2001, the Company may
redeem up to an aggregate of 35% of the aggregate principal amount of Notes
issued under the Indenture (as defined) (including Additional Notes) at a
redemption price equal to 110.250% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings (as
defined); PROVIDED HOWEVER, that at least $100 million aggregate principal
amount of the New Notes issued hereunder together with the Old Notes originally
issued and not exchanged in the Exchange Offer remain outstanding immediately
after such redemption. Upon a Change of Control (as defined), the Company will
be required to offer to purchase any or all of the Notes at a purchase price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase. See "Risk
Factors--Possible Inability to Repurchase Notes Upon Change of Control" and
"Description of Notes--Optional Redemption" and "--Certain Covenants--Change of
Control."
The Old Notes are and the New Notes will be subordinated in right of payment
to all existing and future Senior Indebtedness (as defined) of the Company,
including borrowings under the New Credit Agreement (as defined). The Company
currently has no Subsidiaries (as defined) other than Foreign Subsidiaries (as
defined). The New Notes will be guaranteed by all of the Company's Subsidiaries,
if any, created subsequent to the Offering other than Foreign Subsidiaries,
Finance Subsidiaries and Receivables Subsidiaries (each as defined) (the
"Subsidiary Guarantors"). The guarantees of the Subsidiary Guarantors (the
"Subsidiary Guarantees") will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Subsidiary Guarantors, including
guarantees under the New Credit Agreement. As of June 30, 1998, the Company had
approximately $135.2 million of Senior Indebtedness and the Foreign Subsidiaries
had Indebtedness (as defined) of approximately $15.9 million, all of which would
effectively rank senior in right of payment to the Notes. At June 30, 1998, the
Company had total indebtedness of $310.2 million, and the Company has no
indebtedness which ranks junior to the Notes. The Indenture (as defined)
pursuant to which the Old Notes were and the New Notes will be issued permits
the Company and its subsidiaries to incur additional Indebtedness, including
Senior Indebtedness, subject to certain limitations. See "Description of
Notes--Certain Covenants." Holdings guaranteed (the "Loan Guaranty") the
Company's obligations under the New Credit Agreement. The Loan Guaranty is
secured by a pledge of all of the capital stock of the Company. See "Description
of Other Indebtedness--New Credit Agreement."
The Company does not intend to apply for listing of the Notes on any
securities exchange or in any automated quotation system. The Notes are eligible
for trading in Private Offerings, Resales and Trading through Automatic Linkages
("PORTAL") market of the National Association of Securities Dealers, Inc. upon
issuance.
SEE "RISK FACTORS," BEGINNING ON PAGE 16, FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES
IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 6, 1998
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(CONTINUED FROM PREVIOUS PAGE)
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined). Based on interpretations by the staff of the Division of Corporation
Finance (the "Staff") of the Securities and Exchange Commission (the "SEC"), as
set forth in no-action letters issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by Holders thereof
(other than any Holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act), without compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such Holder's business and such
Holder, other than a broker-dealer, has no arrangement with any person to engage
in a distribution of such New Notes. The Company has not sought and does not
intend to seek its own no-action letter in connection with the Exchange Offer
and there can be no assurance that the SEC would make a similar determination
with respect to the Exchange Offer. 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 such New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. If any holder is an affiliate of the
Company and is engaged in or intends to engage in or has any arrangement with
any person to participate in the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, then such Holder (i) could not rely on the
applicable interpretations of the Staff and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes if such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined), it will make this prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. If the Company terminates the Exchange Offer and does not
accept for exchange any Old Notes, the Company will promptly return the Old
Notes to the Holders thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes. The
Initial Purchasers (as defined) have advised the Company that they currently
intend to make a market in the New Notes. The Initial Purchasers are not
obligated to do so, however, and any market-making with respect to the New Notes
may be discontinued at any time without notice. The Company does not intend to
apply for listing or quotation of the New Notes on any securities exchange or
stock market. In addition, to comply with the securities laws of certain
jurisdictions, it may be necessary to qualify, for sale or register thereunder,
the New Notes prior to offering or selling such New Notes. The Company has
agreed, pursuant to the Registration Rights Agreement, subject to certain
limitations specified therein, to register or qualify the New Notes for offer or
sale under all applicable state securities or Blue Sky laws before the time the
Registration Statement (of which this Prospectus forms a part) is declared
effective by the SEC.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT TENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
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WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The New Notes will be available initially only in book-entry form. The
Company expects that the New Notes issued pursuant to the Exchange Offer will be
issued in the form of one or more Global Notes (as defined) that will be
deposited with, or on behalf of, The Depository Trust Company ("DTC" or the
"Depositary") and registered in its name or in the name of Cede & Co., as its
nominee. Beneficial interests in the Global Note representing the New Notes will
be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. So long as DTC or its nominee
is the registered owner or holder of the Global Note, DTC or such nominee, as
the case may be, will be considered the sole owner or holder of the Notes
represented by such Global Note for all purposes under the Indenture. Payments
of the principal of, premium, if any, interest and Liquidated Damages, if any,
on, the Global Note will be made to DTC or its nominee, as the case may be, as
the registered owners thereof. None of the Company, the Trustee (as defined) or
any Paying Agent (as defined) will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest. After the
initial issuance of such Global Note, New Notes in certificated form will be
issued in exchange for the Global Note only in accordance with the terms and
upon the conditions set forth in the Indenture. See "Description of Notes--Book
Entry; Delivery and Form."
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AVAILABLE INFORMATION
The Company has filed with the SEC a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the New Notes
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information
with respect to the Company and the New Notes offered hereby, reference is made
to the Registration Statement. Any statements made in this Prospectus concerning
the provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement filed with the SEC.
Since the consummation of the Acquisition Transactions, the Company has not
been subject to, but upon consummation of the Exchange Offer, the Company will
again become subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the SEC. The Registration
Statement, and the reports and other information filed by the Company with the
SEC in accordance with the Exchange Act may be inspected, without charge, at the
Public Reference Section of the SEC located at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at the following Regional Offices of the SEC: 7
World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the
material may be obtained from the Public Reference Section of the SEC upon
payment of the prescribed fees. The SEC also maintains a site on the World Wide
Web that contains reports, proxy and information statements and other
information at HTTP://WWW.SEC.GOV.
In the event that the Company is not required to be subject to the reporting
requirements of the Exchange Act in the future, as required under the Indenture,
the Company has agreed that, for so long as any of the Notes remain outstanding,
it will file with the SEC (unless the SEC will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the SEC 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" and, with respect to the
annual information only, a report thereon by the Company's certified independent
accountants and (ii) all reports that would be required to be filed with the SEC
on Form 8-K if the Company were required to file such reports. In addition, for
so long as any of the Notes remain outstanding, the Company has agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including the "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
sections, contains "forward-looking statements" which can be identified by the
use of forward-looking terminology, such as "may," "intend," "will," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. In particular, any statements,
express or implied, concerning future operating results or the ability to
generate revenues, income or cash flow to service the Notes, including
information regarding the new La Plata Kiln, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, there can be no assurance that such
expectations will prove to have been correct. All forward-looking statements are
expressly qualified by such cautionary statements.
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PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED HEREIN AND IS
QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES
THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT REQUIRES
OTHERWISE, ALL REFERENCES HEREIN TO THE "COMPANY" OR "GLC" MEAN GREAT LAKES
CARBON CORPORATION, ITS WHOLLY OWNED SUBSIDIARIES AND COPETRO, S.A. ("COPETRO"),
WHICH IS 99.8% OWNED BY THE COMPANY, AND ITS AND THEIR PREDECESSORS (TO THE
EXTENT THAT SUCH PREDECESSORS' ACTIVITIES RELATED TO THE BUSINESS OF THE COMPANY
DESCRIBED HEREIN), COLLECTIVELY. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO
"TONS" MEAN SHORT TONS OF 2,000 POUNDS. UNLESS OTHERWISE INDICATED, ALL
REFERENCES TO "WESTERN WORLD" MEANS ALL COUNTRIES EXCEPT CHINA, EASTERN EUROPEAN
COUNTRIES AND THOSE COUNTRIES WHICH FORMERLY COMPRISED THE SOVIET UNION. ALL
REFERENCES TO NOTES HEREIN SHALL INCLUDE THE ADDITIONAL NOTES.
THE COMPANY
Based upon 1996 industry statistics, the Company is the largest producer of
calcined petroleum coke ("CPC") in the world. Anode grade CPC is the principal
raw material used in the production of carbon anodes for use in aluminum
smelting, and is used by every producer of primary aluminum in the world. Anode
grade CPC sales represented approximately 81.9% of the Company's total 1997
sales. The Company believes that it has approximately a 23.1% market share of
U.S. anode grade CPC sales and a 15.7% market share of Western World anode grade
CPC sales. The Company also sells industrial grade CPC for use in the production
of titanium dioxide, as a carbon additive in the manufacture of steel and
foundry products and for use in other specialty materials and chemicals markets.
The Company produces CPC at its three facilities located in Port Arthur, Texas,
Enid, Oklahoma and La Plata, Argentina. The Company's annual CPC production
capacity is 1.6 million tons, including a 220,000 ton increase as a result of
its completion of a new kiln at its Argentine facility (the "New La Plata Kiln")
in May 1998. During the twelve months ended June 30, 1998, the Company sold 1.5
million tons of CPC, had net sales of $237.7 million and had Adjusted EBITDA (as
defined) of $63.7 million.
CPC is produced from raw petroleum coke ("RPC") utilizing a
high-temperature, rotary-kiln process developed by the Company in the 1930s. RPC
is a by-product of the petroleum refining process and typically represents an
insignificant portion of overall refinery revenues. The alternative use for RPC,
as a fuel source, generates a significantly lower value to refiners than the
value they receive in selling RPC for use in the production of CPC. As a result,
CPC producers are able to obtain lower purchase prices for RPC in times of
declining CPC prices, enabling CPC producers to earn a relatively stable profit
spread even in periods of CPC price declines.
Carbon anodes, which are manufactured utilizing anode grade CPC, are used by
every primary aluminum smelter in the world as a key component in aluminum
smelting pot lines. Carbon anodes act as conductors of electricity and as a
source of carbon in the electrolytic cell that reduces alumina to aluminum
metal. In this electrochemical aluminum smelting process, the carbon anodes, and
hence the CPC, are consumed.
There are no known economic substitutes for anode grade CPC in the
manufacture of carbon anodes, nor have there been since anode grade CPC replaced
coal for this application in the 1930's. The Company believes that approximately
0.4 pounds of anode grade CPC are consumed for every one pound of primary
aluminum produced, and that such consumption ratio has been substantially
constant over the past ten years. Worldwide demand for anode grade CPC is
directly tied to the level of global production of primary aluminum.
Industrial grade CPC is used in the production of titanium dioxide, as a
carbon additive in the manufacture of steel and foundry products and for use in
other specialty materials and chemicals markets. Demand for industrial grade CPC
has grown largely due to the ongoing replacement by titanium dioxide producers
of the sulfate manufacturing process that does not utilize CPC with the
environmentally
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preferable chloride process that does utilize CPC. The Company's participation
in the industrial CPC sector diversifies its product offerings and reduces its
dependence on aluminum customers.
The Company believes that current anode grade CPC market fundamentals are
attractive. Western World primary aluminum production increased approximately
34.7% to 17.8 million tons in 1997 from 13.2 million tons in 1986, while anode
grade CPC production capacity did not increase significantly. Furthermore,
industry sources project continued strong growth in primary aluminum production
over the next several years. As a result, CPC industry operating rates are
currently at historically high levels. The Company has been operating at full
capacity since 1995 and believes that other major U.S. calciners are also
operating at or near full capacity.
The Company believes that the calcining industry will continue to operate at
or near full capacity, as anticipated capacity expansions in the anode grade CPC
market are expected to provide less additional capacity over the next several
years than required to meet aluminum demand projected by industry sources.
Further, the Company believes there are significant barriers to entry to the CPC
production industry. The Company estimates that a greenfield, minimum efficient
scale, stand-alone 200,000 ton calcining facility would, depending on location,
cost in excess of $50 million and take approximately three years to permit and
construct. Further impediments to the creation of new production capacity
include the difficulty in securing consistent sources of RPC supply and the
reluctance of aluminum smelters to change CPC supply sources.
The current high industry operating rates have led to anode grade CPC
pricing becoming less influenced by aluminum pricing than has been the case
historically. Instead, anode grade CPC pricing has become more influenced by the
demand generated from the volume of aluminum production. Accordingly, the
average price per ton realized by the Company for anode grade CPC increased by
over 60% from 1994 to 1997, while aluminum prices as quoted on the London Metal
Exchange increased only 9%.
The Company's management team is among the most experienced in the industry,
with an average tenure with the Company of over 22 years. James D. McKenzie, the
Company's Chief Executive Officer and President, has been with the Company for
over 27 years; A. Frank Baca, Senior Vice President of Operations and
Administration, 31 years; James W. Betts, Vice President of Raw Materials, 30
years; Robert C. Dickie, Vice President of Sales, 9 years; and Adele Robles,
Controller, 17 years. The address of the Company's principal executive offices
is 551 Fifth Avenue, Suite 3600, New York, New York 10176 and the telephone
number is (212) 370-5770.
BUSINESS STRATEGY
The Company's management team plans to sustain and build upon GLC's success
by focusing on the following strategic initiatives:
- MAINTAIN STRONG CUSTOMER RELATIONSHIPS--Over its 60-year history in CPC
production, the Company has forged customer relationships spanning several
decades with many of the world's largest aluminum producers, including
Aluminum Company of America ("Alcoa"), Alusaf Limited ("Alusaf") and
Alusuisse-Lonza Holding Ltd. ("Alusuisse"). Collectively, Alcoa, Alusaf
and Alusuisse contributed 46.7% of the aggregate total sales of the
Company in fiscal year 1997. The Company has developed and expects to
maintain these relationships by virtue of its industry leadership
position, its technical support and customer service and its superior
ability to produce anode grade CPC to customized specifications. Although
CPC represents only 5% to 7% of an aluminum smelter's total costs, the
quality and consistency of CPC are critical to a smelter. Through its
comprehensive "Total Quality Management" program, the Company was the
first domestic calciner to attain ISO 9002 registration for its ability to
meet internationally recognized quality and process standards. All of the
Company's facilities are ISO 9002 registered.
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- MAINTAIN SUPERIOR ACCESS TO RAW MATERIALS--The Company's long history and
leading market position in CPC production has led to strong long-term
relationships with numerous RPC suppliers, including Exxon Corporation
("Exxon"), Conoco Inc. ("Conoco"), Chevron Corporation ("Chevron"), YPF
Sociedad Anonima ("YPF") and Marathon Oil Company ("Marathon"). The
Company's access to RPC supply from 18 refineries worldwide provides it
with a competitive advantage in cost-effectively blending various grades
of RPC to produce CPC to exact customer specifications.
- OPERATE DIVERSE, STATE-OF-THE-ART FACILITIES--The Company strives to
maintain geographically diverse, state-of-the-art production facilities
that provide a maximum level of operating flexibility. The Port Arthur,
Texas plant (680,000 tons per year) provides the Company with access to
RPC received by rail, barge or ship from the U.S. Gulf Coast and
international oil refiners and allows the Company to serve international
CPC markets. The Enid, Oklahoma plant (490,000 tons per year) is
strategically located to serve the domestic CPC markets and to access RPC
from refineries in the mid-continent region. The plant in La Plata,
Argentina (220,000 tons per year) provides the Company with access to high
quality RPC from a nearby oil refinery and also positions the Company well
to serve international CPC markets. The Company completed construction of
the New La Plata Kiln in May 1998, which doubled the facility's previous
production capacity.
- MAINTAIN STRONG PRESENCE IN INDUSTRIAL GRADE CPC--Since 1990, the Company
has pursued a strategy of diversifying its product mix by developing and
expanding its presence in the market for industrial grade CPC. GLC has
increased its net sales of industrial grade CPC by approximately 92.7%
since 1990 by focusing its industrial grade sales effort and investing in
value-added operations at its production facilities. Sales of industrial
grade CPC reduce the Company's dependence on aluminum customers.
- PURSUE SELECTIVE EXPANSION OPPORTUNITIES--The Company may explore
acquisition and expansion opportunities from time to time as warranted by
market conditions. Strong market conditions, together with an excellent
source of RPC supply, prompted the Company to expand its Argentinean
facility. The Company is currently evaluating several additional
opportunities in the petroleum coke industry.
ACQUISITION TRANSACTIONS
Pursuant to an Agreement and Plan of Merger dated as of April 21, 1998 (the
"Merger Agreement"), Holdings, a corporation formed by AIP, acquired all of the
issued and outstanding capital stock of the Company, through the merger of a
wholly owned subsidiary of Holdings into the Company. The aggregate
consideration paid by AIP, its affiliates and certain other individuals
associated with AIP pursuant to the Merger Agreement was approximately $376.9
million, (the "Merger Consideration"). The Company was the surviving corporation
in the Merger.
In order to finance the Merger, (i) AIP and affiliates of, and certain other
individuals associated with, AIP contributed $65.0 million and $330,000,
respectively to Holdings in exchange for common equity of Holdings (the "AIP
Equity Contribution"), (ii) Holdings contributed $92.4 million (the sum of $62.3
million of the AIP Equity Contribution and the proceeds from the issuance and
sale of the Holdings Debentures) to the equity of the Company (the "Holdings
Equity Contribution"), (iii) the Company entered into a syndicated senior
secured agreement (the "New Credit Agreement") providing for term loan
borrowings (the "Term Loan Facilities") in an aggregate principal amount of
approximately $111.0 million and a revolving loan facility (the "Revolving
Credit Facility") for borrowings of up to $25.0 million, and borrowed all of the
term loans available, and (iv) the Company issued and sold $175.0 million
aggregate principal amount of the Old Notes offered pursuant to an Offering
Memorandum dated as of May 18, 1998 (the "Offering Memorandum").
In connection with the Merger, the Company commenced a tender offer (the
"Tender Offer") on April 24, 1998, for any and all of its outstanding $65.0
million aggregate principal amount of 10% Senior
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Secured Notes due 2006 (the "10% Notes"). In addition, in connection with the
Tender Offer, the Company simultaneously solicited consents (the "Solicitation")
from holders of the 10% Notes to certain amendments to and waivers under the
indenture (the "10% Indenture") governing the 10% Notes and certain related
collateral documents. All of the outstanding 10% Notes were purchased by the
Company pursuant to the Tender Offer and Solicitation and such purchase was
consummated concurrently with the closing of the Offering. The aggregate
consideration paid by the Company in the Tender Offer and Solicitation was
approximately $74.1 million (including the amount paid to holders tendering 10%
Notes in excess of the principal amount being tendered (the "Tender Premium") of
approximately $9.1 million, but excluding accrued interest).
As used herein, the term "Acquisition Transactions" means the Merger, the
AIP Equity Contribution, the Holdings Equity Contribution, the Holdings
Debenture Offering, the Company's execution of and borrowings under the New
Credit Agreement, the Offering, the Tender Offer, the Solicitation and the
execution of the Supplemental Indenture.
AMERICAN INDUSTRIAL PARTNERS
AIP is a private investment fund headquartered in San Francisco and New York
with committed capital of approximately $800.0 million. AIP seeks to invest in
companies which hold either a protected competitive position or proprietary
capability, ideally combined with a leading market share. The firm does not seek
to play a role in daily management; rather, AIP seeks to provide its portfolio
companies with access to the management expertise of its operating partners, all
of whom are former Chief Executive Officers of Fortune 500 corporations, through
active board-level participation as well as on-call advice when desired.
Following the consummation of the Acquisition Transactions, AIP, its
affiliates and certain other individuals associated with AIP, contributed $65.3
million in equity to Holdings, and Theodore C. Rogers, a general partner of AIP
and former Chairman and Chief Executive Officer of NL Industries, Inc., became
the Company's Non-Executive Chairman of the Board. Although no specific
arrangements are in place, AIP intends to offer the Company's executive officers
the opportunity to own up to approximately 5.0% of Holdings' equity through a
combination of direct investments and option programs.
8
<PAGE>
THE EXCHANGE OFFER
On May 22, 1998, the Company issued $175.0 million aggregate principal
amount of Old Notes. The Old Notes were sold pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws, in order to enable the Company to raise
funds on a more expeditious basis than necessarily would have been possible had
the initial sale been pursuant to an offering registered under the Securities
Act. Donaldson, Lufkin & Jenrette Securities Corporation, BT Alex. Brown
Incorporated and BancAmerica Robertson Stephens (the "Initial Purchasers"), as a
condition to their purchase of the Old Notes, requested that the Company agree
to commence the Exchange Offer following the Offering.
<TABLE>
<S> <C>
Notes Offered....................... Up to $219,893,171 (including $44,893,171 of
Additional Notes) aggregate principal amount of
Series B 10 1/4% Senior Subordinated Notes due 2008.
The Exchange Offer.................. The New Notes are being offered in exchange for a
like principal amount of the Old Notes. Old Notes may
be tendered only in integral multiples of $1,000. The
issuance of the New Notes is intended to satisfy the
obligations of the Company contained in the
Registration Rights Agreement, dated as of May 22,
1998 among the Company and the Initial Purchasers
(the "Registration Rights Agreement"). For procedures
for tendering see--"The Exchange Offer."
Tenders, Expiration Date
Withdrawal........................ The Exchange Offer will expire at 5:00 p.m. New York
City time, on November 3, 1998, or such later date
and time to which it is extended. Each Holder
tendering Old Notes must acknowledge that such Holder
is not engaging in, nor does such Holder intend to
engage in, a distribution of the New Notes. The
tender of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration
Date. Any Old Note not accepted for exchange for any
reason will be returned without expense to the
tendering Holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
Conditions to Exchange Offer........ The Exchange Offer is not subject to any condition
other than that the Exchange Offer does not violate
any applicable law or regulation or interpretation of
the Staff.
United States Federal Income Tax
Considerations.................... There will be no United States Federal income tax
consequences to Holders who exchange Old Notes for
New Notes pursuant to the Exchange Offer. See
"Certain United States Federal Income Tax
Considerations."
Exchange Agent...................... State Street Bank and Trust Company of California,
N.A. (the "Exchange Agent") is serving as exchange
agent in connection with the Exchange Offer.
Use of Proceeds..................... There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer. See "Use of
Proceeds" and "Capitalization."
Shelf Registration Statement........ Under certain circumstances, certain holders of Notes
(including holders of Old Notes who are not permitted
to participate in the Exchange Offer or holders who
may not freely resell New Notes received in the
Exchange Offer) may require the Company to file and
cause to become effective, a Shelf Registration
Statement (as defined), which would cover resales of
Notes by such holders. See "Description of Notes--
Registration Rights; Liquidated Damages."
</TABLE>
9
<PAGE>
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions 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 pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Subject to certain limited exceptions, holders
of Old Notes who do not exchange their Old Notes for New Notes in the Exchange
Offer will no longer have registration rights with respect to their Old Notes.
The Company does not currently anticipate that it will register the Old Notes
under the Securities Act. See "Description of Notes--Registration Rights;
Liquidated Damages." Based on interpretations by the Staff, as set forth in
no-action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by Holders thereof (other than any
Holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder, other than a broker-dealer, has no arrangement with any person to
participate in the distribution of such New Notes. The Company has not sought
and does not intend to seek its own no-action letter in connection with the
Exchange Offer and there can be no assurance that the SEC would make a similar
determination with respect to the Exchange Offer. 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 such New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes must
acknowledge that such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities and that it will deliver
this Prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." In addition, to comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for sale or register thereunder
the New Notes prior to offering or selling such New Notes. The Company has
agreed, pursuant to the Registration Rights Agreement, subject to certain
limitations specified therein, to register or qualify the New Notes for offer or
sale under all applicable state securities or Blue Sky laws before the time the
Registration Statement (of which this Prospectus forms a part) is declared
effective by the SEC. See "The Exchange Offer-- Consequences of Exchanging Old
Notes" and "Description of Notes--Registration Rights; Liquidated Damages."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except (i) that the New Notes have been registered under the
Securities Act, (ii) for certain transfer restrictions and registration rights
relating to the Old Notes and (iii) that the New Notes will not contain certain
provisions relating to Liquidated Damages to be paid to Holders of Old Notes
under certain circumstances relating to the timing of the Exchange Offer and to
other registration requirements. See "Description of Notes-- Registration
Rights; Liquidated Damages." The New Notes will bear interest from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid on the Old Notes, from May 22, 1998. Accordingly, registered
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 or, if no interest has been paid, from May 22, 1998. Old Notes accepted
for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer. Holders whose Old Notes are accepted for
exchange will not receive any payment in respect of interest on such Old Notes
otherwise payable on any interest payment date the record date for which occurs
on or after consummation of the Exchange Offer. Old Notes not accepted for
exchange will continue to accrue interest.
10
<PAGE>
<TABLE>
<S> <C>
Notes Offered............................ Up to $219,893,171 aggregate principal amount of
Series B 10 1/4% Senior Subordinated Notes due
2008 (including $44,893,171 of Additional
Notes).
Issuer................................... Great Lakes Carbon Corporation.
Maturity Date............................ May 15, 2008.
Interest................................. The Old Notes bear interest and the New Notes
will bear interest at the rate of 10 1/4% per
annum, payable semiannually on May 15 and
November 15, commencing November 15, 1998.
Optional Pay-in-Kind Interest............ For interest payments due through May 15, 2003,
the Company may, at its option, make up to four
semiannual interest payments through the
issuance of Additional Notes in an aggregate
principal amount equal to the amount of the
interest that would be payable if the rate per
annum were equal to 11 3/4% (provided, that
incremental amounts of less than $1,000 shall be
payable in cash). The maximum aggregate
principal amount of Additional Notes that the
Company may issue is $50.0 million, plus the
principal amount of Additional Notes required to
make the interest payments described in the
preceding sentence. If the Company elects to
make an interest payment on an Interest Payment
Date through the issuance of Additional Notes as
described above, it must provide the Trustee
with irrevocable notice of such election at
least ten and not more than thirty Business Days
prior to the immediately preceding interest
payment date. Notwithstanding the foregoing,
Additional Notes may not be used to make the
interest payment due November 15, 1998.
Optional Redemption...................... The Old Notes are and the New Notes will be
redeemable at the option of the Company, in
whole or in part, at any time on or after May
15, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
redemption. In addition, at any time prior to
May 15, 2001, the Company may redeem up to an
aggregate of 35% of the aggregate principal
amount of Notes issued under the Indenture
(including Additional Notes) at a redemption
price equal to 110.250% of the aggregate
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the redemption date, with the net cash
proceeds of one or more Equity Offerings (as
defined); PROVIDED HOWEVER, that at least $100.0
million aggregate principal amount of the New
Notes issued hereunder together with Old Notes
originally issued and not exchanged in the
Exchange Offer remain outstanding immediately
after such redemption. See "Description of
Notes--Optional Redemption."
Subsidiary Guarantees.................... The Company currently has no Subsidiaries other
than Foreign Subsidiaries and has no current
expectation of forming any additional
Subsidiaries. The Notes will be unconditionally
guaranteed on a senior subordinated
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
basis by the Subsidiary Guarantors, which will
consist of all future Subsidiaries of the
Company other than Foreign Subsidiaries, Finance
Subsidiaries and Receivables Subsidiaries. The
Subsidiary Guarantees may be released under
certain circumstances. The Notes are not
currently guaranteed. See "Description of
Notes-- Subsidiary Guarantees." The term
"Subsidiaries" does not include references to
"Unrestricted Subsidiaries," as defined herein.
Ranking.................................. The Old Notes are and the New Notes will be
subordinated in right of payment to all existing
and future Senior Indebtedness of the Company,
including borrowings under the New Credit
Agreement. The Subsidiary Guarantees will be
subordinated in right of payment to all existing
and future Senior Indebtedness of the Subsidiary
Guarantors, including guarantees of the New
Credit Agreement. As of June 30, 1998, the
Company would have had approximately $135.2
million of Senior Indebtedness, and the Foreign
Subsidiaries would have had Indebtedness of
approximately $15.9 million, all of which would
effectively rank senior to the Notes. Under the
terms of the New Credit Agreement and other
Senior Indebtedness, the Company could have
incurred a maximum of $80.0 million of Senior
Indebtedness, including $25.0 million of
availability under the Revolving Credit
Facility. The Indenture permits the Company and
its Subsidiaries to incur additional
Indebtedness, including Senior Indebtedness,
subject to certain limitations. The Indenture
prohibits the incurrence of any Indebtedness by
the Company and any Subsidiary Guarantors that
is senior to the Notes and any Subsidiary
Guarantees, as the case may be, and subordinated
to Senior Indebtedness of the Company or Senior
Indebtedness of the Subsidiary Guarantors, as
the case may be. See "Description of Notes--
Subordination" and "Description of
Notes--Certain Covenants."
Change of Control........................ Upon a Change of Control (as defined), the
Company is required to offer to purchase all of
the Notes then outstanding at a purchase price
equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
purchase. If a Change of Control were to occur,
the Company may not have sufficient resources to
satisfy its repurchase obligation with respect
to the Notes. The New Credit Agreement generally
prohibits and future Senior Indebtedness may
prohibit the Company from purchasing the Notes
upon the occurrence of a Change of Control and
provide that certain change of control events
constitute a default thereunder. The Company's
failure to purchase Notes upon a Change of
Control would constitute an event of default
under the Indenture which would, in turn,
constitute a default under the New Credit
Agreement and could constitute a default under
other Senior
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Indebtedness. See "Description of Notes--Certain
Covenants--Change of Control" and "Risk
Factors-- Possible Inability to Repurchase Notes
Upon Change of Control."
Original Issue Discount.................. In the event that the Company elects to issue
Additional Notes in lieu of the payment of
interest in cash, U.S. Holders will be required
to include amounts in gross income for United
States Federal income tax purposes in advance of
the receipt of cash attributable thereto. See
"Certain United States Federal Income Tax
Considerations" and "Risk Factors--Original
Issue Discount."
Certain Covenants........................ The Indenture contains certain covenants that,
among other things, limit the ability of the
Company, the Subsidiary Guarantors and the other
Subsidiaries to: (i) pay dividends or make
certain other Restricted Payments (as defined);
(ii) incur additional Indebtedness; (iii)
encumber or sell assets; (iv) enter into certain
guarantees of Indebtedness; (v) enter into
transactions with affiliates; and (vi) merge or
consolidate with any other entity or to transfer
or lease all or substantially all of their
assets. In addition, under certain
circumstances, the Company is required to offer
to purchase Notes at a price of 100% of the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of purchase with the proceeds of
certain Asset Sales (as defined). See
"Description of Notes--Certain Covenants."
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by a Holder prior to tendering their Old Notes in the Exchange Offer.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents summary historical consolidated statement of
operations, balance sheet and other data of the Company's Predecessor as of and
for the three years ended December 31, 1997, which are derived from the
Predecessor's (the "Predecessor") audited consolidated financial statements
audited by Ernst & Young LLP, which are included elsewhere herein. The summary
historical consolidated statement of operations, balance sheet and other data of
the Company as of and for the six-month period ended June 30, 1997 and for the
period from January 1, 1998 to May 21, 1998 are derived from the unaudited
consolidated financial statements of the Predecessor, and in the opinion of
management, include all adjustments necessary for a fair presentation of the
data for such periods. The results for the period from May 22, 1998 to June 30,
1998 represent the operations of the Company subsequent to the date of the
Acquisition and in the opinion of management, include all adjustments necessary
for a fair presentation of the data for such period. The interim results are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998 or any future period. The financial data set forth below
should be read in conjunction with "Use of Proceeds," "Selected Historical
Financial and Other Data," "Unaudited Pro Forma Condensed Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements of the Company and its
predecessor and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR(1)
--------------------------------------------------------------- COMPANY
-------------
YEAR ENDED DECEMBER 31, SIX MONTHS JANUARY 1, 1998 MAY 22, 1998
------------------------------- ENDED TO TO
1995 1996 1997 JUNE 30, 1997 MAY 21, 1998 JUNE 30, 1998
--------- --------- --------- ------------- --------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER TON)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................... $ 178,628 $ 242,744 $ 231,911 $ 113,610 $ 90,849 $ 28,511
Gross profit................... 36,440 66,373 59,521 27,067 23,681 7,835
Operating income............... 26,753 51,052 41,011 18,080 10,611 6,115
Net income (loss).............. 13,818 27,559 21,984 9,046 (1,589) 1,099
OTHER DATA:
Adjusted EBITDA(2)............. $ 36,514 $ 66,563 $ 59,182 $ 27,020 $ 23,203 $ 8,311
Adjusted EBITDA margin......... 20.4% 27.4% 25.5% 23.8% 25.5% 29.2%
Capital expenditures(3)........ $ 5,774 $ 6,371 $ 21,391 $ 7,744 $ 9,058 $ 1,848
Quantity of CPC sold (000
tons)........................ 1,484 1,452 1,443 708.18 566.42 177.46
Net sales per ton of CPC
sold......................... $ 120.35 $ 167.21 $ 160.67 $ 160.42 $ 160.39 $ 160.67
Gross profit per ton of CPC
sold......................... 24.55 45.72 41.24 38.22 41.81 44.15
Cash provided (used) by
operating activities......... 17,235 27,722 31,261 9,097 12,738 (26,126)
Cash provided (used by)
investing activities......... (5,774) (6,371) (21,391) (7,744) (9,058) (281,526)
Cash provided (used) by
financing activities......... (6,119) (2,906) 9,629 2,320 4,767 313,833
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
1998
------------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................................................... $ 41,142
Total assets.................................................................................. 498,423
Total debt.................................................................................... 310,234
Stockholders' equity.......................................................................... 93,479
</TABLE>
14
<PAGE>
- --------------------------
(1) On May 22, 1998 the Company was acquired by Great Lakes Acquisition Corp.
References to the "Predecessor" relate to the Company prior to the date of
the Acquisition.
(2) Adjusted EBITDA is defined as operating income before depreciation,
amortization, fees and expenses paid to Horsehead Industries, Inc. ("HII")
($1.4 million, $1.7 million and $1.4 million in 1995, 1996 and 1997,
respectively, and $0.7 million for six months ended June 30, 1997 and $8.8
million for the period from January 1, 1998 to May 21, 1998) and payments
pursuant to employment and consulting agreements which were terminated upon
consummation of the Acquisition Transactions ($4.5 million and $6.8 million
in 1996 and 1997, respectively, and $3.4 million for six months ended June
30, 1997 and $0.3 million for the period from January 1, 1998 to May 21,
1998) and AIP management fees ($0.2 million for the period from May 22, 1998
to June 30, 1998). Adjusted EBITDA is not defined in the same manner as
"Consolidated EBITDA" in the Indenture or in the "Description of Notes"
herein. See "Description of Notes--Certain Definitions." Adjusted EBITDA is
not intended to represent cash flow from operations as defined by GAAP (as
defined) and should not be used as an alternative to net income as an
indicator of operating performance or to cash flows as a measure of
liquidity. Adjusted EBITDA is included in the Prospectus as it is a basis
upon which the Company assesses its financial performance, and certain
covenants in the Company's borrowing arrangements will be tied to similar
measures. Adjusted EBITDA, as presented, represents a useful measure of
assessing the Company's ongoing operating activities without the impact of
financing activity and nonrecurring charges. While Adjusted EBITDA is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation.
(3) Capital expenditures include expenditures in connection with the New La
Plata Kiln of $13.4 million and $3.6 million for the year ended December 31,
1997 and the six months ended June 30, 1997 respectively, and $6.6 million
and $1.0 million for the period from January 1, 1998 to May 21, 1998 and the
period from May 22, 1998 to June 30, 1998, respectively.
15
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, HOLDERS
OF OLD NOTES SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS BEFORE TENDERING
THEIR OLD NOTES IN THE EXCHANGE OFFER. THIS PROSPECTUS, INCLUDING THE "SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," AND "BUSINESS" SECTIONS, CONTAINS "FORWARD-LOOKING STATEMENTS"
WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS
"MAY," "INTEND," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. IN
PARTICULAR, ANY STATEMENTS, EXPRESS OR IMPLIED, CONCERNING FUTURE OPERATING
RESULTS OR THE ABILITY TO GENERATE REVENUES, INCOME OR CASH FLOW TO SERVICE THE
NOTES, INCLUDING THE ADJUSTED CREDIT DATA PRESENTED UNDER "SUMMARY CONSOLIDATED
FINANCIAL AND OTHER DATA," AND INFORMATION REGARDING THE NEW LA PLATA KILN
PRESENTED ELSEWHERE HEREIN, ARE FORWARD-LOOKING STATEMENTS. THE MATTERS SET
FORTH BELOW CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH
RESPECT TO SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
IN SUCH FORWARD-LOOKING STATEMENTS.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged. On June 30, 1998, after the Offering and
the other Acquisition Transactions, the Company had total indebtedness of
approximately $310.2 million, including approximately $135.2 million of Senior
Indebtedness and the Foreign Subsidiaries had Indebtedness of approximately
$15.9 million, all of which ranks effectively senior in right of payments to the
Notes, and stockholders' equity of approximately $93.5 million. As of August 31,
1998, no funds had been drawn down on the Company's existing lines of credit and
approximately $3.6 million in letters of credit under the New Credit Agreement
were outstanding. The amount of the Company's debt service will be will be
approximately $17 million for the period from May 22, 1998 through December 31,
1998 and average approximately $41 million annually over the course of the
subsequent five year period. The Company and its Subsidiaries will be permitted
to incur substantial additional Indebtedness in the future. See "Capitalization"
and "Description of Notes--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures will
depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations
and anticipated cost savings and revenue growth, management believes that cash
flow from operations and available cash, together with available borrowings
under the New Credit Agreement, will be adequate to meet the Company's future
liquidity needs for at least the next several years. The Company may, however,
need to refinance all or a portion of the principal of the Notes on or prior to
maturity. There can be no assurance that the Company's business will generate
sufficient cash flow from operations, or that anticipated revenue growth and
operating improvements will be realized in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, or to fund its other
liquidity needs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to: (i) making
it more difficult for the Company to satisfy its obligations with respect to the
Notes, (ii) increasing the Company's vulnerability to general adverse economic
and industry conditions, (iii) limiting the Company's ability to obtain
additional financing to fund future working capital, capital expenditures and
other general corporate requirements, (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal of, interest on, and Liquidated Damages, if any, on its indebtedness,
thereby reducing the availability of such cash flow to fund working capital,
capital expenditures, research and development or other general corporate
purposes, (v) limiting the Company's flexibility in planning for, or reacting
to, changes in its
16
<PAGE>
business and the industry, (vi) placing the Company at a competitive
disadvantage relative to less leveraged competitors and (vii) restricting the
Company's ability to pay dividends to Holdings so that Holdings can pay its debt
service obligations on the Holdings Debentures (which payments are scheduled to
begin in 2003), the failure of which may create an event of default under the
Holdings Debentures, which, if not cured or waived, could have a material
adverse effect on the Company.
SUBORDINATION
The Old Notes are, and the New Notes will be, subordinated in right of
payment to all Senior Indebtedness of the Company, including the indebtedness
under the New Credit Agreement. Any Subsidiary Guarantees will be subordinated
in right of payment to all Senior Indebtedness of the Subsidiary Guarantors,
including guarantees of the New Credit Agreement. The Notes, any Subsidiary
Guarantees and borrowings under the New Credit Agreement will be effectively
subordinated to the indebtedness of the Foreign Subsidiaries.
As of June 30, 1998, the Company had approximately $135.2 million of Senior
Indebtedness, and the Foreign Subsidiaries had approximately $15.9 million of
indebtedness, all of which effectively rank senior to the Notes and any
Subsidiary Guarantees. In the event of a bankruptcy, liquidation, dissolution,
reorganization or other winding-up of the Company or any of the Subsidiary
Guarantors, the assets of the Company or the Subsidiary Guarantors, as the case
may be, will be available to pay the Notes and the Subsidiary Guarantees only
after all Senior Indebtedness has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on the Notes or Subsidiary
Guarantees. Additional Senior Indebtedness may be incurred by the Company and
the Subsidiary Guarantors from time to time, subject to certain restrictions.
See "Description of Other Indebtedness--New Credit Agreement" and "Description
of Notes--Subordination."
The Company's Foreign Subsidiaries will not guarantee the Company's
obligations on the Notes. As a result, all indebtedness of the Foreign
Subsidiaries will be structurally senior to the Notes. In addition, the
Company's ability to obtain funds from the Foreign Subsidiaries may be
restricted by the terms of the Copetro Credit Agreement and other borrowing
arrangements to which any Foreign Subsidiary is a party. See "Description of
Other Indebtedness--Copetro Credit Agreement."
RESTRICTIVE DEBT COVENANTS
The Indenture and the New Credit Agreement contain a number of significant
covenants that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional Indebtedness, prepay other
Indebtedness (including the Notes), amend certain debt instruments (including
the Indenture), pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, make capital expenditures, change the
business conducted by the Company or its subsidiaries, or engage in certain
transactions with affiliates and certain other corporate activities. In
addition, under the New Credit Agreement, the Company is required to maintain
specified financial ratios and satisfy specified financial tests. See
"Description of Notes" and "Description of Other Indebtedness--New Credit
Agreement."
In addition, the Copetro Credit Agreement contains a number of covenants
which, among other things, requires Copetro to maintain specified financial
ratios, and restricts the ability of Copetro to pay dividends to the Company,
dispose of assets, engage in mergers or consolidations and create liens on
assets. See "Description of Other Indebtedness--Copetro Credit Agreement."
The Company's ability to comply with such agreements may be affected by
events beyond its control, including prevailing economic, financial and industry
conditions. The breach of any of such covenants or restrictions could result in
a default under the New Credit Agreement or the Indenture, which would permit
the senior lenders, or the holders of the Notes, or both, as the case may be, to
declare all amounts borrowed thereunder to be due and payable, together with
accrued and unpaid interest and, in the case of the Notes, Liquidated Damages,
if any, and the commitments of the senior lenders to make further
17
<PAGE>
extensions of credit under the New Credit Agreement could be terminated. If the
Company were unable to repay its indebtedness to its senior lenders, such
lenders could proceed against the collateral securing such indebtedness, as
described under "Description of Other Indebtedness--New Credit Agreement."
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
The New Credit Agreement generally prohibits the Company from purchasing any
of the Notes, including upon the occurrence of a Change of Control, and also
provides that certain change of control events with respect to the Company will
constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing the
Notes, the Company could seek the consent of its lenders to the purchase of the
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such consent or repay such
borrowings, the Company would remain prohibited from purchasing the Notes by the
terms of the relevant Senior Indebtedness. In such case, the Company's failure
to purchase the tendered Notes would constitute an event of default under the
Indenture which would, in turn, constitute a default under the New Credit
Agreement and could constitute a default under other Senior Indebtedness. In
such circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of the Notes until the Company's obligations
under the New Credit Agreement and any other Senior Indebtedness are paid in
full. Furthermore, no assurance can be given that the Company will have
sufficient resources to satisfy its repurchase obligation with respect to the
Notes following a Change of Control. See "Description of Notes" and "Description
of Other Indebtedness--New Credit Agreement."
RELIANCE ON THE ALUMINUM INDUSTRY
The Company's products are sold primarily to the worldwide aluminum
industry. The aluminum industry generally is cyclical in nature and experiences
fluctuations in production levels and significant fluctuations in profits based
on numerous factors. Historically, sales of the Company's products have been
adversely affected by weakness in the aluminum industry. Although the aluminum
industry has experienced growth on a long-term basis, there can be no assurance
that growth will continue or that conditions will remain favorable in the
aluminum industry as a whole, or for the Company's customers in particular. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
DEPENDENCE ON CERTAIN CUSTOMERS
For the year ended December 31, 1997, the Company's top five customers
represented approximately 62.2% of the Company's net sales. During such period,
the Company's two largest customers, Alcoa and Alusaf, which have been customers
for over 50 years and 20 years, respectively, accounted for 23.7% and 15.5%,
respectively, of the Company's net sales. In June 1998, Alcoa acquired Alumax,
Inc. ("Alumax"), another long-standing customer of the Company, which accounted
for 6.4% of the net sales of the Company in 1997. The permanent loss of one or
more major customers could adversely affect the Company's operating results.
Although the Company expects to maintain its current relationships with its
major customers, there can be no assurance that a change will not occur.
DEPENDENCE ON RAW MATERIAL SUPPLY
The raw material used by the Company in the production of CPC is RPC, which
is a by-product of the petroleum refining industry. The Company purchases
approximately 46.1% of its RPC requirements from three petroleum refiners. The
Company believes that, under current conditions, RPC is available in sufficient
quantities and of adequate quality at current market prices. A substantial
increase in raw material prices or a substantial decrease in raw material supply
of sufficient quality could have a material adverse effect on the Company's
financial condition and results of operations. Historically, the price of
18
<PAGE>
anode grade RPC has moved in relation to the price of anode grade CPC; however,
there can be no assurance that the Company will be in a position to pass any
future raw material price increases on to its customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
COMPETITION
The CPC industry is highly competitive. Competition is based primarily on
price, product quality and access to raw material sources. Although the Company
believes that it is the world's largest supplier of CPC, several of the
Company's competitors are part of much larger companies and as such may have
greater resources than the Company. One of the Company's major competitors has
had access to RPC from its own petroleum refining operations for many years,
which could give such competitor a cost advantage. Although CPC industry
operating rates are currently at historically high levels, there can be no
assurance that the Company's current or future competitors will not increase
their operating capacity. Competitive factors could require price reductions or
increased spending that could materially adversely affect the Company's
financial condition and results of operations. See "Business."
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state, local and
foreign laws and regulations relating to the emission, release or discharge of
certain substances. While the Company believes that it is currently in material
compliance with all applicable laws and regulations, the Company has had
occasional exceedances of opacity emissions limitations at its Port Arthur,
Texas facility. In addition, some of the Company's facilities may be required to
obtain permits and comply with new standards applicable to air emissions to be
adopted by the United States Environmental Protection Agency (the "EPA") and
state environmental agencies over the next several years. There can be no
assurance that the Company will not incur significant costs to comply with
changes in existing laws and regulations. See "Business--Environmental Matters."
LABOR RELATIONS
Approximately one-third of the Company's employees are covered by collective
bargaining or similar agreements. The agreement covering 54 employees at the
Enid, Oklahoma facility expires in 2001. The agreement covering 28 employees of
Copetro may be subject to revision by the Argentine government. The Company has
not had any material work stoppages or strikes at Enid in more than 18 years and
has never had a work stoppage at Copetro. The Port Arthur plant is operated with
a nonunion workforce. The Company believes that it has satisfactory relations
with its employees. There can be no assurance, however, that new labor
agreements will be reached without work stoppage or strike or will be reached on
terms satisfactory to the Company. See "Business--Employees."
FRAUDULENT TRANSFER CONSIDERATIONS
The Company's obligations under the Notes may be subject to review under
state or federal fraudulent transfer laws in the event of the bankruptcy or the
financial difficulty of the Company.
Under those laws, if a court, in a lawsuit by an unpaid creditor or
representative of creditors of the Company, such as a trustee in bankruptcy or
the Company as a chapter 11 debtor in possession, were to find that when the
Company issued the Notes, it (a) received less than fair consideration or
reasonably equivalent value therefor and (b) either (i) was or was rendered
insolvent, (ii) was engaged in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital or (iii) intended to
incur or believed (or reasonably should have believed) that it would incur debts
beyond its ability to pay as such debts matured, the court could avoid the Notes
and the Company's obligations thereunder, or subordinate the Notes to all of the
Company's other obligations, and in either case direct the return of any amounts
paid thereunder to the Company or to a fund for the benefit of its creditors. It
19
<PAGE>
should be noted that a court could avoid the Notes and the Company's obligations
thereunder without regard to factors (a) and (b) above if it found that the
Company issued the Notes with actual intent to hinder, delay, or defraud its
creditors.
A court will likely find that the Company did not receive fair consideration
or reasonably equivalent value for its obligations under the Notes to the extent
that the proceeds of the Offering were used to pay the purchase price to the
seller under the Merger Agreement for the common equity of Holdings or otherwise
do not directly benefit the Company. In addition, if a court finds that the
factors in clause (b) above applied to the Company when it issued the 10% Notes,
it could also conclude that the Company did not receive fair consideration or
reasonably equivalent value for its obligations under the Notes to the extent
that the proceeds of the Offering were used to acquire the 10% Notes.
Similarly, a Subsidiary Guarantee may be subject to review in the event of
the bankruptcy or financial difficulty of any Subsidiary Guarantor. In that
event, if a court found that when a Subsidiary Guarantor issued its guarantee
(or, in some jurisdictions, when it became liable to make payments thereunder),
factors (a) and (b) above, applied to the Subsidiary Guarantor (or if the court
found that the Subsidiary Guarantor had issued its guarantee with actual intent
to hinder, delay, or defraud its creditors), then the court could avoid the
respective Subsidiary Guarantee and direct the repayment of any amounts paid
thereunder. A court will likely find that a Subsidiary Guarantor did not receive
fair consideration or reasonably equivalent value for its guarantee to the
extent that its liability thereunder exceeds any direct benefit it received from
the issuance of the Notes.
The Indenture will limit the liability of each Subsidiary Guarantor under
its guarantee to the maximum amount that it could pay without the guarantee
being deemed a fraudulent transfer. See "Description of Notes--Subsidiary
Guarantees." There can be no assurance that (if this limitation is effective)
the limited amount so guaranteed will suffice to pay amounts owed under the
Notes in full.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
On the basis of historical financial information, recent operating history
and other factors, the Company believes that, after giving effect to the
indebtedness incurred in connection with the Offering and the other Acquisition
Transactions, it will not be insolvent, will not have unreasonably small capital
for the business in which it is engaged and will not incur debts beyond its
ability to pay such debts as they mature. There can be no assurance, however, as
to what standard a court would apply in making such determinations or that a
court would agree with the Company's conclusions in this regard.
INTERNATIONAL RISKS
The Company has invested significant resources in Argentina and intends to
continue to make investments in Argentina and other foreign countries in the
future. Accordingly, the Company may be subject to economic, political or social
instability or other developments not typical of investments made in the United
States. International operations are subject to risks in addition to those
discussed below, including the impact of foreign governmental regulations,
currency fluctuations, political uncertainties and differences in business
practices. There can be no assurance that Argentina or any other country in
which the Company may acquire operations or conduct business will not adopt
regulations or take other actions that would have a direct or indirect adverse
impact on the business or market opportunities of the Company within such
countries. While Argentina has been relatively stable during the last several
years, in the past Argentina has been characterized by varying degrees of
inflation, uneven growth rates, declining investment rates, significant
devaluations of Argentine currency, impositions of exchange controls and
political uncertainty. The Company currently does not have political risk
insurance with respect to its operations in Argentina and the value of the
Company's investment in its Argentine subsidiary could be
20
<PAGE>
adversely affected by changes in government policy, such as the imposition of
limitations on foreign ownership of investment assets or the imposition of
exchange controls. In addition, there can be no assurance that future economic
developments in Argentina, over which the Company has no control, will not
impair the Company's financial condition, results of operations and business
prospects.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
The Old Notes have not been registered under the Securities Act or any other
securities laws of any jurisdiction and, therefore, may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws or pursuant to
exemptions from, or in transactions not subject to, those requirements and, in
each case, in compliance with certain other conditions and restrictions. Holders
of Old Notes who do not exchange their Old Notes for New Notes pursuant to the
Exchange Offer will continue to be subject to such restrictions on transfer of
such Old Notes as set forth in the legend thereon. In addition, upon
consummation of the Exchange Offer, Holders of Old Notes which remain
outstanding will not be entitled to any rights to have such Old Notes registered
under the Securities Act or to any similar rights under the Registration Rights
Agreement (subject to certain limited exceptions). The Company does not
currently anticipate that it will register or qualify any Old Notes which remain
outstanding after consummation of the Exchange Offer for offer or sale in any
jurisdiction (subject to limited exceptions, if applicable). As a result of
these factors, to the extent that Old Notes are not tendered and accepted in the
Exchange Offer, a holder's ability to sell such Old Notes could be adversely
affected.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage thereof have taken
certain actions or exercised certain rights under the Indenture.
Upon consummation of the Exchange Offer, holders of Old Notes will not be
entitled to any Liquidated Damages or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See
"Description of Notes--Registration Rights; Liquidated Damages."
ABSENCE OF PUBLIC MARKET
The Old Notes were issued to, and the Company believes such securities are
currently owned by, a relatively small number of beneficial owners. The Old
Notes have not been registered under the Securities Act and will be subject to
restrictions on transferability if they are not exchanged for the New Notes.
Although the New Notes may be resold or otherwise transferred by the holders
(who are not affiliates of the Company) without compliance with the registration
requirements under the Securities Act, they will constitute a new issue of
securities with no established trading market. There can be no assurance that
such a market will develop. In addition, the New Notes will not be listed on any
national securities exchange. The New Notes may trade at a discount from the
initial offering price of the Old Notes, depending upon prevailing interest
rates, the market for similar securities, the Company's operating results and
other factors. The Company has been advised by the Initial Purchasers that it
currently intends to make a market in the New Notes, as permitted by applicable
laws and regulations; however, the Initial Purchasers are not obligated to do
so, and any such market-making activities may be discontinued at any time
without notice. In addition, such market-making activity may be limited during
the pendency of the Shelf Registration Statement (as defined). Therefore, there
can be no assurance that an active market for any of the New Notes will develop,
either prior to or after the Company performance of its obligations under the
Registration Rights Agreement. If an active public market does not develop, the
market price and liquidity of the New Notes may be adversely affected.
If a public trading market develops for the New Notes, future trading prices
will depend on many factors, including, among other things, prevailing interest
rates, the financial condition of the Company and the Guarantors, and the market
for similar securities. Depending on these and other factors, the New Notes may
trade at a discount.
21
<PAGE>
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of the New Notes.
Notwithstanding the registration of the New Notes in the Exchange Offer,
holders who are "affiliates" (as defined under Rule 405 of the Securities Act)
of the Company may publicly offer for sale or resell the New Notes only in
compliance with the provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
ORIGINAL ISSUE DISCOUNT
In the event that the Company elects to issue Additional Notes in lieu of
the payment of interest in cash, U.S. Holders will be required to include
amounts in gross income for United States Federal income tax purposes in advance
of the receipt of cash attributable thereto. See "Certain United States Federal
Income Tax Considerations" for a more detailed discussion of the United States
Federal income tax consequences to the Holders of the Notes resulting from the
ownership and disposition thereof.
EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth under "The Exchange Offer--Conditions to
the Exchange Offer," 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 (i) certificates for Old Notes or a
book-entry confirmation of a book-entry transfer of Old Notes into the Exchange
Agent's account at The Depository Trust Company, New York, New York as
depository (the "DTC"), including an Agent's Message (as defined) if the
tendering holder does not deliver a Letter of Transmittal, (ii) a completed and
signed Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message in lieu
of the Letter of Transmittal, and (iii) any other documents required by the
Letter of Transmittal. Therefore, Holders of Old Notes desiring to tender such
Old Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. The Company is under a duty to give notification of defects or
irregularities with respect to the tenders of Old Notes for exchange. Old Notes
that are not tendered or that are tendered but not accepted by the Company for
exchange will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof under the Securities
Act and, upon consummation of the Exchange Offer, certain registration and other
rights under the Registration Rights Agreement will terminate.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
PRINCIPAL STOCKHOLDER
Since the consummation of the Acquisition Transactions, AIP, its affiliates
and certain other individuals associated with AIP have been the only
stockholders of Holdings, which is the 100% parent of the Company, and AIP has
the ability to designate all of the directors of the Company. See "Description
of Company Common Stock," "Management," "Security Ownership" and "Acquisition
Transactions." AIP is therefore in a position to direct the management and
affairs of the Company and may cause the Company to enter into transactions that
could ultimately enhance stockholder value but may involve risks to holders of
the Notes.
22
<PAGE>
ACQUISITION TRANSACTIONS
Pursuant to the Merger Agreement, Holdings, a corporation formed by AIP,
acquired all of the issued and outstanding capital stock of the Company, through
the Merger of Merger Sub, a wholly owned subsidiary of Holdings, into the
Company. The aggregate consideration paid by AIP pursuant to the Merger
Agreement was approximately $376.9 million. The Company was the surviving
corporation in the Merger.
In order to finance the Merger, (i) AIP and affiliates of, and certain other
individuals associated with, AIP contributed the AIP Equity Contribution to
Holdings, (ii) Holdings issued and sold the Holdings Debentures and contributed
the Holdings Equity Contribution to the Company, (iii) the Company entered into
the Term Loan Facilities providing for term loan borrowings in the aggregate
principal amount of approximately $111.0 million and the Revolving Credit
Facility for borrowings of up to $25.0 million under the New Credit Agreement,
and borrowed all term loans available, and (iv) the Company issued and sold
$175.0 million aggregate principal amount of the Old Notes offered pursuant to
the Offering Memorandum.
In connection with the Merger, the Company commenced the Tender Offer on
April 24, 1998, for any and all of the 10% Notes and simultaneously conducted
the Solicitation of consents from holders of the 10% Notes to certain amendments
to and waivers under the 10% Indenture and certain related collateral documents.
All of the outstanding 10% Notes were purchased by the Company pursuant to the
Tender Offer and such purchase was consummated concurrently with the closing of
the Offering. The aggregate consideration paid by the Company in the Tender
Offer and Solicitation was approximately $74.1 million (including the amount
paid to holders tendering 10% Notes in excess of the principal amount being
tendered (the "Tender Premium") of approximately $9.1 million but excluding
accrued interest).
Following consummation of the Tender Offer and Solicitation, the Company
submitted the 10% Notes for cancellation. After such cancellation, the 10%
Indenture as supplemented by the Supplemental Indenture is of no further force
or effect.
Consummation of the Merger was conditioned upon the consummation of the
Tender Offer and Solicitation, the execution of and borrowings by the Company
under the New Credit Facility, the consummation of Offering or alternative
financing and the Holdings Equity Contribution.
AMERICAN INDUSTRIAL PARTNERS
AIP is a private investment fund headquartered in San Francisco and New York
with committed capital of approximately $800.0 million. AIP seeks to invest in
companies which hold either a protected competitive position or proprietary
capability, ideally combined with a leading market share. The firm does not seek
to play a role in daily management; rather, AIP seeks to provide its portfolio
companies with access to the management expertise of its operating partners, all
of whom are former Chief Executive Officers of Fortune 500 corporations, through
active board-level participation as well as on-call advice when desired.
Following the consummation of the Acquisition Transactions, AIP and
affiliates of, and certain other individuals associated with, AIP contributed
$65.0 million and $330,000, respectively, in equity to Holdings, and Theodore C.
Rogers, a general partner of AIP and former Chairman and Chief Executive Officer
of NL Industries, Inc., became the Company's Non-Executive Chairman of the
Board. Although no specific arrangements are in place, AIP intends to offer the
Company's executive officers the opportunity to own up to approximately 5.0% of
Holdings' equity through a combination of direct investments and option
programs.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer.
23
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1998. The following table should be read in conjunction with
the "Unaudited Condensed Consolidated Financial Statements" and the related
notes thereto included elsewhere herein and the "Selected Historical Financial
and Other Data" and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term debt (includes current portion):
Copetro Credit Agreement................................................................ $ 15,850
Other existing indebtedness(a).......................................................... 8,384
Revolving Credit Facility(b)............................................................ --
Term Loan Facilities.................................................................... 111,000
10.25% Senior Subordinated Notes........................................................ 175,000
--------
Total long-term debt.................................................................. 310,234
Stockholder's equity:
Total stockholders' equity.............................................................. 93,479
--------
Total capitalization.................................................................... $ 403,713
--------
--------
</TABLE>
- ------------------------
(a) Includes various outstanding industrial revenue bonds, capitalized leases
and certain other miscellaneous indebtedness. In addition, as of June 30,
1998, approximately $3.4 million of letters of credit were outstanding under
the New Credit Agreement.
(b) The Revolving Credit Facility under the New Credit Agreement provides for up
to $25.0 million of borrowing availability. As of August 31, 1998, no funds
had been drawn down on the Company's existing lines of credit and
approximately $3.6 million in letters of credit under the New Credit
Agreement were outstanding. See "Description of Other Indebtedness--New
Credit Agreement."
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Financial Data have
been derived by the application of pro forma adjustments to the historical
financial data of the Company and the predecessor included elsewhere herein. The
pro forma consolidated statements of operations for the year ended December 31,
1997 and the six months ended June 30, 1998 give effect to the Acquisition
Transactions as if the Acquisition Transactions had been consummated as of
January 1, 1997 and 1998, respectively. The adjustments are described in the
accompanying notes. The Unaudited Pro Forma Condensed Consolidated Financial
Data do not purport to represent what the Company's results of operations or
financial position actually would have been if the Acquisition Transactions had
been consummated on the dates indicated, or what such results of operations or
financial position will be for any future period or date. The Unaudited Pro
Forma Condensed Consolidated Financial Data should be read in conjunction with
the "Selected Historical Financial and Other Data" and the related notes thereto
and the Consolidated Financial Statements and related notes thereto included
elsewhere herein.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
--------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales..................... $231,911 $ 231,911
Cost of goods sold............ 172,390 4,378(a) 176,768
--------- ---------
Gross profit.................. 59,521 55,143
Selling, general and
administrative expenses..... 18,510 4,945(b) 23,455
--------- ---------
Operating income........ 41,011 31,688
Other income (expense):
Interest expense, net......... (6,287 ) (24,056)(c) (30,343)
Other, net.................... (49 ) (49)
--------- ---------
Income before income taxes.... 34,675 1,296
Income tax expense............ 12,691 (10,407)(d) 2,284
--------- ---------
Net income.................. $ 21,984 $ (988)
--------- ---------
--------- ---------
</TABLE>
25
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
PREDECESSOR COMPANY
---------- ----------
PERIOD PERIOD
FROM FROM
JANUARY 1, MAY 22,
1998 1998
TO MAY 21, TO JUNE
1998 30, 1998 ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales......................................... $ 90,849 $ 28,511 $119,360
Cost of goods sold................................ 67,168 20,676 2,300(e) 90,144
---------- ---------- ---------
Gross profit...................................... 23,681 7,835 29,216
Selling, general and administrative............... 13,070 1,720 1,927(f) 16,717
---------- ---------- ----------- ---------
Operating income............................ 10,611 6,115 12,499
Other income (expense):
Interest expense, net............................. (1,776) (3,309) (9,977)(g) (15,062)
Other, net........................................ (472) 491 19
---------- ---------- ---------
Income before income taxes and extraordinary
item............................................ 8,363 3,297 (2,544)
Income tax expense................................ 2,839 2,198 (5,304)(d) (267)
---------- ---------- ---------
Income before extraordinary item.................. $ 5,524 $ 1,099 $ (2,277)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(a) The increase in cost of goods sold relates to increased depreciation expense
of approximately $4.6 million resulting from the increase in fixed asset
value reflecting the allocation of a portion of the purchase price to the
write-up of fixed assets and an approximate $0.2 million decrease in
amortization expense resulting from the write-off of certain intangibles.
(b) Adjustments to selling, general and administrative expenses include an
increase in amortization expense for goodwill of approximately $4.5 million
and for the non-compete agreement of $0.4 million (assumes 40-year and
7-year amortization periods, respectively).
(c) Adjustments to interest expense include the following: (i) the reduction of
approximately $0.3 million of existing financing fee amortization, (ii)
reduction of approximately $1.2 million of interest income, (iii) reduction
of approximately $0.1 million of expenses associated with the previous
credit agreement for letters of credit and commitment fees, (iv) the
elimination of $6.5 million related to the 10% Notes, (v) the addition of
approximately $27.4 million related to the Notes and the New Credit
Agreement, (vi) approximately $0.2 million of incremental maintenance and
commitment fees and expenses on the New Credit Agreement, and (vii) the
increase of approximately $2.1 million in amortization relating to financing
fees and other transaction costs (amortized over 6-10 years).
(d) Reflects the tax effect of the pro forma adjustments and the
non-deductibility of certain intangible asset amortization.
(e) The increase in cost of goods sold relates to increased depreciation expense
of approximately $2.3 million (after taking into consideration $1.4 million
of depreciation expense included in the historical period from May 22, 1998
to June 30, 1998) resulting from the increase in fixed asset value
reflecting the allocation of a portion of the purchase price to the write-up
of fixed assets and a decrease in amortization expense resulting from the
write-off of certain intangibles.
(f) Adjustments to selling, general and administrative expenses include an
increase in amortization expense for goodwill of approximately $1.8 million
and for the non-compete agreement of $0.2 million, after taking into
consideration amortization expense for goodwill of $0.5 million and for the
26
<PAGE>
non-compete agreement of $0.05 million in the historical period from May 22,
1998 to June 30, 1998 (assumes 40-year and 7-year amortization period,
respectively).
(g) Adjustments to interest expense include the following: (i) the reduction of
approximately $0.1 million of existing financing fee amortization, (ii)
reduction of approximately $1.1 million of interest income, (iii) reduction
of expenses associated with the previous credit agreement for letters of
credit and commitment fees, (iv) the elimination of $2.5 million related to
the 10% Notes, (v) the addition of approximately $10.7 million related to
the Notes and the New Credit Agreement, (vi) approximately $0.1 million of
incremental maintenance and commitment fees and expenses on the New Credit
Agreement and (vii) the increase of approximately $0.8 million in
amortization relating to financing fees and other transaction costs
(amortized over 6 to 10 years).
(h) The Company paid approximately $8.2 million and $9.4 million during the year
ended December 31, 1997 and the period from January 1, 1998 to May 21, 1998,
respectively, in management and other fees to HII and compensation payments
pursuant to certain employment and consulting agreements. These arrangements
and agreements were terminated upon consummation of the Acquisition
Transactions. Subsequent to the consummation of the Acquisition
Transactions, the Company will pay approximately $1.8 million per year in
management fees to AIP. The anticipated savings associated with the
termination of the HII arrangements and the employment and consulting
agreements and the establishment of a new management agreement with AIP have
not been reflected in the pro forma condensed consolidated statement of
operations data.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The following table presents selected historical consolidated statement of
operations, balance sheet and other data of the Company's Predecessor as of and
for the five years ended December 31, 1997 which are derived from the
Predecessor's audited consolidated financial statements. The selected historical
consolidated statement of operations, balance sheet and other data for the
six-month periods ended June 30, 1997 and for the period from January 1, 1998 to
May 21, 1998 are derived from the unaudited consolidated financial statements of
the Predecessor, and in the opinion of management, include all adjustments
necessary for a fair presentation of the data for such periods. The results for
the period from May 22, 1998 through June 30, 1998 represent the operations of
the Company subsequent to the date of the Acquisition, and in the opinion of
management, include all adjustments necessary for a fair presentation of the
data for such period. The interim results are not necessarily indicative of the
results to be expected for the period ended December 31, 1998 or any future
period. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and its
predecessor and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR(1)
----------------------------------------------------------------------
SIX JANUARY
MONTHS 1, 1998
YEAR ENDED DECEMBER 31, ENDED TO
------------------------------------------------ JUNE 30, MAY 21,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER TON) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $149,225 $130,797 $178,628 $242,744 $231,911 $113,610 $90,849
Cost of goods sold................................ 124,760 109,883 142,188 176,371 172,390 86,543 67,168
-------- -------- -------- -------- -------- --------- ---------
Gross profit...................................... 24,465 20,914 36,440 66,373 59,521 27,067 23,681
Selling, general and administrative expenses...... 9,901 8,226 9,687 15,321 18,510 8,987 13,070
-------- -------- -------- -------- -------- --------- ---------
Operating income.................................. 14,564 12,688 26,753 51,052 41,011 18,080 10,611
Other income (expense):
Interest expense, net........................... (1,440) (1,358) (1,127) (7,573) (6,287) (3,607 ) (1,776 )
Asset utilization fee to parent................. (6,440) (6,133) (6,286) -- -- -- --
Other........................................... (1,806) (5,142) 2,111 (772) (49) 117 (472 )
-------- -------- -------- -------- -------- --------- ---------
(9,686) (12,633) (5,302) (8,345) (6,336) (3,490 ) (2,248 )
Income before income taxes and extraordinary
item............................................ 4,878 55 21,451 42,707 34,675 14,590 8,363
Income tax expense................................ 2,008 189 7,633 15,148 12,691 5,544 2,839
Extraordinary loss on early extinguishment of debt
(net of tax benefit of $4,001).................. 7,113
-------- -------- -------- -------- -------- --------- ---------
Net income (loss)................................. $ 2,870 $ (134) $ 13,818 $ 27,559 $ 21,984 $ 9,046 $(1,589 )
-------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- --------- ---------
OTHER DATA:
EBITDA(2)......................................... $ 23,958 $ 21,986 $ 36,514 $ 66,563 $ 59,182 $ 27,020 $23,203
EBITDA margin..................................... 16.1% 16.8% 20.4% 27.4% 25.5% 23.8 % 25.5 %
Capital expenditures.............................. $ 6,973 $ 5,986 $ 5,774 $ 6,371 $ 21,391 $ 7,744 $9,058
Cash interest expense(3).......................... 1,796 1,572 1,310 7,964 8,172 4,267 3,327
Ratio of earnings to fixed charges(4)............. 2.7x 1.0x 10.2x 5.6x 4.6x 3.9x 3.1x
Quantity of CPC sold (in thousands of tons)....... 1,286 1,229 1,484 1,452 1,443 708.18 566.42
Net sales per ton of CPC sold..................... $ 116.01 $ 106.40 $ 120.35 $ 167.21 $ 160.67 $ 160.42 $160.39
Gross profit per ton of CPC sold.................. 19.02 17.01 24.55 45.72 41.24 38.22 41.81
Cash provided (used) by operating activities...... 19,530 17,338 17,235 27,722 31,261 9,097 12,738
Cash provided (used) by investing activities...... (22,482) (5,987) (5,774) (6,371) (21,391) (7,744 ) (9,058 )
Cash provided (used) by financing activities...... (7,150) (11,123) (6,119) (2,906) 9,629 2,320 4,767
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................... $ 19,366 $ 15,828 $ 27,011 $ 56,818 $ 79,435
Total assets...................................... 106,483 105,390 113,930 148,905 174,911
Total debt........................................ 17,986 11,907 74,291 72,885 84,014
Stockholders' equity.............................. 68,791 68,657 5,896 31,955 52,439
<CAPTION>
COMPANY
---------
MAY 22,
1998
TO
JUNE 30,
1998
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $ 28,511
Cost of goods sold................................ 20,676
---------
Gross profit...................................... 7,385
Selling, general and administrative expenses...... 1,720
---------
Operating income.................................. 6,115
Other income (expense):
Interest expense, net........................... (3,309 )
Asset utilization fee to parent................. --
Other........................................... 491
---------
(2,818 )
Income before income taxes and extraordinary
item............................................ 3,297
Income tax expense................................ 2,198
Extraordinary loss on early extinguishment of debt
(net of tax benefit of $4,001)..................
---------
Net income (loss)................................. $ 1,099
---------
---------
OTHER DATA:
EBITDA(2)......................................... $ 8,311
EBITDA margin..................................... 29.2 %
Capital expenditures.............................. $ 1,848
Cash interest expense(3).......................... 3,300
Ratio of earnings to fixed charges(4)............. 1.8x
Quantity of CPC sold (in thousands of tons)....... 177.46
Net sales per ton of CPC sold..................... $ 160.67
Gross profit per ton of CPC sold.................. 44.15
Cash provided (used) by operating activities...... (26,126 )
Cash provided (used) by investing activities...... (281,526 )
Cash provided (used) by financing activities...... 313,833
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................... $ 41,142
Total assets...................................... 498,423
Total debt........................................ 310,234
Stockholders' equity.............................. 93,479
</TABLE>
- ----------------------------------
(1) On May 22, 1998 the Company was acquired by Great Lakes Acquisition Corp.
References to the "Predecessor" relate to the Company prior to the date of
the Acquisition.
(2) Adjusted EBITDA is defined as operating income before depreciation,
amortization, fees and expenses paid to HII ($1.4 million, $1.7 million and
$1.4 million in 1995, 1996 and 1997, respectively, and $0.7 million for six
months ended June 30, 1997 and $8.8 million for the period from January 1,
1998 to May 21, 1998), and payments pursuant to employment and consulting
agreements which were terminated upon consummation of the Acquisition
Transactions ($4.5 million and $6.8 million in 1996 and 1997, respectively,
and $3.4 million for six months ended June 30, 1997 and $0.3 million for the
period from January 1, 1998 to May 21, 1998) and AIP management fees ($0.2
million for the period from May 22, 1998 to June 30, 1998). Adjusted EBITDA
is not defined in the same manner as "Consolidated Adjusted EBITDA" in the
Indenture or in "Description of Notes" herein. See "Description of
Notes--Certain Definitions." Adjusted EBITDA is not intended to represent
cash flow from operations by GAAP (as defined) and should not be used as an
alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity. Adjusted EBITDA is included in the
Prospectus as it is a basis upon which the Company assesses its financial
performance, and certain covenants in the Company's borrowing arrangements
will be tied to similar measures. Adjusted EBITDA, as presented, represents
a useful measure of assessing the Company's ongoing operating activities
without the impact of financing activity and nonrecurring charges. While
adjusted EBITDA is frequently used as a measure of operations and the
ability to meet debt service requirements, it is not necessarily comparable
to other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
(3) Cash interest expense excludes the amounts of interest charged to earnings
relating to a capitalized lease which has been sublet for a term coterminous
with the primary lease and for a rental amount in excess of the rent payable
on the primary lease and the amortization of debt issuance costs under the
10% Notes.
(4) Earnings used in computing the ratio of earnings to fixed charges consist of
earnings before income taxes and extraordinary items plus fixed charges.
Fixed charges consist of interest expense plus that portion of operating
lease rental expense which is representative of an interest factor.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Historical Financial Data" and the Consolidated Financial Statements
and related notes thereto included elsewhere herein.
GENERAL
The Company is the world's largest producer of CPC. The Company produces
anode grade CPC, which is an essential raw material for primary aluminum
production, and industrial grade CPC, which is used in a variety of specialty
metals and materials applications. Historically, the Company's profitability has
been primarily a function of its sales volumes of CPC, CPC pricing and the cost
of RPC, which constitutes the largest single component of the Company's cost of
goods sold.
The Company has benefitted from the consistent growth in primary aluminum
production since 1995. The growth in primary aluminum production, which is
projected by a variety of industry sources to continue through the next several
years, has led to increased demand for CPC which has substantially outpaced the
growth in CPC production capacity. As a result, the calcining industry is
operating at historically high operating rates; the Company has operated at full
capacity since 1995. The selling price per ton realized by the Company has
increased 33.5% from 1995 to 1997. Consequently, the Company's net sales have
increased by 29.8% from $178.6 million to $231.9 million over the same period.
The Company produces CPC from RPC, which is a by-product of the petroleum
refining process. RPC generally represents an immaterial proportion of total
refinery sales. Petroleum refiners can either sell the RPC for its fuel value at
a relatively low price or sell the RPC at a significantly higher price for use
in the calcining industry. As a result of these factors, the price of RPC has
not increased as rapidly as the price of CPC since 1995. Consequently, the
Company has been able to increase its gross profit per ton of CPC sold from
$24.55 in 1995 to $41.24 in 1997.
The Company's principal source of revenues and profits are sales of anode
grade CPC to the aluminum industry. The increase in the Company's sales and
profitability since 1995 has been primarily attributable to the increase in
anode grade CPC prices, while sales volumes remained relatively constant. Future
profitability will largely be dependent on how well the Company is able to
manage the spread between the selling price of CPC and the cost of RPC.
Historically the Company has been able to obtain lower purchase prices for RPC
in times of declining CPC prices, enabling the Company to earn a relatively
stable profit spread even in periods of CPC price declines.
The following table sets forth for the periods shown, the Company's sales
volumes in tons, the average selling price per ton, and gross profit per ton
sold:
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------------------------- COMPANY COMBINED
------------- ---------------
YEAR ENDED DECEMBER 31, SIX MONTHS JANUARY 1, 1998 MAY 22, 1998 JANUARY 1, 1998
------------------------------- ENDED TO TO TO
1995 1996 1997 JUNE 30, 1997 MAY 21, 1998 JUNE 30, 1998 JUNE 30, 1998
--------- --------- --------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales (thousands of
tons)............. 1,484 1,452 1,443 708 566 177 744
Average selling
price per ton..... $ 120.35 $ 167.21 $ 160.67 $ 160.42 $ 160.39 $ 160.67 $ 160.46
Gross profit per ton
sold.............. 24.55 45.72 41.24 $ 38.22 $ 41.81 $ 44.15 $ 42.37
</TABLE>
29
<PAGE>
BASIS OF PRESENTATION
The following table sets forth for the periods shown, net sales, cost of
goods sold, gross profit, selling general and administrative expense ("SG&A")
and EBITDA in million of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS JANUARY 1, 1998
PREDECESSOR
----------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
ENDED TO
1995 1996 1997 JUNE 30, 1997 MAY 21, 1998
-------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $ 178.6 100.0% $ 242.7 100.0% $ 231.9 100.0% $ 113.6 100.0% $ 90.8 100.0%
Cost of goods sold... 142.2 79.6 176.4 72.7 172.4 74.3 86.5 76.2 67.2 73.9
Gross profit......... 36.4 20.4 66.4 27.3 59.5 25.7 27.1 23.8 23.7 26.1
SG&A................. 9.7 5.4 15.3 6.3 18.5 8.0 9.0 7.9 13.1 14.4
Adjusted EBITDA...... 36.5 20.4 66.6 27.4 59.2 25.5 27.0 23.8 23.2 25.5
<CAPTION>
COMPANY COMBINED
TO TO
JUNE 30, 1998 JUNE 30, 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
Net sales............ $ 28.5 100.0% $ 119.4 100.0%
Cost of goods sold... 20.7 72.5 87.8 73.6
Gross profit......... 7.8 27.5 31.5 26.4
SG&A................. 1.7 6.0 14.8 12.4
Adjusted EBITDA...... 8.3 29.2 31.5 26.4
</TABLE>
The following discussion provides an assessment of the consolidated results
of operations and liquidity and capital resources for the Company and the
Predecessor. Unless otherwise indicated, 1998 historical results represent the
combined operating results of the Predecessor from January 1, 1998 to May 21,
1998 and the Company from the date of the Merger on May 22, 1998 through June
30, 1998.
As further discussed in Note 2 to the Company's Condensed Consolidated
Financial Statements, the Acquisition was accounted for as a purchase.
Accordingly, the operating results for periods subsequent to May 21, 1998
reflect the results of operations of the Company subsequent to the Acquisition
and include the impact of adjustments required under the purchase method of
accounting.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
The Company's net sales for the six months ended June 30, 1998 increased
5.1% to $119.4 million from $113.6 million for the comparable 1997 period. Net
sales of anode grade CPC increased 7.1% to $100.7 million while net sales of
industrial grade CPC decreased 4.5% to $17.7 million.
The increase in anode grade CPC net sales was primarily the result of a
10.7% increase in sales volume to 610,087 tons attributable to continued strong
demand consistent with existing levels of aluminum production. This increase in
sales volume was partially offset by a decline of 3.2% in average selling price.
This decrease reflects a modest price accommodation in light of both weak
aluminum prices and the significant 60.5% increase in anode grade CPC selling
prices from 1994 to 1997. Anode grade CPC prices began to climb in mid-1995 as
aluminum smelters started to operate at higher production levels when the MOU
terminated. The increased demand for anode grade CPC drove prices up
dramatically through year-end 1996. Prices decreased slightly starting in 1997
to their current levels as the market stabilized at the higher rates of primary
aluminum production. The continuing growth in primary aluminum smelting
production through capacity expansions, restarts and capacity creep has led to
strong demand for CPC and as a result the anode grade CPC market remains strong.
See "Business--Industry Overview."
The decrease in industrial grade CPC net sales was the result of a 13.6%
decrease in sales volume to 123,306 tons which was partially offset by a 10.5%
increase in selling price. The decrease in sales volume was primarily the result
of the scheduling of greater anode grade CPC shipments in the 1998 period.
The Company's gross profit for the six months ended June 30, 1998 increased
by 16.4% to $31.5 million from $27.1 million for the comparable 1997 period. The
increase in gross profit was due to the increase in sales discussed above which
was partially offset by an increase in cost of goods. The higher cost of sales
was mainly the result of higher sales volume as the average cost per ton
decreased due mainly to lower raw material costs. Additional depreciation
related to the Acquisition in the period subsequent to
30
<PAGE>
May 21, 1998 amounted to $0.5 million and represented 38.3% of the total
unfavorable change in cost of goods sold.
Operating income for the six months ended June 30, 1998 decreased 7.5% to
$16.7 million from $18.1 million in the comparable 1997 period. The decline in
operating income was due to the increase in selling, general and administrative
expenses partially offset by the increase in gross profit discussed above. The
increase in selling, general and administrative expenses was primarily the
result of the payment of certain non-recurring fees and expenses under
agreements that were terminated at the date of the Acquisition and increased
amortization expense related mainly to goodwill established when the Company was
acquired.
Income before income taxes and extraordinary item for the six months ended
June 30, 1998 decreased 20.1% to $11.7 million from $14.6 million for the
comparable 1997 period. The decrease was attributable to the decline in
operating income discussed above and a $1.5 million increase in net interest
expense primarily due to the greater amount of debt incurred by the Company as a
consequence of the Acquisition.
The Company's effective tax rate for the six months ended June 30, 1998
increased to 43.2% from 38.0% for the comparable 1997 period primarily as a
result of the tax effects of income from foreign operations and non-deductible
amortization of goodwill in the period subsequent to the Acquisition.
An extraordinary loss on early extinguishment of debt of $7.1 million (net
of income tax benefit of $4.0) was recognized during the period prior to the
Acquisition. This loss relates to the tender premium and unamortized debt
issuance costs associated with the 10% Senior Secured Notes that were
repurchased in connection with the Acquisition. As a result of the factors
discussed above, results for the six months ended June 30, 1998 decreased 105.4%
to a loss of $0.5 million from a profit of $9.1 million in the 1997 period.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company's net sales for the year ended December 31, 1997 decreased 4.5%
to $231.9 million from $242.7 million in 1996. Net sales of anode grade CPC
decreased 4.8% to $189.9 million while net sales of industrial grade CPC
increased 4.2% to $40.2 million.
The decrease in anode grade CPC net sales was primarily the result of a 6.4%
decline in the average selling price per ton in 1997 from 1996. This decline in
average selling price was partially offset by an increase of 1.8% in sales
volume in 1997 to approximately 1.1 million tons. The moderate 1997 anode grade
CPC price decline was largely the result of a modest price accommodation given
the significant 71.5% increase in anode grade CPC selling prices from 1994 to
1996. Anode grade CPC prices began to increase in mid-1995 as aluminum smelters
started to operate at higher production levels when the MOU terminated. The
increased demand for anode grade CPC drove prices up dramatically through
year-end 1996. Prices for anode grade CPC decreased slightly in 1997 as the
market stabilized at the higher rates of primary aluminum production. The
continuing growth in primary aluminum smelting production through capacity
expansions, restarts and capacity creep has maintained demand for CPC at high
levels. As a result the anode grade CPC market remains firm.
The increase in industrial grade CPC net sales was the result of an 8.3%
increase in average selling price which was partially offset by a 3.8% decrease
in sales volume. These changes were primarily the result of increased market
prices across most product applications and a slight decrease in titanium
dioxide shipments.
The Company's 1997 gross profit decreased 10.3% to $59.5 million, from $66.4
million in 1996. The decrease in gross profit was due to the reduction in sales
discussed above which was partially offset by a decrease in cost of goods sold.
The lower cost of goods sold was primarily the result of lower raw material
costs.
31
<PAGE>
Operating income decreased 19.7% to $41.0 million in 1997 from $51.1 million
in 1996. The decline in operating income was due to the decrease in gross profit
discussed above and an increase in selling, general and administrative expenses.
The increase in selling, general and administrative expenses was primarily the
result of increased compensation payments pursuant to employment and consulting
agreements which were terminated upon consummation of the Acquisition
Transactions.
Income before income taxes decreased 18.8% to $34.7 million in 1997 from
$42.7 million in 1996. The reduction was attributable to the reduced operating
income discussed above, partially offset by a $2.0 million decrease in other
expense. This decrease was primarily a result of greater interest income from
greater cash balances in 1997. As a result of the factors discussed above, net
income for 1997 decreased 20.2% to $22.0 million from $27.6 million in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company's net sales for the year ended December 31, 1996 increased 35.9%
to $242.7 million from $178.6 million in 1995. Net sales of anode grade CPC
increased 34.8% to $199.4 million in 1996, while net sales of industrial grade
CPC increased 40.0% to $38.6 million.
The increase in anode grade CPC net sales was primarily the result of higher
average selling prices which grew approximately 45.8% in 1996. The increase in
average selling price for anode grade CPC was partially offset by a decrease in
selling volume of 7.5% to approximately 1.1 million tons. The higher prices were
the result of the attractive industry fundamentals experienced in 1996. The
lower sales volume of anode grade CPC was primarily attributable to the
unavailability of third-party produced CPC, which the Company had been able to
purchase for resale in 1995.
The increase in industrial grade CPC net sales was the result of a 22.5%
average price increase and a 14.4% increase in sales volume in 1996 compared to
1995. The increase in both industrial grade CPC selling prices and sales volume
was due to strong market conditions.
The Company's 1996 gross profit increased 82.1% to $66.4 million from $36.4
million in 1995. This increase in gross profit was due to the increase in sales
discussed above, partially offset by an increase in cost of sales. The higher
cost of goods sold was mainly the result of higher raw material costs.
Operating income increased 90.8% to $51.1 million in 1996 from $26.8 million
in 1995. The increase in operating income was due to the increase in gross
profit discussed above which was partially offset by an increase in selling,
general and administrative expenses. The increase in selling, general and
administrative expenses was primarily the result of increased compensation
payments pursuant to employment and consulting agreements which were terminated
upon consummation of the Acquisition Transactions.
Income before income taxes increased 99.1% to $42.7 million in 1996 from
$21.5 million in 1995 as a result of the improvement in operating income that
was partially offset by a $3.0 million increase in other expense. This increase
primarily resulted from a non-recurring income item in 1995. The increase in net
interest expense arising from the issuance of the 10% Notes in December 1995 was
offset by the reduction in the asset utilization fee to HII, under an agreement
which was terminated in December 1995. As a result of the factors discussed
above, net income for 1996 increased 99.4% to $27.6 million from $13.8 million
in 1995.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL
Historically, the Company's principal source of liquidity has been cash flow
from operations. In addition, since 1997 the Company has supplemented its cash
flow with borrowings under the Copetro Credit Agreement to finance construction
of the New La Plata Kiln at the Company's La Plata, Argentina facility.
32
<PAGE>
Net cash flow provided (used) by operating activities was $(13.4) million
and $9.1 million for the six months ended June 30, 1998 and 1997, respectively.
The decrease in operating cash flow was a result of an increase in other assets
related to the capitalization of debt issuance costs arising from the
Acquisition and the lower results discussed above. Net cash flow provided by
operating activities was $31.3 million, $27.7 million and $17.2 million in 1997,
1996 and 1995, respectively. The Company's operating cash flow improved in 1997
over 1996 primarily as a result of lower working capital requirements offset in
part by lower net income. The improvement in operating cash flow in 1996
compared to 1995 was primarily the result of the increase in net income
experienced during 1996 which reflected the Company's substantially improved
financial performance in that period. This increase was partially offset by
higher working capital requirements which were necessary to support the
Company's higher sales volumes.
Capital expenditures were $10.9 million and $7.7 million for the six months
ended June 30, 1998 and 1997, respectively. The higher capital expenditures in
the 1998 period reflect $7.6 million related to the continued construction of
the New La Plata Kiln, compared to $3.6 million in the prior year period.
Amounts to complete a new ship loader facility at the Company's Port Arthur,
Texas plant of approximately $1.4 million also contributed to the increase.
Capital expenditures were $21.4 million, $6.4 million, and $5.8 million in 1997,
1996 and 1995, respectively. Of the increase in capital expenditures in 1997,
$13.4 million is attributable to the construction of the New La Plata Kiln and
$1.0 million was related to the construction of a new ship loader facility at
the Company's Port Arthur, Texas plant. Other capital expenditures in the period
1995 to 1997 were relatively constant, ranging from approximately $5.8 to $7.0
million. These expenditures generally related to the maintenance of the
Company's operating facilities, including kilns, increases in the Company's CPC
storage capability, and the expansion of the Company's crushing and screening
facilities used in the production of industrial grade CPC. The Company has
budgeted $15.0 million of capital expenditures in 1998 including 9.0 million to
complete the New La Plata Kiln.
The Company spent approximately $3.5 million on capital expenditures related
to pollution control facilities in 1997 and anticipates spending approximately
$3.5 million and $1.9 million for such facilities in 1998 and 1999,
respectively. Approximately half of the environmental expenditures in 1997 and
1998 will be in conjunction with the construction of the New La Plata Kiln.
The Company financed the expansion of the Argentine facility with a
revolving credit facility (the "Copetro Credit Agreement") provided by Banca
Nazionale del Lavoro S.A. ("BNL"). The Copetro Credit Agreement is nonrecourse
to the Company, matures on March 31, 2002, and provides for a variable interest
rate (9.78% at June 30, 1998). The Copetro Credit Agreement had a maximum
availability of $20.0 million of which a total of $15.9 million was borrowed and
remained in place after the Acquisition. The Copetro Credit Agreement is secured
by the property, plant and equipment of Copetro, including the New La Plata
Kiln. The Copetro Credit Agreement contains certain covenants that require
Copetro to maintain certain financial ratios and imposes certain limitations on
the payment of dividends to the Company. See "Description of Other
Indebtedness--Copetro Credit Agreement."
The Company was acquired on May 22, 1998 and as a result $279.7 million
representing the consideration paid to the former stockholders (net of cash
used) is reflected in investing activities for the period subsequent to the
Acquisition.
In December 1995, the Company issued $65.0 million of the 10% Notes. The
$62.5 million of net proceeds from such offering were used to pay a cash
dividend to HII in connection with the distribution of 100% of the Company's
common stock on a pro rata basis to the holders of the common stock of HII. The
10% Notes are secured by first priority liens on all material property and
equipment of the Company not otherwise pledged and certain other assets of the
Company.
In connection with the Merger, the Company commenced a Tender Offer on April
24, 1998, for any and all of the 10% Notes and simultaneously conducted the
Consent Solicitation from holders of the 10% Notes to certain amendments to and
waivers under the 10% Indenture and certain related collateral
33
<PAGE>
documents. All of the outstanding 10% Notes were purchased by the Company
pursuant to the Tender Offer and Solicitation and such purchase was consummated
concurrently with the closing of the Offering. The aggregate consideration paid
by the Company in the Tender Offer and Solicitation was approximately $74.1
million (including the Tender Premium of approximately $9.1 million but
excluding accrued interest).
Following consummation of the Tender Offer and Solicitation, the 10%
Indenture and the 10% Notes were terminated.
The previous credit agreement provided for borrowings of up to $15.0
million, including a $10 million sublimit for letters of credit, which were
subject to borrowing base limitations. On May 22, 1998, the Company had no
borrowings under the facility and had outstanding letters of credit of $3.4
million. The previous credit agreement was terminated concurrently with the
Acquisition and the $3.4 million in letters of credit were collateralized
pursuant to a letter of credit issued under the New Credit Agreement.
POST-MERGER
The Company's principal sources of liquidity are cash flow from operations,
and borrowings under the Revolving Credit Facility.
In connection with the Merger, the Company issued the Old Notes in an
aggregate principal amount of $175.0 million, Holdings offered the Holdings
Debentures in an aggregate principal amount at maturity of $56.6 million and
Holdings and the Company entered into the Term Loan Facilities and the Revolving
Credit Facility under the New Credit Agreement. Each of the Term Loan Facilities
is a single tranche term facility. The Term A Loan Facility, the Term B Loan
Facility, and the Term C Loan Facility are in principal amounts of $50.0
million, $31.0 million and $30.0 million, respectively. The Revolving Credit
Facility will provide revolving loans in an aggregate amount of up to $25.0
million. Upon consummation of the Acquisition, the Company borrowed the full
amount available under each of the Term Loan Facilities and did not draw under
the Revolving Credit Facility. Proceeds from the issuance of the Old Notes and
the Holdings Debentures, initial borrowings under the New Credit Agreement and
the AIP Equity Contribution were used to finance the Acquisition Transactions,
and fees and expenses in connection therewith and including the Tender Offer.
Borrowings under the New Credit Agreement bear interest at a rate per annum
equal (at the Company's option) to a margin over either a base rate or LIBOR.
The Revolving Credit Facility, the Term A Loan Facility, the Term B Loan
Facility and the Term C Loan Facility will mature in five, six, seven and eight
years, respectively. The Company's obligations under the New Credit Agreement
will be guaranteed by Holdings and any future Subsidiaries of the Company other
than Foreign Subsidiaries. The guarantee of the New Credit Agreement by Holdings
is secured by a pledge of all of the capital stock of the Company. The New
Credit Agreement and the guarantees thereof are secured by a perfected first
priority security interest in substantially all assets of the Company and its
future direct and indirect subsidiaries except Foreign Subsidiaries. The New
Credit Agreement contains covenants and events of default customary for
facilities of this nature including substantial restrictions on the Company's
ability to make dividends or distributions or incur additional indebtedness. As
of August 31, 1998, no funds had been drawn down on the Company's existing lines
of credit and approximately $3.6 million in letters of credit under the New
Credit Agreement were outstanding. See "Description of Other Indebtedness--New
Credit Agreement."
The Old Notes were and the New Notes will be issued by the Company and will
be guaranteed by any future Subsidiaries other than Foreign Subsidiaries,
Finance Subsidiaries and Receivables Subsidiaries. The Notes will mature on May
15, 2008. Interest on the Notes will be payable in cash semiannually, in
arrears, on May 15 and November 15 of each year, commencing on November 15,
1998. For interest payments due through May 15, 2003, the Company may, at its
option, make up to four semiannual payments through the issuance of Additional
Notes in an aggregate principal amount equal to the amount of the interest that
would be payable as if the rate per annum were equal to 11 3/4%. The Notes will
contain covenants and events of default customary for indebtedness of this
nature, including covenants that limit
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the ability of the Company and its Subsidiaries to incur debt, pay dividends and
make certain investments. See "Description of Notes."
The Holdings Debentures will mature on May 15, 2009. Cash interest will not
accrue on the Holdings Debentures prior to May 15, 2003. Thereafter, interest on
the Holdings Debentures will be payable in cash semiannually, in arrears,
commencing on November 15, 2003. Under the New Credit Agreement and the Notes,
the Company is restricted in its ability to pay dividends to Holdings so that
Holdings can pay its debt service obligations on the Holdings Debentures, the
failure of which may create an event of default under the Holdings Debentures,
which, if not cured or waived, could have a material adverse effect on the
Company. See "Description of Notes--Restricted Payments," "Description of Other
Indebtedness-- Holdings Debentures" and "--New Credit Agreement."
Management believes that cash flow from operations and availability under
the Revolving Credit Facility will provide adequate funds for the Company's
foreseeable working capital needs, planned capital expenditures and debt service
obligations. The Company's ability to fund its operations and make planned
capital expenditures, to make scheduled debt payments, to refinance indebtedness
and to remain in compliance with all of the financial covenants under its debt
agreements depends on its future operating performance and cash flow, which in
turn, are subject to prevailing economic conditions and to financial, business
and other factors, some of which are beyond its control. See "Risk Factors."
YEAR 2000
The Company has completed its Year 2000 compliance assessment and expects to
complete any required remediation efforts in order to be Year 2000 compliant by
the first quarter of 1999. The Company believes that the cost to the Company for
historical and future remediation of Year 2000 issues will not have a material
adverse effect on the Company.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal (which together constitute the Exchange
Offer), the Company 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 November 3, 1998.
As of the date of this Prospectus, $175,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about the date hereof, to all Holders of
the Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions as
set forth under "--Certain Conditions to the Exchange Offer" below. Any Old
Notes not accepted for exchange for any reason will be returned without expense
to the tendering Holder thereof as promptly as practicable 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.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the failure of satisfaction of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the Holders of the Notes as promptly
as practicable, such notice in the case of any extension to 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
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal or (in the case of a book-entry transfer)
an Agent's Message in lieu of such Letter of Transmittal, to the Exchange Agent
at the address set forth below under "Exchange Agent" on or prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes must be
received by the Exchange Agent along with the Letter of Transmittal, or (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Notes, if such procedure is available, into the Exchange Agent's
account at DTC (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date with the Letter of Transmittal or an Agent's
Message in lieu of such Letter of Transmittal, or (iii) the Holder must comply
with the guaranteed delivery procedures described below. The term "Agent's
Message" means a message, transmitted by the Book-Entry Transfer Facility to and
received by the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that the Book-Entry Transfer Facility has received an express
acknowledgment from the tendering participant, which acknowledgment states that
such participant has received and agrees to be bound by the Letter of
Transmittal and that the Company may enforce such Letter of Transmittal against
such participant. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS.
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IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a Holder of the Old Notes who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered owner with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
their counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any Holder who seeks to tender Old Notes
in the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Note either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by powers of attorney, in either case signed exactly as the name or
names of the registered Holder or Holders that appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorneys are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with the Letter of Transmittal.
By tendering, each Holder will represent to the Company that, among other
things, 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 and that neither the Holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New Notes. If any Holder or any such other person is
an "affiliate", as defined under Rule 405 of the Securities Act, of the Company
and is engaged in or intends to engage in or has an arrangement or understanding
with any person to participate in a distribution of such New Notes to be
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acquired pursuant to the Exchange Offer, then such Holder or any such other
person (i) could not rely on the applicable interpretations of the Staff and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
this Prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." The Letter of Transmittal states that by so acknowledging and by
delivering this Prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction of all of the conditions to the Exchange Offer, the
Company 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 "--Certain Conditions to the Exchange Offer" below. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral
(promptly confirmed in writing) or written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered 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 or, if no interest has been paid, from
May 22, 1998. Old Notes accepted for exchange will cease to accrue interest from
and after the date of consummation of the Exchange Offer. Pursuant to the
Registration Rights Agreement, certain Liquidated Damages are required to be
paid to Holders of Old Notes under certain circumstances relating to the timing
of the Exchange Offer and to other registration requirements contained therein.
Holders of Old Notes, who tender such Notes in the Exchange Offer agree to waive
any accrued but unpaid Liquidated Damages on such Old Notes. An amount equal to
the amount of accrued and unpaid Liquidated Damages on Old Notes tendered in the
Exchange Offer shall be payable, on such first interest payment date, to
registered holders of New Notes on the record date for the first interest
payment following the consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, (ii) a properly completed and duly executed
Letter of Transmittal or an Agent's Message in lieu thereof and (iii) all other
required documents. 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
the tendering Holder thereof (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFERS
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer Facility
systems must make book-entry delivery of Old Notes by causing the Book-Entry
Transfer Facility to transfer such Old Notes into the Exchange Agent's accounts
at the Book-Entry Transfer Facility in accordance with such
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Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP")
procedures for transfer. Such participant using ATOP should transmit its
acceptance to the Book-Entry Transfer Facility on or prior to the Expiration
Date or comply with the guaranteed delivery procedures described below. The
Book-Entry Transfer Facility will verify such acceptance, execute a book-entry
transfer of the tendered Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility and then send to the Exchange Agent confirmation of
such book-entry transfer, including an Agent's Message confirming that the
Book-Entry Transfer Facility has received an express acknowledgment from such
participant that such participant has received and agrees to be bound by the
Letter of Transmittal and that the Company may enforce the Letter of Transmittal
against such participant. However, although delivery of Old Notes may be
effected through book-entry transfer at the Book-Entry Transfer Facility, an
Agent's Message and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth below
under "--Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a Holder of the Old Notes desires to tender such Old Notes and the Old
Notes are not immediately available, or time will not permit such Holders' Old
Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
received from such Eligible Institution a Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
Holder of the Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be,
together with a properly completed and duly executed appropriate Letter of
Transmittal (or facsimile thereof or Agent's Message in lieu thereof) with any
required signature guarantees and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be,
together with a properly completed and duly executed appropriate Letter of
Transmittal (or facsimile thereof or Agent's Message in lieu thereof) with any
required signature guarantees and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "--Exchange Agent." Any such notice of
withdrawal must (i) specify the name of the person having tendered the Old Notes
to be withdrawn (ii) identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes), and (iii) if certificates for Old Notes
have been transmitted, specify the name in which such Old Notes are registered,
if different from that of the withdrawing Holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the release of such certificates the withdrawing Holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of such notices
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<PAGE>
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the Holder thereof without cost to such Holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with such Book-Entry Transfer Facility
for the Old Notes), as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or prior to 5:00 p.m., New York City
time, on the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be 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 at any time
before the acceptance of such Old Notes, the Exchange Offer violates any
applicable law or regulation or interpretation of the Staff.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company 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 shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
EXCHANGE AGENT
State Street Bank and Trust Company of California, N.A. has been appointed
as the Exchange Agent for the Exchange Offer. All executed Letters of
Transmittal should be directed to the Exchange Agent at the address set forth
below. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
Delivery to: State Street Bank and Trust Company of California, N.A.,
As Exchange Agent c/o State Street Bank and Trust Company
<TABLE>
<CAPTION>
BY HAND: BY MAIL:
<S> <C>
2 International Place 2 International Place
Boston, MA 02110 Boston, MA 02110
Attn: Kellie Mullen Attn: Kellie Mullen
BY OVERNIGHT COURIER: BY FACSIMILE:
2 International Place (617) 644-5290
Boston, MA 02110 Attn: Kellie Mullen
Attn: Kellie Mullen Telephone: (617) 664-5587
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
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FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer except for reimbursement of mailing
expenses.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $300,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will be obligated to pay any
transfer taxes in connection with such exchange, as well as any other sale or
disposition of the Old Notes. Holders who instruct the Company 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 will be responsible for the payment of any applicable transfer tax
thereon.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions 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 pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register any Old Notes which remain outstanding after consummation of
the Exchange Offer under the Securities Act (subject to certain limited
exceptions, if applicable). To the extent that Old Notes are not tendered and
accepted in the Exchange Offer, a holder's ability to sell such untendered Old
Notes could be adversely affected.
Holders of the New Notes and any Old Notes which remain outstanding after
consummation of the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage thereof have
taken certain actions or exercised certain rights under the Indenture.
Upon consummation of the Exchange Offer, Holders of Old Notes will not be
entitled to any Liquidated Damages or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See
"Description of Notes--Registration Rights; Liquidated Damages."
CONSEQUENCES OF EXCHANGING OLD NOTES
Based on interpretations by the Staff, as set forth in no-action letters
issued to third parties, the Company believes that New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by Holders thereof (other than any such Holder which is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Holder's business and such Holder has no arrangement
or understanding with any person to participate in the distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the Staff would make a
similar determination with respect to the Exchange Offer as in such other
circumstances. 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 such New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. If any Holder is an affiliate of the Company and is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not
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<PAGE>
rely on the applicable interpretations of the Staff and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes must acknowledge that such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver this Prospectus
in connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with the securities laws of certain jurisdictions (including
any jurisdiction outside the United States), the New Notes may not be offered or
sold unless they have been registered or qualified for sale in such jurisdiction
or an exemption from registration or qualification is available and is complied
with. The Company has agreed, pursuant to the Registration Rights Agreement,
subject to certain limitations specified therein, to register or qualify the New
Notes for offer or sale under all applicable state or Blue Sky securities laws
by the time the Registration Statement (of which this Prospectus forms a part)
is declared effective by the SEC.
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BUSINESS
INTRODUCTION AND BACKGROUND
Based upon 1996 industry statistics, the Company is the largest producer of
CPC in the world. Anode grade CPC is the principal raw material used in the
production of carbon anodes for use in aluminum smelting, and is used by every
producer of primary aluminum in the world. Anode grade CPC sales represented
approximately 81.9% of the Company's total 1997 sales. The Company believes that
it has approximately a 23.1% market share of U.S. anode grade CPC sales and a
15.7% market share of Western World anode grade CPC sales. The Company also
sells industrial grade CPC for use in the production of titanium dioxide, as a
carbon additive in the manufacture of steel and foundry products and for use in
other specialty materials and chemicals markets. The Company produces CPC at its
three facilities located in Port Arthur, Texas, Enid, Oklahoma and La Plata,
Argentina. The Company's annual CPC production capacity is 1.6 million tons,
including a 220,000 ton increase as a result of its completion of the New La
Plata Kiln in May 1998. During the twelve months ended June 30, 1998, the
Company sold 1.5 million tons of CPC, had net sales of $237.7 million and had
EBITDA of $63.7 million.
CPC is produced from RPC utilizing a high-temperature, rotary-kiln process
developed by the Company in the 1930s. RPC is a by-product of the petroleum
refining process and typically represents an insignificant portion of overall
refinery revenues. The alternative use for RPC, as a fuel source, generates a
significantly lower value to refiners than the value they receive in selling RPC
for use in the production of CPC. As a result, CPC producers are able to obtain
lower purchase prices for RPC in times of declining CPC prices, enabling CPC
producers to earn a relatively stable profit spread even in periods of CPC price
declines.
Carbon anodes, which are manufactured utilizing anode grade CPC, are used by
every primary aluminum smelter in the world as a key component in aluminum
smelting pot lines. Carbon anodes act as conductors of electricity and as a
source of carbon in the electrolytic cell that reduces alumina to aluminum
metal. In this electrochemical aluminum smelting process, the carbon anodes, and
hence the CPC, are consumed.
There are no known economic substitutes for anode grade CPC in the
manufacture of carbon anodes, nor have there been since anode grade CPC replaced
coal for this application in the 1930s. The Company believes that approximately
0.4 pounds of anode grade CPC are consumed for every one pound of primary
aluminum produced, and that such consumption ratio has been substantially
constant over the past ten years. Worldwide demand for anode grade CPC is
directly tied to the level of global production of primary aluminum.
Industrial grade CPC is used in the production of titanium dioxide, as a
carbon additive in the manufacture of steel and foundry products and for use in
other specialty materials and chemicals markets. Demand for industrial grade CPC
has grown largely due to the ongoing replacement by titanium dioxide producers
of the sulfate manufacturing process that does not utilize CPC with the
environmentally preferable chloride process that does utilize CPC. The Company's
participation in the industrial CPC sector diversifies its product offerings and
reduces its dependence on aluminum customers.
The Company believes that current anode grade CPC market fundamentals are
attractive. Western World primary aluminum production increased approximately
34.7% to 17.8 million tons in 1997 from 13.2 million tons in 1986, while anode
grade CPC production capacity did not increase significantly. Furthermore,
industry sources project continued strong growth in primary aluminum production
over the next several years. As a result, CPC industry operating rates are
currently at historically high levels. The Company has been operating at full
capacity since 1995 and believes that other major U.S. calciners are also
operating at or near full capacity.
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<PAGE>
The Company believes that the calcining industry will continue to operate at
or near full capacity, as anticipated capacity expansions in the anode grade CPC
market are expected to provide less additional capacity over the next several
years than required to meet aluminum demand projected by industry sources.
Further, the Company believes there are significant barriers to entry to the CPC
production industry. The Company estimates that a greenfield, minimum efficient
scale, stand-alone 200,000 ton calcining facility would, depending on location,
cost in excess of $50 million and take approximately three years to permit and
construct. Further impediments to the creation of new production capacity
include the difficulty in securing consistent sources of RPC supply and the
reluctance of aluminum smelters to change CPC supply sources.
The current high industry operating rates have led to anode grade CPC
pricing becoming less influenced by aluminum pricing than has been the case
historically. Instead, anode grade CPC pricing has become more influenced by the
demand generated from the volume of aluminum production. Accordingly, the
average price per ton realized by the Company for anode grade CPC increased by
over 60% from 1994 to 1997, while aluminum prices as quoted on the London Metal
Exchange increased only 9%.
The Company's management team is among the most experienced in the industry,
with an average tenure with the Company of over 22 years. James D. McKenzie, the
Company's Chief Executive Officer and President, has been with the Company for
over 27 years; A. Frank Baca, Senior Vice President of Operations and
Administration, 31 years; James W. Betts, Vice President of Raw Materials, 30
years; Robert C. Dickie, Vice President of Sales, 9 years; and Adele Robles,
Controller, 17 years.
The Company was established in 1919 as Great Lakes Coal & Coke Co. During
the 1920s and 1930s the Company began to develop markets for RPC and pioneered
the first techniques in calcining petroleum coke for use in the aluminum
industry. In 1936, the Company began operation of the world's first commercial
calcining plant in Port Arthur, Texas. The Company has since maintained its
position as the largest producer of CPC. In 1985, the Company's predecessor,
also known as Great Lakes Carbon Corporation ("Old GLC"), was acquired by HII
from the descendants of Old GLC's founders. In 1992, the CPC operations of Old
GLC were reincorporated as the Company while 100% of the stock of Old GLC,
including its graphite operations, was sold by HII to Sigri GmbH. In 1995, the
net proceeds of the issuance and sale of the 10% Notes were distributed by the
Company as a dividend to HII, all indebtedness of HII owing to the Company was
cancelled and 100% of the common stock of the Company was distributed on a pro
rata basis to the holders of the common stock of HII. On May 22, 1998, the
Company was acquired by AIP in the Acquisition Transactions. The address of the
Company's principal executive office is 551 Fifth Avenue, Suite 3600, New York,
New York 10176 and the telephone number is (212) 370-5770.
BUSINESS STRATEGY
The Company's management team plans to sustain and build upon GLC's success
by focusing on the following strategic initiatives:
- MAINTAIN STRONG CUSTOMER RELATIONSHIPS--Over its 60-year history in CPC
production, the Company has forged customer relationships spanning several
decades with many of the world's largest aluminum producers, including
Alcoa, Alusaf and Alusuisse. Collectively, Aloca, Alusaf and Alusuisse
contributed 46.7% of the aggregate total sales of the Company in fiscal
year 1997. The Company sells CPC to certain of its customers pursuant to
long term contracts; of the Company's top five customer relationships,
measured by annual net sales, four are subject to long term contracts,
including Alcoa, Alusaf, Alusuisse and Aluminum Bahrain B.S.C. The Company
and Alcoa have entered into a multi-year requirements contract (with a
cap) for sales of CPC, at prices calculated in accordance with a formula
set forth in such agreement. The Company has developed and expects to
maintain these relationships by virtue of its industry leadership
position, its technical support and customer service and its superior
ability to produce anode grade CPC to customized specifications. Although
CPC represents only 5% to 7% of an aluminum smelter's total costs, the
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<PAGE>
quality and consistency of CPC are critical to a smelter. Through its
comprehensive "Total Quality Management" program, the Company was the
first domestic calciner to attain ISO 9002 registration for its ability to
meet internationally recognized quality and process standards. All of the
Company's facilities are ISO 9002 registered.
- MAINTAIN SUPERIOR ACCESS TO RAW MATERIALS--The Company's long history and
leading market position in CPC production has led to strong long-term
relationships with numerous RPC suppliers, including Exxon, Conoco,
Chevron, YPF and Marathon. The Company has entered into multi-year
contracts with each of Exxon, YPF and Conoco providing for the sale to the
Company of a material portion of its supply of RPC at unspecified prices
or at prices calculated in accordance with a formula set forth in each
such agreement. The Company's access to RPC supply from 18 refineries
worldwide provides it with a competitive advantage in cost-effectively
blending various grades of RPC to produce CPC to exact customer
specifications.
- OPERATE DIVERSE, STATE-OF-THE-ART FACILITIES--The Company strives to
maintain geographically diverse, state-of-the-art production facilities
that provide a maximum level of operating flexibility. The Port Arthur,
Texas plant (680,000 tons per year) provides the Company with access to
RPC received by rail, barge or ship from the U.S. Gulf Coast and
international oil refiners and allows the Company to serve international
CPC markets. The Enid, Oklahoma plant (490,000 tons per year) is
strategically located to serve the domestic CPC markets and to access RPC
from refineries in the mid-continent region. The plant in La Plata,
Argentina (440,000 tons per year) provides the Company with access to high
quality RPC from a nearby oil refinery and also positions the Company well
to serve international CPC markets. The Company completed construction of
the New La Plata Kiln, in May 1998, which doubled the facility's previous
production capacity.
- MAINTAIN STRONG PRESENCE IN INDUSTRIAL GRADE CPC--Since 1990, the Company
has pursued a strategy of diversifying its product mix by developing and
expanding its presence in the market for industrial grade CPC. GLC has
increased its net sales of industrial grade CPC by approximately 92.7%
since 1990 by focusing its industrial grade sales effort and investing in
value-added operations at its production facilities. Sales of industrial
grade CPC reduce the Company's dependence on aluminum customers.
- PURSUE SELECTIVE EXPANSION OPPORTUNITIES--The Company may explore
acquisition and expansion opportunities from time to time as warranted by
market conditions. Strong market conditions, together with an excellent
source of RPC supply, prompted the Company to expand its Argentinean
facility. The Company is currently evaluating several additional new
opportunities in the petroleum coke industry.
INDUSTRY OVERVIEW
CPC DEMAND
CPC is sold primarily to the aluminum industry as the principal raw material
used in the manufacture of carbon anodes. Carbon anode manufacturers, which are
predominantly captive operations of aluminum smelting companies, purchase anode
grade CPC, mix it with pitch binders, press the mixture into blocks and then
bake the mixture to form finished, hardened carbon anodes. The carbon anodes are
consumed in the electrochemical smelting process. Although CPC represents only
5% to 7% of an aluminum smelter's total costs, the quality of the anode grade
CPC, in terms of both its physical and chemical properties, has an effect on
carbon anode life, which is an important economic factor in aluminum production,
and on the amount of impurities in the finished aluminum metal.
45
<PAGE>
Western World production of primary aluminum, the implied demand for anode
grade CPC (calculated based on a constant 0.4 pounds of CPC per pound of
aluminum) and annual growth in production and implied demand are set forth in
the following table:
<TABLE>
<CAPTION>
ANNUAL GROWTH IN
PRIMARY ALUMINUM IMPLIED ANODE GRADE PRODUCTION AND
PRODUCTION(1) CPC DEMAND(2) IMPLIED DEMAND
----------------- ------------------- -----------------
(000 TONS) (000 TONS) (%)
<S> <C> <C> <C>
1986....................... 13,217 5,287 0.0
1987....................... 13,898 5,559 5.1
1988....................... 14,882 5,953 7.1
1989....................... 15,501 6,200 4.2
1990....................... 15,637 6,255 0.9
1991....................... 16,290 6,516 4.2
1992....................... 16,273 6,509 (0.1)
1993....................... 16,517 6,607 1.5
1994....................... 15,847 6,339 (4.1)
1995....................... 16,149 6,459 1.9
1996....................... 17,035 6,814 5.5
1997....................... 17,802 7,121 4.5
</TABLE>
- ------------------------
(1) Source: Donaldson, Lufkin & Jenrette Securities Corporation.
(2) Calculated based on a constant 0.4 pounds of CPC per pound of aluminum.
Historically, worldwide production of primary aluminum has increased
commensurately with general economic growth, and demand for anode grade CPC has
increased accordingly. From 1986 to 1997, Western World primary aluminum
production increased by 4.6 million tons, or 34.7%, resulting in a 1.8 million
ton increase in demand for anode grade CPC to approximately 7.1 million tons.
The production of primary aluminum, and the resulting implied demand for anode
grade CPC, is geographically diverse, with less than 25% of Western World
aluminum production occurring in the United States.
The steady growth in primary aluminum production experienced an interruption
during the period from 1991 to 1994. Additions to Western World aluminum smelter
capacity in the early 1990s, slow economic growth in major aluminum consuming
countries during 1992 and 1993 and a significant decline in the consumption of
aluminum in the countries which comprised the former Soviet Union which resulted
in substantial exports of aluminum from such countries after 1990, caused an
oversupply of aluminum and a corresponding increase in primary aluminum
inventories in the Western World.
In early 1994, government officials from the European Union, the United
States, Canada, Norway, Australia and the Russian Federation met in a
multilateral conference to discuss the excess global supply of primary aluminum.
The participants ratified a trade agreement in the form of a Memorandum of
Understanding ("MOU"), which specified reductions in primary aluminum production
in the participating countries. Primarily as a result of these MOU reductions,
1994 Western World annual aluminum production was 15.8 million tons,
approximately 670,000 tons below 1993 production levels. Therefore, during 1994,
demand for anode grade CPC declined to 6.3 million tons. Since that time,
however, anode grade CPC demand has rebounded sharply growing at a compounded
annual rate of 4.0% to 7.1 million tons of demand in 1997.
CPC is also used in a number of other (non-aluminum) industrial
applications. This industrial grade CPC is used in the production of titanium
dioxide, as a recarburizer in the manufacture of steel and foundry products and
for use in other specialty materials and chemicals markets. The Company
estimates that these applications consumed approximately 2.0 million tons of CPC
in 1997.
46
<PAGE>
Titanium dioxide is a widely used brilliant white pigment, the primary
applications for which are in paints, plastics and paper. Demand for titanium
dioxide is dependent upon the construction and automotive markets. CPC is used
as an energy and carbon source in the production of titanium dioxide from
titanium-bearing ores using the chloride process. The primary factor increasing
the usage of CPC by the titanium dioxide industry is the continuing trend of
replacing the sulfate manufacturing process that does not utilize CPC with the
environmentally preferable chloride process that does utilize CPC. As a result
of this trend, the Company believes that demand for industrial grade CPC from
international titanium dioxide markets is growing.
Industrial grade CPC is also used as a recarburizer (carbon additive) in the
production of steel and foundry products. Demand for this use of CPC depends
upon steel production levels and this market is considered to be mature.
Industrial grade CPC is also used as a carbon source in certain chemical
processes and in the production of plastics.
CPC SUPPLY
CPC is sold in a world market. However, calcining and transportation
economics dictate that producers of CPC are most efficiently located near
petroleum refining operations, which are the source of RPC. As a by-product of
the oil refining process, RPC constitutes the solid fraction remaining after the
refinery has essentially removed all of the liquid petroleum products from the
crude oil. Many, but not all, oil refineries produce RPC. Sales of RPC do not
constitute a material portion of oil refiners' revenues.
CPC quality, which is extremely important to aluminum smelters, is dependent
upon the quality of the RPC utilized in the calcining process. The RPC produced
by different oil refineries covers a range of physical and chemical properties
depending upon both the types of crude oils being refined and the specific
process being employed by the refinery. Only a portion of the RPC produced by
the world's oil refineries is of suitable quality for producing anode grade or
industrial grade CPC, with anode grade requirements being generally more
stringent than industrial grade requirements. Most of the RPC that is not
suitable for calcining is sold at much lower prices strictly for its fuel value.
Because a substantial portion of worldwide petroleum refining capacity is
based domestically, the United States has a majority of worldwide CPC production
capacity. Domestic anode grade CPC production is sufficient to satisfy
approximately 50% of worldwide anode grade CPC demand. GLC, along with most
other domestic CPC producers, supplies CPC to primary aluminum producers both
domestically and internationally (including smelters in the countries which
comprised the former Soviet Union). Growth of Western World CPC production
capacity has been significantly slower than the growth in demand since 1986.
Since 1995, the Company has been operating at full capacity and believes that
its primary domestic competitors have been doing so as well.
Market pricing for anode grade CPC is based on a number of factors. Anode
grade CPC prices have been affected by worldwide aluminum production and
aluminum prices, as well as by the availability of anode grade RPC required to
produce CPC. Historically, anode grade CPC pricing followed aluminum pricing
with an approximate one-year lag. However, as a result of the current, higher
industry operating rates, anode grade CPC pricing has become less tied to
aluminum pricing and more impacted by the growth in volume of aluminum
production relative to CPC production capacity.
47
<PAGE>
MANUFACTURING OPERATIONS
As shown in the chart below, the Company operates rotary kilns to calcine
RPC into both anode grade and industrial grade CPC. The calcining process
essentially drives off moisture, impurities and volatile matter from the RPC at
high temperatures, resulting in a purer form of carbon in the form of CPC.
[GRAPHIC]
Anode grade and industrial grade CPC are manufactured by the Company to
specific customer specifications. The Company purchases RPC from a number of
sources and has the capability to blend raw cokes specifically to meet a
customer's required chemical and physical properties. After blending, the RPC is
fed into the higher end of a rotating kiln, which is up to 12 feet in diameter
and up to 220 feet long. The coke in the kiln is tumbled by rotation and moves
down-kiln countercurrent to the heat produced by burning natural gas or oil at
the lower, firing end of the kiln. Kiln temperatures range from 2,200 to 2,500
degrees Fahrenheit. Typically, coke is retained in the kiln for approximately
one hour, with the resident time and heating rates critical to the production of
the proper quality CPC. The moisture, impurities and volatile matter in the coke
are driven off in the kiln. As the coke is discharged from the kiln, it drops
into a cooling chamber, where it is quenched with water, treated with dedusting
agents and carried by conveyor to silos to be kept in covered storage until
shipped to customers by truck, rail, barge or ship. In the case of certain
industrial grade products, the CPC is crushed and screened to meet proper sizing
requirements and packaged for shipment.
Since CPC quality is very important to end-users, the Company has invested
in laboratory facilities and has instituted Total Quality Management and
statistical process control procedures to ensure that its CPC meets customer
specifications. The Company was the first U.S. producer of calcined coke to
attain ISO 9002 registration, which is a rating determined by the International
Standards Organization with respect to the Company's ability to meet recognized
quality and process standards. All of the Company's facilities are ISO 9002
registered.
FACILITIES
The Company currently has the capacity to produce approximately 1.6 million
tons of CPC per year at its three facilities in Port Arthur, Texas, Enid,
Oklahoma and La Plata, Argentina, including the Company's recent expansion of
its capacity through the construction of the New La Plata Kiln. GLC's facilities
operate continuously, except during periods of downtime as part of the regular
maintenance program to
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<PAGE>
extend kiln life or periodic upgrades to maintain state-of-the-art technology.
The Company also owns a distribution center in Pond Creek, Oklahoma.
The plant at Port Arthur has the capacity to produce 680,000 tons per year
of anode grade and industrial grade CPC. The Port Arthur plant commenced
operations in 1936, and the newest and largest of Port Arthur's four kilns was
installed in 1979. Automated crushing and screening facilities were added to the
plant in 1993 to enable the Company to serve export markets for industrial grade
CPC. Port Arthur is also the site of the Company's primary laboratory and
testing facility. Located on the U.S. Gulf Coast, the Port Arthur facility is
ideally located to receive raw petroleum coke from Gulf Coast and international
oil refiners and serves international anode and industrial grade CPC markets.
Port Arthur has substantial CPC storage capacity and the capability to both
receive RPC and ship CPC by truck, rail, barge or ship. The Company operates the
Port Arthur plant with a nonunion workforce.
The Company's Port Arthur plant site provides ample room to store a wide
range of RPC for blending to customer specifications. The 115-acre property on
which the plant is located is leased by the Company under a long-term lease,
which was originally executed in the 1930s and the most recent renewal of which
expires in January 2010. Under a waste heat recovery arrangement the Company
receives revenue from its delivery of flue gas from the Port Arthur kilns to a
waste heat recovery facility that is owned by a third party, which is accounted
for as a reduction of cost of goods sold.
The plant at Enid has the capacity to produce 490,000 tons per year of anode
grade and industrial grade CPC. Enid's three kilns were built in the late 1960s
and early 1970s. In 1992, the Company modernized and automated its crushing
facilities at Enid to more effectively serve the domestic industrial grade CPC
market. The Enid plant acquires its RPC primarily from mid-continent oil
refineries and essentially serves the domestic anode grade and industrial grade
CPC markets. The Enid plant has the capability to receive and ship material by
truck or rail and operates with a union workforce. The Enid plant is located on
320 acres of property owned by the Company.
The Company's La Plata facility, which is owned by Copetro, was constructed
in 1982 and had a single kiln with the capacity to produce 220,000 tons per year
of anode grade CPC. Copetro recently completed construction of the New La Plata
Kiln, with an annual capacity of 220,000 tons of anode grade CPC, at an
estimated cost of approximately $22 million. The Company anticipates that the
New La Plata Kiln, which was completed in May 1998, will double the capacity of
the La Plata facility. The plant is located on 30 acres of land at the port of
La Plata, which provides the capability to serve South American and
international anode grade CPC markets via truck or ship. The La Plata location
is less than two miles from an oil refinery operated by YPF, which produces a
high-quality RPC. Certain employees of Copetro are members of a
government-sponsored union.
PRODUCTS AND MARKETS
GLC manufactures and markets two basic grades of CPC products: anode grade
and industrial grade. In 1997, for the third year in a row, aluminum production
increased primarily due to restarts of capacity that was idled in 1993 and 1994
and also due to expansion of existing smelting capacity. As a result of the
strong demand for CPC, the Company operated at effective capacity in 1997.
49
<PAGE>
The Company's sales volume and net sales (in millions) by product grade for
the three years ended December 31, 1997 are set forth in the following table.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1995 1996 1997 1997
-------------------- -------------------- -------------------- --------------------
NET SALES TONS NET SALES TONS NET SALES TONS NET SALES TONS
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anode grade CPC........................ $ 147.9 1.19 $ 199.4 1.10 $ 189.9 1.12 $ 94.1 0.55
Industrial grade CPC................... 27.6 0.27 38.6 0.31 40.2 0.30 18.5 0.14
Non-CPC revenue........................ 3.2 0.02 4.7 0.04 1.8 0.02 1.0 0.01
<CAPTION>
1998
--------------------
NET SALES TONS
--------- ---------
<S> <C> <C>
Anode grade CPC........................ $ 100.7 0.61
Industrial grade CPC................... 17.7 0.12
Non-CPC revenue........................ 1.0 0.01
</TABLE>
ANODE GRADE CPC
GLC produces anode grade CPC for the worldwide primary aluminum industry by
calcining suitable anode grade RPC. Anode grade CPC is the raw material for
carbon anodes required for aluminum smelting. Anode grade CPC is approximately
97% pure carbon; however, anode grade CPC varies based on the content of sulfur
and other trace elements in the finished product as well as on its physical
properties. GLC produces a full range of anode grade CPC tailored to the
specific needs of its aluminum company customers and believes that it has the
capability to produce anode grade CPC to meet the specifications of any of the
aluminum smelters in the world.
INDUSTRIAL GRADE CPC
GLC produces industrial grade CPC for sale both domestically and
internationally to the titanium dioxide, ferrous metals (steel and foundry),
specialty materials and chemical industries. Industrial grade CPC is used by
titanium dioxide producers as an energy and carbon source. It is used by the
ferrous metals industry as a recarburizer, which is an additive used to increase
the carbon content of steel mill and foundry products. Industrial grade CPC also
is used as a carbon source in a variety of chemical processes, including as an
additive in the production of plastic. Industrial grade CPC is generally similar
to anode grade CPC in its physical characteristics, but typically has higher
chemical impurities. In addition, industrial grade CPC is usually further
processed to meet sizing specifications and packaged for sale to end users in
smaller quantities than is anode grade CPC.
The Company has increased its net sales of industrial grade CPC by
approximately 92.7% since 1990. The Company has increased its market share by
focusing its sales efforts, increasing its sales staff and investing in
additional equipment at its production facilities.
FOREIGN OPERATIONS
The Company conducts significant foreign operations, primarily in South
America and particularly in Argentina. See Note 11 to the Consolidated Financial
Statements herein. Such operations are subject to certain risks. See "Risk
Factors--International Risks."
RAW MATERIALS AND SUPPLIERS
The Company purchases a range of RPC from a number of refineries with the
objective of using its blending capabilities to meet the specific quality
requirements of its customers at the lowest raw material cost. The Company
believes that there is sufficient supply of anode grade RPC available in the
world market to meet the needs of its operations.
RPC is typically purchased by the Company under contracts with a term of one
or more years, although the Company does make some spot purchases. Contracts
specify annual purchase quantities and quality specifications, and typically
provide for quarterly or semiannual price resetting based on either a
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<PAGE>
previously determined formula or a renegotiation. Generally, oil refineries
supply RPC to more than one calciner. The Company's La Plata facility has a
long-term RPC supply contract with YPF expiring in 2007. This contract currently
provides the Company with up to 550,000 tons per year of RPC, which amount
includes a recent increase of 250,000 upon the commencement of the operation of
the New La Plata Kiln.
MARKETING
The Company sells its CPC to end-users through its direct sales staff and
exclusive sales representatives. Substantially all sales are shipped directly to
end-users. GLC's domestic sales activity is organized by product grade, I.E.,
anode and industrial, with all selling activities handled by the Company's
direct sales staff. Internationally, GLC's direct sales staff is supplemented by
exclusive sales representatives based in the United Kingdom, Brazil, Australia
and Mexico. These representatives are involved in both anode grade and
industrial grade CPC sales.
The Company typically sells anode grade CPC under contracts with a term of
one or more years, although a small percentage is sold on a spot basis. Under a
typical sales contract, which specifies overall annual quantity as well as
detailed quality specifications, prices are reset either quarterly or
semiannually based on either a previously determined formula or a renegotiation.
CPC is shipped by the Company in bulk quantities to its customers via truck,
railcar, barge or ship. Export shipments are often in large quantities and can
range up to 25,000 tons. Industrial grade CPC is generally sold to customers
under annual contracts or on a purchase order basis and is shipped in smaller
quantities in bulk or packaged to meet customer requirements.
In 1997, approximately 36.6% of the Company's net sales were to U.S.-based
customers and approximately 63.4% were to customers in international markets.
The Company's top five customers, each of which is a major worldwide aluminum
producer, represented approximately 62.2% of the Company's 1997 net sales.
During 1997, Alcoa and Alusaf accounted for 23.7% and 15.5%, respectively, of
the Company's net sales. Such producers have been significant customers of the
Company for over 50 years and 20 years, respectively. The Company sells CPC to
certain of its customers pursuant to long term contracts. The Company and Alcoa
have entered into a multi-year requirements contract (with a cap) for sales of
CPC, at prices calculated in accordance with a formula set forth in such
agreement. In June 1998, Alcoa acquired Alumax, another long-standing customer
of the Company, which accounted for 6.4% of the net sales of the Company in
1997.
COMPETITION
The Company is the largest producer of CPC in the world and competes with
domestic and foreign calciners in a worldwide market with respect to both anode
and industrial grade CPC sales. Marketing of CPC to both anode and industrial
grade customers is based primarily on price and quality. Worldwide demand for
anode grade CPC is tied directly to the global production of primary aluminum.
Sales of industrial grade CPC are dependent on the particular demands of the
titanium dioxide, steel and foundry, and certain chemical markets.
GLC is one of five major domestic calciners of anode grade CPC. Two
calciners, GLC and Calciner Industries Inc., are independent. The other
calciners are Atlantic Richfield Company, whose petroleum refining operations
provide its raw material supply, Reynolds Metals Co., which uses some of its CPC
for internal consumption, and Venture Coke Company ("Venco"), which is 50% owned
by Conoco. GLC believes that its domestic calcining capacity is the largest of
these five companies, and GLC is the only one of the five to have an
international production facility. Currently, GLC's U.S. operations sell
approximately 23.1% of the anode grade CPC sold in the United States.
The Company believes that it is among the largest domestic producers of
industrial grade CPC. The Company competes primarily with Venco (which through
Conoco is an affiliate of E.I. duPont de Nemours & Company, the world's largest
producer of titanium dioxide) for sales to the titanium dioxide market and
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<PAGE>
with Unocal, Inc. (which sells primarily through third parties) for sales to the
recarburizer market. GLC produces and markets CPC directly to the recarburizer
market, competing primarily with resellers of CPC.
EMPLOYEES
As of December 31, 1997, the Company employed 254 persons. The Company is a
party to collective bargaining agreements at two of its three facilities,
covering approximately one-third of its employees. The Company's collective
bargaining agreement with the International Association of Machinists and
Aerospace Workers covers hourly employees at the Enid, Oklahoma facility and
expires in 2001. Certain employees at the La Plata, Argentina facility are
covered by an annual labor contract with an Argentine government union. The Port
Arthur plant is operated with a nonunion workforce. Overall, the Company
believes that its relationship with its employees is satisfactory. However,
there can be no assurance that new labor agreements will be reached without a
strike.
ENVIRONMENTAL MATTERS
The Company's facilities and operations are subject to various federal,
state, local and foreign governmental laws and regulations with respect to the
protection of the environment, including regulations relating to air and water
quality. The Company believes that it possesses all of the permits required for
the conduct of its operations and that it is currently in material compliance
with all relevant environmental regulations. The Company spent approximately
$3.5 million on capital expenditures related to pollution control facilities in
1997 and anticipates spending approximately $3.5 million and $1.9 million for
such facilities in 1998 and 1999, respectively. Approximately half of the
environmental expenditures in 1997 and 1998 will be in conjunction with the
facility expansion at Copetro.
The Company's Port Arthur facility is currently operating under an Agreed
Final Judgment (the "Judgment") entered into on April 19, 1989 (as amended on
July 16, 1990, January 2, 1996 and October 1, 1996) between the Company and the
State of Texas. The Judgment specifies that the Company shall undertake certain
measures to enable the Company to comply with applicable particulate emission
limitations and enable the Company to monitor the opacity of its emissions. The
Judgment specifies stipulated penalties in the event that the Port Arthur
facility fails to meet the specified emission or opacity limits. The Company
believes that it is in material compliance with the Judgment. The Company has
had occasional exceedances of opacity limitations at the Port Arthur facility
and is reviewing its alternatives to maintain continuous compliance with such
limitations, the costs of which are not expected to have a material adverse
effect on the financial condition of the Company.
The Clean Air Act was amended in 1990. While the Company believes that its
facilities meet current regulatory standards applicable to air emissions, some
of its facilities will be required to comply with new standards for air
emissions to be adopted by the EPA and state environmental agencies over the
next several years. In addition, the amendments to the Clean Air Act will result
in revisions to state implementation plans, which may necessitate the
installation of additional controls for certain of the Company's emission
sources. At this time, the Company cannot estimate when new standards will be
imposed by the EPA or relevant state agencies or what control technologies or
changes in processes the Company may be required to install or undertake in
order to achieve compliance with any new requirements. Based on information
currently available to it, the Company believes that compliance with such
regulations will not have a material adverse effect on the financial position or
results of operations of the Company.
See also "--Legal Proceedings."
LEGAL PROCEEDINGS
Copetro is a party to a number of legal proceedings arising from alleged
emissions from its La Plata facility. The claims in these proceedings include
damages for personal injury, emotional distress and property damage. In two
proceedings, four plaintiffs obtained judgments for emotional distress and
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property damages totaling $118,000 and applicable interest of approximately
$190,000, plus court costs. Although these two judgments have been affirmed by
the provincial appellate courts, Copetro has sought an appeal in Argentine
federal Supreme Court for these matters. In another case involving one plaintiff
arising out of the same general circumstances, a different court awarded
property damages of $5,000 plus applicable interest of approximately $6,000 plus
court costs. Two additional proceedings, involving 154 plaintiffs from 55
families and arising out of the same general circumstances, are in the early
stages of discovery. Copetro believes, on advice of its counsel Carderas,
Cassagne & Asociados, that it has substantial defenses to the allegations raised
by the plaintiffs and is conducting vigorous defenses in these proceedings. The
Company's management after discussion with its counsel Carderas, Cassagne &
Asociados, is of the opinion that the final disposition of these proceedings
will not have a material adverse effect on the financial condition of the
Company.
The Company is a party to other legal proceedings which are in various
stages of resolution. Management is of the opinion that the ultimate resolution
of these matters will not have a material adverse effect on the financial
condition of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age as of July 15, 1998 and
position of each person who is expected to serve as director or executive
officer of the Company following the Acquisition Transactions.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
James D. McKenzie..................... 53 President and Chief Executive Officer, Director
A. Frank Baca......................... 54 Senior Vice President, Operations and Administration
Robert C. Dickie...................... 49 Vice President, Sales
James W. Betts........................ 60 Vice President, Raw Materials
Theodore C. Rogers.................... 63 Non-Executive Chairman of the Board, Director
W. Richard Bingham.................... 62 Director
Lawrence W. Ward, Jr.................. 45 Director
Kim A. Marvin......................... 36 Director
</TABLE>
Each of the Company's directors and executive officers is elected annually
and holds office until his or her successor is elected and qualified.
Mr. McKenzie has served as President and Chief Executive Officer of the
Company since June 1995. He served as Executive Vice President of the Company
and President of the Calcined Petroleum Coke business of the Company and Old GLC
from 1989 to June 1995. From 1971 to 1989, he held a number of positions with
Old GLC, including Vice President, General Counsel.
Mr. Baca has been Senior Vice President, Operations and Administration of
the Company since September 1995 and was Vice President, Operations from 1991 to
August 1995. Since joining Old GLC in 1967, he has held a number of operating
positions, including Plant Manager of the Port Arthur, Texas calcining facility.
Mr. Dickie has been Vice President, Sales of the Company since September
1995 and was Director of Sales from 1992 to August 1995. He held the position of
Plant Manager of the Enid, Oklahoma calcining facility for Old GLC from 1989 to
1992. Prior to joining Old GLC in 1989, he spent 15 years with Alumax, holding
various positions in aluminum smelting operations.
Mr. Betts has been Vice President, Raw Materials of the Company since 1996.
Since joining GLC in 1968, he has held a variety of positions in the areas of
sales and raw materials procurement. Since 1992, he has been a director of
Zoltek Companies, Inc.
Mr. Rogers is a Director, the Chairman of the Board and the Secretary of
American Industrial Partners Corporation. He co-founded AIP Management Co. and
has been a director and officer of AIP Management Co. since 1989. Mr. Rogers is
currently a director of Bucyrus International, Inc., Derby International, Easco
Corporation, RBX Corporation, Stanadyne Automotive Corp. and Sweetheart
Holdings, Inc.
Mr. Bingham is a Director, the President, the Treasurer and the Assistant
Secretary of American Industrial Partners Corporation. He co-founded AIP
Management Co. and has been a director and officer of AIP Management Co. since
1989. Mr. Bingham is also a director of Bucyrus International, Inc., Stanadyne
Automotive Corp., SF Holdings Inc., RBX Corporation and Sweetheart Holdings,
Inc.
Mr. Ward has been employed as a Principal by American Industrial Partners
Corporation since 1992. From 1989 to 1992, he was Vice President and Chief
Financial Officer of Plantronics, Inc., a telecommunications equipment company.
Mr. Ward is currently a director of Bucyrus International, Inc., Easco
Corporation, RBX Corporation, Stanadyne Automotive Corp. and Sweetheart
Holdings, Inc.
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Mr. Marvin joined the San Francisco office of American Industrial Partners
as a Principal in 1997. From 1994 to 1997, Mr. Marvin was an associate in the
Mergers & Acquisitions Department of Goldman, Sachs & Co.. Mr. Marvin is a
director of Bucyrus International Inc.
COMPENSATION OF DIRECTORS
Directors are not expected to receive compensation for their services as
directors.
COMPENSATION OF EXECUTIVE OFFICERS AND OTHER INFORMATION
The following table sets forth information concerning cash compensation paid
by the Company for each of the three years ended December 31, 1997 to the
Company's Chief Executive Officer and each of the three most highly compensated
executive officers of the Company. The Company does not have any noncash
compensation or stock appreciation rights plans.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------- ALL OTHER
NAME AND POSITION YEAR SALARY BONUS(1) OTHER(2) COMPENSATION(3)
- ----------------------------------------------------- --------- ---------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C>
James D. McKenzie.................................... 1997 $ 250,008 $ 300,000 $ -- $ 4,750
President and Chief 1996 250,008 150,000 -- --
Executive Officer 1995 210,000 -- -- --
A. Frank Baca........................................ 1997 157,500 37,440 -- 4,725
Senior Vice President, 1996 150,000 17,524 7,134 --
Operations and 1995 120,936 8,686 320 --
Administration
Robert C. Dickie..................................... 1997 130,002 29,952 4,883 3,900
Vice President, Sales 1996 120,000 15,361 34,736 --
1995 106,008 7,893 25,263 --
James W. Betts....................................... 1997 112,500 26,208 33,817 3,375
Vice President, 1996 105,000 13,910 67,000 --
Raw Materials 1995 96,000 7,392 5,000 --
</TABLE>
- ------------------------
(1) The amounts shown in this column reflect payments under the Profit Sharing
Plan.
(2) The amounts shown in this column reflect the Company's payment of relocation
allowances and income tax reimbursement with respect to such relocation
allowances.
(3) The amounts shown in this column reflect the Company's contribution to the
named executive officer's 401(k) account.
PROFIT SHARING PLAN. The Company's practice has been to maintain a
profit-sharing plan which is established annually. Under the current plan, each
eligible employee receives profit-sharing distributions based on the Company's
achievement of profitability targets established each year by the Board of
Directors.
SAVINGS PLANS. The Company currently sponsors two Savings Plans for
employees. One Savings Plan is for salaried employees and one Savings Plan is
for employees covered by the collective bargaining agreement at the Enid plant.
Each of the Savings Plans is qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code") and provides that employees may
make contributions to an account in the employee's name of up to 15% of gross
base wages. The Company makes contributions to both of the Savings Plans of up
to 50% of each employee's contribution, but not greater than 3% of such
employee's salary.
RETIREMENT PLANS. The Company currently maintains three retirement plans
for the benefit of its employees. One plan is for the benefit of hourly
employees, one is for the benefit of salaried employees (the "Salaried Plan")
and one is a nonqualified supplemental plan for the benefit of Mr. McKenzie (the
"SERP"). Each of the plans provides eligible employees with certain benefits at
retirement based on the
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<PAGE>
employee's years of service and, in the case of the Salaried Plan and the SERP,
such employee's average salary. For purposes of the foregoing, an employee's
average salary is equal to the highest salary earned in three out of the
previous ten years or the average of all years of service, if less than three.
The following table shows the estimated annual straight-life annuity benefit
payable under the Salaried Plan and the SERP to the executives who participate
in such plans, with the specified remuneration and specified years of service
upon retirement at age 65, after giving effect to adjustments for Social
Security benefits. Mr. McKenzie is the only participant in the SERP and the
benefit payable to him upon retirement at age 65 is determined based upon his
full salary and years of service. The benefit payable upon retirement at age 65
to each of the other named executive officers is determined based upon each such
executive's salary (limited by the limitations imposed by Section 401(a)(17) of
the Code, currently $160,000), and years of service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$100,000........................... $ 23,229 $ 30,972 $ 38,715 $ 48,458 $ 54,201
$150,000........................... 36,354 48,472 60,590 72,708 84,826
$200,000........................... 49,479 65,972 82,465 98,958 115,451
$250,000........................... 62,604 83,472 104,304 125,208 146,076
</TABLE>
The compensation of participants used to calculate the retirement benefit
consists solely of annual base salary as disclosed in the Summary Compensation
Table. For the four individuals named above, the 1997 compensation used to
calculate the remuneration and the number of years of credited service are as
follows: Mr. McKenzie, $250,000, 26 years; Mr. Baca, $157,500, 26 years; Mr.
Dickie, $130,000, 8.5 years; and Mr. Betts, $112,500, 26 years.
LIMITATION ON DIRECTOR'S LIABILITY
The Company has adopted provisions in its Certificate of Incorporation and
Bylaws which limit the liability of its directors and provide for
indemnification of its officers and directors to the full extent permitted under
Delaware law. Under the Company's Certificate of Incorporation, and as permitted
under the Delaware General Corporation Law, directors are not liable to the
Company or its stockholders for monetary damages arising from a breach of their
fiduciary duty of care as directors. Such provision does not, however, affect
liability for any breach of a director's duty of loyalty to the Company or its
stockholders for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, under Section 174 of
the Delaware General Corporation Law or for any transaction from which a
director derives an improper personal benefit. Such provision would have no
effect on the availability of equitable remedies, such as an injunction, for
breach of fiduciary duty. Further, it is the position of the SEC that such
limitation of liability in no way limits the liability of the Company or its
directors for violations of, or otherwise relieves the Company or the directors
from the necessity of complying with, the federal securities laws.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the close of the Acquisition Transactions, AIP was paid a fee of $5.0
million and reimbursed for out-of-pocket expenses in connection with the
negotiation of the Acquisition Transactions and for providing certain investment
banking services to the Company, including the arrangement and negotiation of
the terms of the New Credit Agreement and the arrangement and negotiation of the
terms of the Old Notes and the Holdings Debentures, and for other financial
advisory and management consulting services. In connection with the Acquisition
Transactions, affiliates of, and certain other individuals associated with, AIP
contributed $330,000 to Holdings in exchange for common equity of Holdings.
AIP expects to provide substantial ongoing financial and management services
to the Company utilizing the extensive operating and financial experience of
AIP's principals. AIP will receive an annual
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<PAGE>
fee of $1.9 million for providing general management, financial and other
corporate advisory services to the Company, payable semiannually 45 days after
the scheduled interest payment date for the Notes, and will be reimbursed for
out-of-pocket expenses. The fees will be paid to AIP pursuant to a management
services agreement among AIP and the Company and will be subordinated in right
of payment to the Notes.
SECURITY OWNERSHIP
Immediately following the consummation of the Acquisition Transactions, (a)
Holdings became the sole holder of the common stock of the Company, par value
$.01 per share (the "Company Common Stock"), and (b) AIP, its affiliates and
certain other individuals associated with AIP became the only holders of record
of the common stock of Holdings, par value $.01 per share ("Holdings Common
Stock"). The following table sets forth certain information regarding beneficial
ownership of Company Common Stock immediately following the closing of the
Acquisition Transactions by (i) each person who is known by the Company to be
the beneficial owner of more than 5% of Company Common Stock, (ii) each of the
Company's directors and the named executive officers set forth in the table
under "Management-- Compensation of Executive Officers and Other Information"
and (iii) all directors and executive officers as a group. Except as indicated
below, the address for each person listed below is One Maritime Plaza, Suite
2525, San Francisco, CA 94111.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMPANY
NAME COMMON STOCK(1) PERCENTAGE(2)
- --------------------------------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Holdings......................................................................... 1,000 100%
American Industrial Partners Capital Fund II, L.P.(3)............................ 1,000 100%
W. Richard Bingham(3)............................................................ 1,000 100%
Theodore C. Rogers(3)............................................................ 1,000 100%
All directors and executive officers as a group (8 persons)...................... 1,000 100%
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under the
Exchange Act. No options to purchase Holdings Common Stock are currently
outstanding. The persons named in this table have sole voting and investment
power with respect to all shares of Holdings Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and except as indicated in the other footnotes to this table.
(2) Based upon 1,000 shares of Company Common Stock outstanding following
consummation of the Acquisition Transactions.
(3) Messrs. Bingham and Rogers share investment and voting power with respect to
the securities owned by AIP, which owns all of the outstanding shares of
Company Common Stock, but each disclaims beneficial ownership of any shares
of Company Common Stock. The business address of Mr. Rogers is 551 Fifth
Avenue, Suite 3800, New York, NY 10176.
DESCRIPTION OF COMPANY COMMON STOCK
The Company's authorized capital stock consists of 1,000 shares of Company
Common Stock. All of the issued and outstanding shares of the Company's capital
stock are fully paid and nonassessable. There are no outstanding options,
warrants or other rights to purchase any of the Company's capital stock. Holders
of shares of Company Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. The holders of shares of the Company's
common stock are entitled to receive such dividends, if any, as may be declared
from time to time by the Board of Directors in its discretion from funds legally
available therefor, and upon liquidation or dissolution are entitled to receive
all assets available for distribution to the stockholders. Since consummation of
the Acquisition Transactions, AIP, its affiliates and certain other individuals
associated with AIP are the only stockholders of Holdings, which is the 100%
parent of the Company, and AIP has the ability to designate all of the directors
of the Company.
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<PAGE>
DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued pursuant to the Indenture (the "Indenture")
between the Company and State Street Bank and Trust Company of California, N.A.,
as trustee (the "Trustee"), dated as of May 22, 1998, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
constitutes a part. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "TIA"). The Notes are subject to all such terms, and Holders of Notes
are referred to the Indenture and the TIA for a statement thereof. While the
following description sets forth the material terms of the Indenture, the
following summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. The definitions of certain
terms used in the following summary are set forth below under "--Certain
Definitions." For purposes of this summary, the term "Company" refers only to
Great Lakes Carbon Corporation and not to any of its Subsidiaries.
The New Notes are identical in all material respects to the terms of the Old
Notes except (i) that the New Notes have been registered under the Securities
Act, (ii) for certain transfer restrictions and registration rights relating to
the Old Notes and (iii) that the New Notes will not contain certain provisions
relating to Liquidated Damages to be paid to the Holders of Old Notes under
certain circumstances relating to the timing of the Exchange Offer and to other
registration requirements described below under "--Registration Rights;
Liquidated Damages." The Trustee will authenticate and deliver New Notes for
original issue only in exchange for a like principal amount of Old Notes. Any
Old Notes that remain outstanding after the consummation of the Exchange Offer,
together with the New Notes, will be treated as a single class of securities
under the Indenture.
The Old Notes are and the New Notes will be senior subordinated, unsecured,
general obligations of the Company. The Notes will be guaranteed by the
Subsidiary Guarantors, which will consist of all of the Company's future
Subsidiaries other than Foreign Subsidiaries, Receivables Subsidiaries and
Finance Subsidiaries. As of the Issue Date, the Notes will not be guaranteed by
any Subsidiaries of the Company. See "--Subsidiary Guarantees." The Subsidiary
Guarantees will be senior subordinated, unsecured, general obligations of the
Subsidiary Guarantors. As of June 30, 1998, the Company had approximately $135.2
million of Senior Indebtedness outstanding, and the Foreign Subsidiaries had
approximately $15.9 million of Indebtedness outstanding, all of which
effectively ranks senior in right of payment to the Notes.
As of the Issue Date, none of the Company's Subsidiaries will be
Unrestricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on May 15, 2008. Interest on the Notes will accrue at
the rate of 10 1/4% per annum and will be payable semi-annually in arrears on
each May 15 and November 15, commencing on November 15, 1998, to Holders of
record on the immediately preceding May 1 and November 1. Interest on the Notes
will accrue from the most recent date to which interest has been paid on the Old
Notes or, if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal, premium, if any, and interest and Liquidated Damages,
if any, on the Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest and Liquidated Damages, if any, may
be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; PROVIDED that all
payments of principal, premium, if any, interest and Liquidated Damages, if any,
with respect to Notes the Holders of which have given wire
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<PAGE>
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof. Registered 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 or, if no interest has been paid, from May 22,
1998. Old Notes accepted for exchange will cease to accrue interest from and
after the date of consummation of the Exchange Offer. Holders whose Old Notes
are accepted for exchange will not receive any payment in respect of interest on
such Old Notes otherwise payable on any interest payment date the record date
for which occurs on or after the consummation of the Exchange Offer.
The Indenture provides, in addition to the $175 million aggregate principal
amount of Old Notes outstanding and the $175 million aggregate principal amount
of New Notes which may be issued in exchange therefor, for the issuance of
additional Notes having identical terms and conditions to the Notes (the
"Additional Notes"). The aggregate principal amount of Notes and Additional
Notes will be limited to the sum of $225.0 million plus the amount necessary to
make the interest payments described in the next sentence. For interest payments
due through May 15, 2003, the Company may, at its option, make up to four
semiannual interest payments through the issuance of Additional Notes in an
aggregate principal amount equal to the amount of the interest that would be
payable if the rate per annum were equal to 11 3/4% (PROVIDED, that incremental
amounts of less than $1,000 shall be payable in cash). The Company must give the
Trustee irrevocable notice of its election to pay interest through issuance of
Additional Notes on an interest payment date at least ten and not more than 30
Business Days prior to the immediately preceding interest payment date (the date
such notice is issued being the "PIK Notice Date"). The Company may not issue
Additional Notes to pay interest on the initial interest payment date. Interest
will accrue on Additional Notes issued pursuant to the Indenture from and
including the date of issuance of such Additional Notes. Any such Additional
Notes shall be issued on the same terms as the Notes and shall constitute part
of the same series of securities as the Notes and will vote together with the
Notes as one series on all matters with respect to the Notes. All references to
Notes herein shall include the Additional Notes.
SUBORDINATION
The payment of principal of, premium, if any, and interest and Liquidated
Damages, if any, on the Old Notes are and New Notes will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full in
cash or Cash Equivalents of all Senior Indebtedness, whether outstanding on the
Issue Date or thereafter incurred. In addition, as set forth in "Subsidiary
Guarantees" below, the Subsidiary Guarantees, if any, will be general unsecured
obligations of the Subsidiary Guarantors subordinated in right of payment to
Senior Indebtedness of the applicable Subsidiary Guarantor. The Notes will be
effectively subordinated to indebtedness of the Foreign Subsidiaries.
Upon any distribution to creditors of the Company or a Subsidiary Guarantor
in a liquidation or dissolution of the Company or a Subsidiary Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property or a Subsidiary Guarantor or its
property or an assignment for the benefit of creditors or any marshalling of the
assets and liabilities of the Company or a Subsidiary Guarantor, the holders of
Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable,
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Indebtedness, whether
or not allowable as a claim in any such proceeding) before the Holders of Notes
or such Subsidiary Guarantee, as applicable, will be entitled to receive any
payment with respect to the Notes or such Subsidiary Guarantee, and until all
Obligations with respect to such applicable Senior Indebtedness are paid in full
in cash or Cash Equivalents, any distribution to which the Holders of Notes or
such Subsidiary Guarantee would be entitled shall be made
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<PAGE>
to the holders of the applicable Senior Indebtedness (except that Holders of
Notes or such Subsidiary Guarantee may receive Permitted Junior Securities and
payments made from the trust described under "--Legal Defeasance and Covenant
Defeasance").
The Company and the Subsidiary Guarantors also may not make any payment upon
or in respect of the Notes or the applicable Subsidiary Guarantees (except in
Permitted Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance") if (i) a default in the payment of the
principal of, premium, if any, interest or any other amount on Designated Senior
Indebtedness occurs and is continuing (a "Payment Default") or (ii) any other
default occurs and is continuing with respect to Designated Senior Indebtedness
that permits holders of the Designated Senior Indebtedness as to which such
default relates to accelerate its maturity (a "Nonpayment Default") and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company or from a Representative of the holders of any Designated Senior
Indebtedness. Payments on the Notes may and shall be resumed (a) in the case of
a Payment Default, upon the date on which such Payment Default is cured or
waived and (b) in the case of a Nonpayment Default, the earlier of the date on
which such Nonpayment Default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the maturity of
any Designated Senior Indebtedness has been accelerated and such acceleration
has not been rescinded or waived. No new period of payment blockage may be
commenced unless and until (i) 360 days have elapsed since the effectiveness of
the immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Notes that have come due have
been paid in full in cash or through the issuance of Additional Notes pursuant
to the terms of the Notes. No Nonpayment Default (other than subsequent
violations of a financial covenant following a waiver or cure of a prior
violation of such covenant) that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice.
The Indenture will further require that the Company promptly notify holders
of Senior Indebtedness if payment of the Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, it is possible that the claims of Holders of Notes
would not be satisfied until the claims of holders of Senior Indebtedness are
satisfied in full. The Indenture will limit, subject to certain financial tests,
the amount of additional Indebtedness, including Senior Indebtedness, that the
Company and its Subsidiaries can incur. See "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified Stock."
No provision contained in the Indenture, the Notes or the Subsidiary
Guarantees will affect the obligation of the Company and the Subsidiary
Guarantors, which is absolute and unconditional, to pay, when due, principal of,
premium, if any, and interest on the Notes. The subordination provisions of the
Indenture, the Notes and the Subsidiary Guarantees will not prevent the
occurrence of any Default or Event of Default under the Indenture or limit the
rights of the Trustee or any Holder to pursue any other rights or remedies with
respect to the Notes or the Subsidiary Guarantees.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed on a full, unconditional, subordinated basis (the
"Subsidiary Guarantees") by each of the Subsidiary Guarantors. The obligations
of each Subsidiary Guarantor under its Subsidiary Guarantee will be subject to
various laws for the protection of creditors, including, without limitation,
laws governing fraudulent conveyances and transfers. To the extent that the
obligations of the Subsidiary Guarantor under its Subsidiary Guarantee were held
to be unenforceable as a fraudulent conveyance or transfer or for other reasons,
the holders of Notes would cease to have any direct claim against the Subsidiary
Guarantor. In an attempt to avoid this result, the Subsidiary Guarantees will
provide that the obligations of each Subsidiary Guarantor thereunder will be
limited to the maximum amount as will not constitute a fraudulent conveyance or
fraudulent transfer under applicable law. Such amount could be substantially
less than the obligations on the Notes. See "Risk Factors--Fraudulent Transfer
Considerations."
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The Indenture will provide that no Subsidiary Guarantor may consolidate with
or merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation or other Person, whether or not affiliated with
such Subsidiary Guarantor, unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all the obligations of such
Subsidiary Guarantor under the Notes, the Indenture and the Registration Rights
Agreement pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee; and (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; PROVIDED, that the
provisions of clause (ii) above shall not apply to the merger of two or more
Subsidiary Guarantors with and into each other or the merger of any Subsidiary
Guarantor with or into the Company.
The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Subsidiary Guarantor, or a sale or other disposition
of all of the Capital Stock of any Subsidiary Guarantor by way of merger,
consolidation or otherwise, in each case to a Person which is not the Company or
a Subsidiary of the Company, then such Subsidiary Guarantor (in the event of a
sale or other disposition, by way of such a merger, consolidation or otherwise,
of all of the Capital Stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and relieved of any obligations
under its Subsidiary Guarantee and the Indenture; PROVIDED that the Net Proceeds
of such sale or other disposition are applied in accordance with the provisions
of the Indenture described under "--Certain Covenants--Asset Sales."
The Company conducts certain of its foreign operations through Foreign
Subsidiaries. Accordingly, the Company's ability to meet its cash obligations
may in part depend upon the ability of such Foreign Subsidiaries and any future
Foreign Subsidiaries to make cash distributions to the Company. Furthermore, any
right of the Company to receive the assets of any such Foreign Subsidiary upon
such Foreign Subsidiary's liquidation or reorganization (and the consequent
right of the Holders of the Notes to participate in the distribution of the
proceeds of those assets) effectively will be subordinated by operation of law
to the claims of such Foreign Subsidiary's creditors (including the lenders
under the Copetro Credit Agreement and trade creditors) and holders of its
preferred stock, except to the extent that the Company or its Subsidiaries are
recognized as creditors or preferred stockholders of such Foreign Subsidiary, in
which case the claims of the Company or its Subsidiaries would still be
subordinate to any indebtedness or preferred stock of such Foreign Subsidiaries
senior in right of payment to that held by the Company or its Subsidiaries. The
Foreign Subsidiaries will not, and future Foreign Subsidiaries are not expected
to, guarantee the Notes.
In the event that the Company elects to conduct any of its operations in the
future through Subsidiary Guarantors, the Company's ability to meet its cash
obligations may in part depend upon the ability of such Subsidiary Guarantors to
make cash distributions to the Company. Furthermore, any right of the Company to
receive assets of any such Subsidiary Guarantor will be subordinated to the
claims of holders of Senior Indebtedness of such Subsidiary Guarantor.
OPTIONAL REDEMPTION
The Old Notes are and the New Notes will be subject to redemption at any
time on or after May 15, 2003 at the option of the Company, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus
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accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the 12-month period commencing
May 15 of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 105.125%
2004.............................................................................. 103.417%
2005.............................................................................. 101.708%
2006 and thereafter............................................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time or from time to time on or prior
to May 15, 2001, the Company may redeem up to 35% of the aggregate principal
amount of Notes issued under the Indenture at a redemption price of 110.250% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the Net Cash Proceeds of
one or more Equity Offerings; PROVIDED that at least $100.0 million aggregate
principal amount of New Notes issued hereunder together with the Old Notes
originally issued and not exchanged in the Exchange Offer remain outstanding
immediately after the occurrence of such redemption; and PROVIDED, FURTHER, that
such redemption shall occur within 90 days of the date of the closing of such
Equity Offering.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee will deem fair and appropriate; PROVIDED
that no Notes of $1,000 or less will be redeemed in part. Notices 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, the notice of redemption
that relates to such Note will state the portion of the principal amount thereof
to be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on Notes
or portions of them called for redemption.
CERTAIN COVENANTS
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
Holdings is required to offer to purchase all Notes then outstanding pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase
(the "Change of Control Payment"). Within 35 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes pursuant to the procedures required by the Indenture and
described in such notice. 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 the Notes as a result of a Change of Control. To the
extent the provisions of any such securities laws or regulations conflict with
the provisions of this covenant,
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compliance by the Company or any of the Subsidiary Guarantors with such laws,
rules and regulations shall not in and of itself cause a breach of its
obligations under this covenant.
The Change of Control Offer will remain open for a period not to exceed 60
days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Change
of Control Offer Period (the "Change of Control Purchase Date"), the Company
will purchase all Notes tendered in response to the Change of Control Offer.
Payment for any Notes so purchased will be made in the same manner as interest
payments are made.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest will be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest will be
payable to Holders who tender Notes pursuant to the Change of Control Offer.
On the Change of Control Purchase Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; PROVIDED that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company and, thus, the removal of incumbent
management.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred. In addition, no assurances can
be given that the Company will be able to acquire Notes tendered upon the
occurrence of a Change of Control.
The New Credit Agreement prohibits the purchase of Notes in the event of a
Change of Control and provides that certain change of control events with
respect to the Company would constitute an event of default thereunder. Any
future credit agreements or other agreements relating to Senior Indebtedness to
which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time when the Company
is prohibited from purchasing Notes, the Company could seek the consent of its
lenders to the purchase of Notes or could attempt to repay or refinance the
borrowings that contain such prohibition and terminate any unutilized
commitments under the New Credit Agreement or other agreements. If the Company
does not obtain such a consent or repay or refinance such borrowings, the
Company will remain prohibited from purchasing Notes. In such case, the
Company's failure to purchase tendered Notes would constitute an Event of
Default under clause (iii) of the Events of Default described below which would,
in turn, constitute as default under the New Credit Agreement. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Notes.
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The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes a Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, engage in an Asset Sale in excess of $1.0 million unless
(i) the Company (or the 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 or Equity Interests sold or otherwise disposed of, and in the case of a
lease of assets, a lease providing for rent and other conditions which are no
less favorable to the Company (or the Subsidiary, as the case may be) in any
material respect than the then prevailing market conditions (in each case as set
forth in an Officers' Certificate delivered to the Trustee), (ii) at least 75%
of the consideration therefor received by the Company or such Subsidiary is in
the form of cash or Cash Equivalents; PROVIDED that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet or in the notes thereto, excluding contingent liabilities and trade
payables) of the Company or any Subsidiary (other than liabilities that are by
their terms subordinated to, or PARI PASSU with, the Notes or the Subsidiary
Guarantees) that are assumed by the transferee of any such assets and (y) any
notes or other obligations received by the Company or any such Subsidiary from
such transferee that are promptly, but in no event more than 30 days after
receipt, converted by the Company or such Subsidiary into cash (to the extent of
the cash received), will be deemed to be cash for purposes of this provision and
the receipt of such cash shall be treated as cash received from an Asset Sale
for which such Notes or obligations were received.
The Company or any of its Subsidiaries may apply the Net Proceeds from each
Asset Sale, at its option, within 360 days after the consummation of such Asset
Sale, (a) to permanently reduce any Senior Indebtedness (and in the case of any
senior revolving indebtedness to correspondingly permanently reduce commitments
with respect thereto), or (b) for the acquisition of another business or the
acquisition of other property or assets, in each case, in the same or a Related
Business or (c) for any combination of the foregoing. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce Senior
Revolving Debt or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") and to holders of other
Indebtedness of the Company outstanding ranking on a PARI PASSU basis with the
Notes with provisions requiring the Company to make an offer (or otherwise
redeem or prepay) with proceeds from the asset sales, pro rata in proportion to
the respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other Indebtedness
then outstanding, to purchase (or otherwise redeem or prepay) the maximum
principal amount (or accreted value, as applicable) of Notes and such other
Indebtedness, if any, that may be purchased (or redeemed or prepaid) out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount (or accreted value, as applicable) thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase,
in accordance with the procedures set forth in the Indenture. If the aggregate
principal amount (or accreted value, as applicable) of Notes and such
Indebtedness surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes and such Indebtedness to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
The term "Asset Sale," as defined in the Indenture, excludes certain sales
and other dispositions of assets. See "--Certain Definitions." As a result, the
Company and its Subsidiaries will be permitted to sell certain assets without
compliance with the foregoing covenant.
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The Asset Sale Offer will remain open for a period not to exceed 30 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Asset Sale Offer Period"). No
later than five Business Days after the termination of the Asset Sale Offer
Period (the "Asset Sale Purchase Date"), the Company will purchase the principal
amount of Notes required to be purchased pursuant to this covenant (the "Asset
Sale Offer Amount") or, if less than the Asset Sale Offer Amount has been
tendered, all Notes tendered in response to the Asset Sale Offer. Payment for
any Notes so purchased will be made in the same manner as interest payments are
made. 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 were applicable in connection with the
repurchase of the Notes as a result of an Asset Sale Offer. To the extent the
provisions of any such securities laws or regulations conflict with the
provisions of this covenant, compliance by the Company or any of the Subsidiary
Guarantors with such laws, rules and regulations shall not in and of itself
cause a breach of its obligations under this covenant.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest will be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, the Company will, to the extent
lawful, accept for payment, on a PRO RATA basis to the extent necessary, the
Asset Sale Offer Amount of Notes or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Asset Sale Offer Amount has been tendered,
all Notes tendered, and will deliver to the Trustee an Officers' Certificate
stating that such Notes or portions thereof were accepted for payment by the
Company in accordance with the terms of this covenant. The Company, the
Depositary or the Paying Agent, as the case may be, will promptly (but in any
case not later than five Business Days after the Asset Sale Purchase Date) mail
or deliver to each tendering Holder an amount equal to the purchase price of the
Notes tendered by such Holder and accepted by the Company for purchase, and the
Company will promptly issue a new Note, and the Trustee, upon delivery of an
Officers' Certificate from the Company, will authenticate and mail or deliver
such new Note to such Holder, in a principal amount equal to any unpurchased
portion of the Note surrendered. Any Note not so accepted will be promptly
mailed or delivered by the Company to the Holder thereof.
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any distribution on account of the Company's or any of its Subsidiaries' or
Holdings' Equity Interests (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or dividends or
distributions payable to the Company or to any Subsidiary Guarantor); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any Subsidiary Guarantor or any direct or indirect parent of
the Company (other than any such Equity Interests owned by the Company or any
Subsidiary Guarantor); (iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
contractually subordinated to the Notes or any of the Subsidiary Guarantees as
applicable (and other than Notes or the Subsidiary Guarantees, as applicable),
except for any scheduled repayment (including any sinking fund or similar
payment) or at final maturity thereof; or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv)
above, unless a Permitted Investment, being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default will have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving PRO FORMA effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter
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period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the Issue
Date (excluding Restricted Payments permitted by clauses (ii), (iii), (iv),
(v), (vi) and (x) of the next succeeding paragraph), is less than the sum of
(i) $7.5 million, plus (ii) 50% of the Consolidated Net Income (adjusted to
exclude any amounts that are otherwise included in this clause (c) to the
extent there would be, and to avoid, any duplication in the crediting of any
such amounts) of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the Issue
Date to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (iii) to the extent not included
in the amount described in clause (ii) above, 100% of the aggregate Net Cash
Proceeds received after the Issue Date by the Company from the issue or sale
of, or from capital contributions in respect of, Equity Interests of the
Company or of debt securities of the Company or any Subsidiary Guarantor
that have been converted into, or cancelled in exchange for, Equity
Interests of the Company (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than Disqualified
Stock or debt securities that have been converted into Disqualified Stock),
plus (iv) 100% of any dividends or other distributions received by the
Company or a Subsidiary of the Company after the Issue Date from an
Unrestricted Subsidiary of the Company, plus (v) 100% of the cash proceeds
(or Cash Equivalents) realized upon the sale of any Unrestricted Subsidiary
(less the amount of any reserve established for purchase price adjustments
and less the maximum amount of any indemnification or similar contingent
obligation for the benefit of the purchaser, any of its Affiliates or any
other third party in such sale, in each case as adjusted for any permanent
reduction in any such amount on or after the date of such sale, other than
by virtue of a payment made to such Person) following the Issue Date, plus
(vi) to the extent that any Restricted Investment that was made after the
Issue Date is sold for cash (or Cash Equivalents) or otherwise liquidated or
repaid for cash (or Cash Equivalents), the amount of cash proceeds (or Cash
Equivalents) received with respect to such Restricted Investment plus (vii)
upon the redesignation of an Unrestricted Subsidiary as a Subsidiary, the
lesser of (x) the fair market value of such Subsidiary or (y) the aggregate
amount of all Investments made in such Subsidiary subsequent to the Issue
Date by the Company and its Subsidiaries.
The foregoing provisions do not prohibit, if and to the extent any of the
following would otherwise constitute a Restricted Payment, (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of the
Indenture; (ii) if no Default or Event of Default shall have occurred and be
continuing (and shall not have been waived) or shall occur as a consequence
thereof, the payment by the Company of a management fee to AIP in an amount not
to exceed $1.85 million in any fiscal year and the reimbursement by the Company
of AIP's reasonable out-of-pocket expenses incurred in connection with the
rendering of management services to or on behalf of the Company; PROVIDED,
HOWEVER, that no such fees may be paid, and no such expenses may be reimbursed,
unless the obligation of the Company to pay such management fee has been
subordinated to the payment of all Obligations with respect to the Notes (and
any Subsidiary Guarantee thereof); (iii) the making of any Restricted Investment
in exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of, or from substantially concurrent
additional capital contributions in respect of, Equity Interests of the Company
(other than Disqualified Stock); PROVIDED, that any Net Cash Proceeds that are
utilized for any such Restricted Investment will be excluded from clause
(c)(iii) of the preceding paragraph; (iv) the redemption, repurchase, retirement
or other acquisition of any Equity Interests of the Company in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of, or from substantially concurrent capital
contributions in respect of, other Equity Interests of the Company (other
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than any Disqualified Stock); PROVIDED that any Net Cash Proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition,
will be excluded from clause (c)(iii) of the preceding paragraph; (v) the
defeasance, redemption or repurchase of, or the making of a principal payment
on, or the acquisition or retirement for value of, subordinated Indebtedness in
exchange for or with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than to a
Subsidiary of the Company) of, or from substantially concurrent capital
contributions in respect of, Equity Interests of the Company (other than
Disqualified Stock); PROVIDED, that any net cash proceeds that are utilized for
any such defeasance, redemption or repurchase will be excluded from clause
(c)(iii) of the preceding paragraph; (vi) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company,
Holdings or any Subsidiary of the Company held by any member of the Company's
(or Holdings' or any of its Subsidiaries') management pursuant to any management
agreement or stock option agreement or upon the death, disability or termination
of employment of such member; PROVIDED that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests will not exceed
$5.0 million in the aggregate (net of the Net Cash Proceeds received by
Holdings, the Company or any of its Subsidiaries from subsequent reissuances of
such Equity Interests to new members of such management), and no Default or
Event of Default will have occurred and be continuing immediately after such
transaction; (vii) the acquisition by a Receivables Subsidiary in connection
with a Qualified Receivables Transaction of Equity Interests of a trust or other
Person established by such Receivables Subsidiary to effect such Qualified
Receivables Transaction; (viii) pro rata dividends and other distributions on
the Equity Interests of any Subsidiary of the Company by such Subsidiary; (ix)
payments in lieu of fractional shares in an amount not to exceed $50,000 in the
aggregate; (x) Permitted Payments to Holdings; and (xi) so long as no Default or
Event of Default has occurred and is continuing, from and after one Business Day
prior to November 15, 2003, payments of cash dividends to Holdings in an amount
sufficient to enable Holdings to make payments of interest required to be made
in respect of the Holdings Debentures in accordance with the terms thereof in
effect on the date of the Indenture, provided such interest payments are made
with the proceeds of such dividends.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default. For purposes of making
such determination, all outstanding Investments by the Company and its
Subsidiaries (except to the extent repaid in cash or Cash Equivalents) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time of
such designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All such outstanding Investments
will be deemed to constitute Investments in an amount equal to the greatest of
(x) the net book value of such Investments at the time of such designation, (y)
the fair market value of such Investments at the time of such designation and
(z) the original fair market value of such Investments at the time they were
made. Such designation will only be permitted if such Restricted Payment would
be permitted at such time and if such Subsidiary otherwise meets the definition
of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash or Cash Equivalents)
will be the fair market value (as and to the extent set forth in an Officers'
Certificate delivered to the Trustee pursuant to the next sentence) on the date
of the Restricted Payment of the asset(s) proposed to be transferred by the
Company or such Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than five Business Days' following the date of making any
Restricted Payment in excess of $1,000,000, the Company will deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this covenant were computed, which calculations may be based upon the Company's
latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
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Acquired Indebtedness) and the Company will not issue or otherwise incur any
Disqualified Stock and will not permit any of its Subsidiaries to issue or
otherwise incur any shares of Disqualified Stock; PROVIDED, HOWEVER, that the
Company may incur Indebtedness (including Acquired Indebtedness) or issue or
otherwise incur shares of Disqualified Stock and the Subsidiary Guarantors may
incur Indebtedness (including Acquired Indebtedness) and issue or otherwise
incur Disqualified Stock and Foreign Subsidiaries may incur Indebtedness
(including Acquired Indebtedness) if: (i) the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued or
incurred would have been at least 2.0 to 1, determined on a PRO FORMA basis
(including a PRO FORMA application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued or incurred, as the case may be, at the beginning of such four-quarter
period; and (ii) no Default or Event of Default will have occurred and be
continuing or would occur as a consequence thereof; PROVIDED, that no Guarantee
may be incurred pursuant to this paragraph unless the guaranteed Indebtedness is
incurred by the Company or a Subsidiary pursuant to this paragraph; and PROVIDED
FURTHER, that all Indebtedness incurred by Foreign Subsidiaries pursuant to this
paragraph must be secured and must not be subordinated in right of payment to
any other Indebtedness.
The foregoing provisions will not apply to:
(i) the incurrence by the Company or any Subsidiary Guarantors of Senior
Term Debt (and Guarantees thereof by Subsidiary Guarantors and the Company);
PROVIDED that the aggregate principal amount of all Senior Term Debt
outstanding under this clause (i) after giving effect to such incurrence
does not exceed $120.0 million less the aggregate amount of all Net Proceeds
of Asset Sales applied to repay Senior Term Debt pursuant to the covenant
described above under the caption "--Asset Sales";
(ii) the incurrence by the Company or any Subsidiary Guarantors of
Senior Revolving Debt (and Guarantees thereof by Subsidiary Guarantors and
the Company) and reimbursement obligations in respect of letters of credit
in an aggregate principal amount at any time outstanding under this clause
(ii) (with letters of credit obligations being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Subsidiaries that are Subsidiary Guarantors with respect thereto) not to
exceed an amount equal to the greater of (a) $25.0 million, less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
reduce the outstanding amount or, as applicable, the commitments with
respect to such Indebtedness pursuant to the covenant described above under
the caption "--Asset Sales," and (b) an amount equal to the Borrowing Base;
(iii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness (including any Permitted Refinancing Indebtedness incurred to
refinance, retire, renew, defease, refund or otherwise replace such
Indebtedness);
(iv) the incurrence by the Company of Indebtedness represented by the
(x) Notes issued as of the Issue Date, (y) Exchange Notes and (z) Additional
Notes issued to satisfy interest payment obligations of the Company under
the Notes, as described above and the incurrence by Subsidiaries of
Indebtedness represented by the Subsidiary Guarantees;
(v) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, Mortgage Financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business or a Related Business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$10.0 million at any time outstanding under this clause (v) (including any
Permitted Refinancing Indebtedness incurred to refinance, retire, renew,
defease, refund or otherwise replace any such Indebtedness);
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace,
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defease or refund, Indebtedness that was permitted by the Indenture to be
incurred or was outstanding on the Issue Date, after giving effect to the
Acquisition Transactions;
(vii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness (a) between or among the Company and any of the
Subsidiary Guarantors or Foreign Subsidiaries, (b) between or among any
Subsidiary Guarantors, (c) between or among any Foreign Subsidiaries and (d)
between or among any Subsidiary Guarantors and Foreign Subsidiaries;
PROVIDED, HOWEVER, that (x) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person other
than the Company, a Subsidiary Guarantor or a Foreign Subsidiary and (y) any
sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Subsidiary Guarantor or Foreign Subsidiary will be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Subsidiary, as the case may be;
(viii) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging (a)
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the Indenture to be incurred or (b) currency risk (to the
extent incurred in the ordinary course of business and not for purposes of
speculation);
(ix) the incurrence by the Company or any of the Subsidiary Guarantors
of Indebtedness (in addition to Indebtedness permitted by any other clause
of this covenant) in an aggregate principal amount at any time outstanding
under this clause (ix) not to exceed the sum of $20.0 million (including
Permitted Refinancing Indebtedness incurred to refinance, retire, renew,
defease, refund or otherwise replace any such Indebtedness); provided that
such Indebtedness may, but need not, be incurred under the New Credit
Agreement;
(x) Indebtedness incurred by the Company or any of the Subsidiary
Guarantors or Foreign Subsidiaries arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees of letters of credit, bankers' acceptances, surety bonds or
performance bonds securing the performance of the Company or any of its
Subsidiary Guarantors or Foreign Subsidiaries to any Person acquiring all or
a portion of such business or assets of the Company or a Subsidiary of the
Company for the purpose of financing such acquisition, in a principal amount
not to exceed 25% of the gross proceeds (with proceeds other than cash or
Cash Equivalents being valued at the fair market value thereof as determined
by the Company in good faith) actually received by the Company or any of its
Subsidiaries in connection with such disposition;
(xi) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to the Company or
to any other Subsidiary of the Company or their assets (other than such
Receivables Subsidiary and its assets and, as to the Company or any
Subsidiary of the Company, other than pursuant to representations,
warranties, covenants and indemnities customary for such transactions) and
is not guaranteed by any such Person;
(xii) the incurrence by Foreign Subsidiaries of Indebtedness (in addition
to Indebtedness permitted by any other provision of this covenant) in an
aggregate amount not to exceed $25.0 million at any time outstanding under
this clause (xii) (including any Permitted Refinancing Indebtedness incurred
to refinance, retire, renew, defease, refund or otherwise replace any such
Indebtedness);
(xiii) Indebtedness in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds entered into by the Company and
its Subsidiaries in the ordinary course of their business;
(xiv) 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; and
(xv) Finance Subsidiary Indebtedness.
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Notwithstanding any other provision of this covenant, a Guarantee of
Indebtedness permitted by the terms of the Indenture at the time such
Indebtedness was incurred or at the time the guarantor thereof became a
Subsidiary Guarantor will not constitute a separate incurrence, or amount
outstanding, of Indebtedness. Upon each incurrence of Indebtedness by the
Company or any of its Subsidiaries, the Company may designate pursuant to which
provision of this covenant such Indebtedness is being incurred and such
Indebtedness shall not be deemed to have been incurred or outstanding under any
other provision of this covenant, except as stated otherwise in the foregoing
provision.
Indebtedness or Disqualified Stock of any Person which is outstanding at the
time such Person becomes a Subsidiary of the Company (including upon designation
of any subsidiary or other person as a Subsidiary) or is merged with or into or
consolidated with the Company or a Subsidiary of the Company shall be deemed to
have been incurred at the time such Person becomes a Subsidiary of the Company
or is merged with or consolidated with the Company or a Subsidiary of the
Company, as applicable.
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens, unless the Notes are secured by such Lien on an equal
and ratable basis.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the Issue Date,
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, PROVIDED that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions than those
contained in the applicable Existing Indebtedness as in effect on the Issue
Date, (b) the New Credit Agreement as in effect as of the Issue Date, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
the New Credit Agreement as in effect on the Issue Date, (c) the Indenture and
the Notes or any Indebtedness ranking on a PARI PASSU basis with the Notes or
the Subsidiary Guarantees, as applicable, PROVIDED such restrictions are no more
restrictive, taken as a whole, than those contained in the Indenture, (d)
applicable law, (e) any instrument governing Acquired Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Subsidiaries as in
effect at the time of such acquisition (except to the extent such Acquired
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, (f) by reason of customary non-
assignment provisions in leases and licenses entered into in the ordinary course
of business, (g) Purchase Money Obligations, Mortgage Financings or Capital
Lease Obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) agreements relating to the financing of the
acquisition of real or tangible personal property acquired on or after the Issue
Date, PROVIDED, that such encumbrance or restriction
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relates only to the property which is acquired and in the case of any
encumbrance or restriction that constitutes a Lien, such Lien constitutes a
Permitted Lien, (i) Indebtedness or other contractual requirements of a
Receivables Subsidiary in connection with a Qualified Receivables Transaction,
PROVIDED that such restrictions apply only to such Receivables Subsidiary, (j)
any restriction or encumbrance contained in contracts for sale of assets
permitted by the Indenture in respect of the assets being sold pursuant to such
contract, (k) Indebtedness permitted to be incurred under the Indenture and
incurred on or after the Issue Date, PROVIDED, that such encumbrances or
restrictions in such Indebtedness are no more onerous, taken as a whole, than
the restrictions contained in the New Credit Agreement on the Issue Date or as
the New Credit Agreement may be amended, modified, restated, renewed, increased,
supplemented, refunded, replaced or refinanced as set forth in clause (b) above,
(l) restrictions contained in Indebtedness of Foreign Subsidiaries incurred
under the covenant entitled "Incurrence of Indebtedness and Issuance of
Disqualified Stock", (m) Permitted Refinancing Indebtedness, PROVIDED that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (n) restrictions with respect to
the Company or a Subsidiary of the Company imposed pursuant to a binding
agreement entered into for the sale or disposition of Equity Interests or assets
of such Person permitted pursuant to the Indenture or (o) agreements relating to
Permitted Liens or Indebtedness related thereto; provided that such encumbrance
or restriction relates only to the property subject to such Permitted Lien.
LIMITATION ON LAYERING OF INDEBTEDNESS
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for Indebtedness that by its terms
or the terms of any document or instrument relating thereto is expressly
subordinate or junior in right of payment to any Senior Indebtedness and senior
in right of payment to the Notes and (ii) no Subsidiary Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for Indebtedness
that by its terms or the terms of any document or instrument relating thereto is
expressly subordinate or junior in right of payment to any Senior Indebtedness
of such Subsidiary Guarantor and senior in right of payment to its Subsidiary
Guarantee, PROVIDED that this prohibition shall not prohibit Acquired
Indebtedness (other than Acquired Indebtedness incurred in connection with or in
contemplation of a merger of the Company or any Subsidiary Guarantor or in
connection with another transaction pursuant to which a Person becomes a
Subsidiary of the Company).
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make any contract, agreement, understanding, loan, advance or guarantee with,
or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction entered into after the Issue Date involving
aggregate consideration in excess of $5.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members (if any) of the
Board of Directors and (b) with respect to any Affiliate Transaction involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Company or such Subsidiary of such Affiliate Transaction from a
financial point of view issued by an investment banking firm of national
standing or, in the event such transaction is of a type that investment bankers
do not generally render fairness opinions, a valuation or appraisal firm of
national reputation; PROVIDED that the following will not be deemed to be
Affiliate Transactions: (w) the provision of administrative or management
services by the Company or any of its officers to any of its Subsidiaries in the
ordinary course of business, (x) any employment agreement entered into by the
Company or any of its Subsidiaries in the ordinary course of business, (y)
transactions between or among the Company and/or its Subsidiaries or
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transactions between a Receivables Subsidiary or a Finance Subsidiary and any
Person in which the Receivables Subsidiary or Finance Subsidiary has an
Investment and (z) transactions permitted by the covenant entitled "Restricted
Payments." In addition, none of the Acquisition Transactions or the transactions
contemplated thereby shall be deemed to be Affiliate Transactions.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that all Subsidiaries of the Company (other than
Receivables Subsidiaries, Finance Subsidiaries and Foreign Subsidiaries)
substantially all of whose assets are located in the United States or that
conduct substantially all of their business in the United States will be
Subsidiary Guarantors.
LINE OF BUSINESS
The Indenture provides that neither the Company nor any of its Subsidiaries
will directly or indirectly engage to any substantial extent in any line or
lines of business activity other than that which, in the reasonable good faith
judgment of the Board of Directors of the Company, is a Related Business.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any Notes are outstanding beginning with the
year ended December 31, 1998, the Company will furnish to the Trustee and all
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, as
applicable, if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports, in each case within the time periods specified in
the SEC's rules and regulations; provided that the foregoing shall not require
the Company to furnish separate financial results of its Subsidiaries. In
addition, whether or not required by the rules and regulations of the SEC, the
Company will file a copy of all such information and reports with the SEC for
public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC 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 Trustee, 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.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company will not, in a single transaction or
series of related transactions, consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made (such surviving corporation or transferee
Person, the "Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia; (ii)
the Surviving Entity assumes all the obligations of the Company under the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no Default
or Event of Default exists; (iv) the Company or the entity or Person formed by
or surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional
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Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Disqualified Stock"; and (v) the Company will have delivered to the
Trustee an Officers' Certificate stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or disposition and such supplemental
indenture, if any, comply with this Indenture and that such supplemental
indenture is enforceable.
Upon the occurrence of any transaction described in the immediately
preceding paragraph in which the Company is not the continuing corporation, the
successor corporation formed by such a consolidation or into which the Company
is merged or to which such transfer is made will succeed to, and be substituted
for, and may exercise every right and power of, the Company under the Indenture
and the Notes with the same effect as if such successor corporation had been
named as the Company therein.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company to make or consummate a Change of Control Offer or Asset Sale Offer in
accordance with the provisions described under the captions "--Change of
Control" and "--Asset Sales"; (iv) the failure by the Company or any of its
Subsidiaries for 30 days after notice to comply with the provisions described
under the captions "--Restricted Payments" and "--Incurrence of Indebtedness and
Issuance of Disqualified Stock"; (v) failure by the Company or any of its
Subsidiaries for 60 days after notice to comply with any of its other agreements
in the Indenture, the Notes or the Subsidiary Guarantees; (vi) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries or the payment of which is guaranteed by the
Company or any of its Subsidiaries whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, which default (a) is caused by a
failure to pay principal upon final stated maturity of such Indebtedness
following the expiration of any grace period provided in such Indebtedness or
(b) results in the acceleration of such Indebtedness prior to its final stated
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a default in the payment of principal upon final stated maturity
which has not been cured and is continuing following the expiration of any
applicable grace period or the maturity of which has been so accelerated and has
not been satisfied, aggregates $7.5 million or more; (vii) failure by the
Company or any of its Significant Subsidiaries to pay final judgments
aggregating in excess of $7.5 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (viii) except as permitted by the Indenture,
any Subsidiary Guarantee will be held in any judicial proceeding to be
unenforceable or invalid or will cease for any reason to be in full force and
effect or any Subsidiary Guarantor, or any person acting on behalf of any
Subsidiary Guarantor, will deny or disaffirm its obligations under its
Subsidiary Guarantee; and (ix) certain events of bankruptcy or insolvency with
respect to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately by notice in writing to
the Company and the Representative of holders of Designated Senior Indebtedness
(an "Acceleration Notice"). Notwithstanding the foregoing, (i) in the case of an
Event of Default arising from certain events of bankruptcy or insolvency with
respect to the Company, all outstanding Notes will become due and payable
without further action or notice or (ii) if there is any Designated Senior
Indebtedness outstanding, all outstanding Notes will become due and payable
immediately upon the first to occur of an acceleration under such Designated
Senior Indebtedness or five Business Days after receipt by the Company and the
Representative of the holders of such Designated Senior Indebtedness of the
Acceleration Notice, but only if an Event of Default is then continuing. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of
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any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the event of a declaration of acceleration because an Event of Default
set forth in clause (vi) above has occurred and is continuing, such declaration
of acceleration shall be automatically rescinded and annulled if the default
triggering such Event of Default shall be remedied or cured by the Company or
relevant Subsidiary or waived by the holders of the relevant Indebtedness within
60 days after the declaration of acceleration with respect thereto.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture, the Notes and the Subsidiary Guarantees, except a continuing
Default or Event of Default in the payment of interest on, or the principal of,
the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or the Subsidiary Guarantors, as such, will have any
liability for any obligations of the Company under the Notes, the Subsidiary
Guarantees, the Indenture and the Registration Rights Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and the obligations
of the Subsidiary Guarantors with respect to the Subsidiary Guarantees ("Legal
Defeasance"), except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations will not constitute a Default or Event of Default with respect
to the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, and, solely for a period of 91 days following the deposit
referred to in clause (i) of the next paragraph, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes, and the
Subsidiary Guarantees will be released.
Legal Defeasance and Covenant Defeasance will be deemed to occur on the date
of the deposit referred to in clause (i) of this paragraph, so long as the other
conditions thereto referred to in this paragraph are satisfied as of such date.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, 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 and Liquidated Damages on
the
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outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, the Company will have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the Issue Date, 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 will confirm that, the Holders
of the outstanding Notes 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; (iii) in
the case of Covenant Defeasance, the Company will have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes 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; (iv) no Default or Event of Default will have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit); (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the Company
or others; and (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that all conditions precedent provided for relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Notes), and any existing
default or compliance with any provision of the Indenture, the Notes and the
Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes). In connection with any amendment, supplement or
waiver under the Indenture, the Company may, but shall not be obligated to,
offer to any Holder who consents to such amendment, supplement or waiver, or to
all Holders, consideration for such Holder's consent to such amendment,
supplement or waiver.
Without the consent of each Holder affected (it being understood that the
covenants described above under the captions "--Change of Control" or "--Asset
Sales" may be amended as provided in the immediately preceding paragraph), an
amendment or waiver may not (with respect to any Notes held by a nonconsenting
Holder): (i) reduce the principal amount of Notes whose Holders must consent to
an
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amendment, supplement or waiver of the Indenture, Notes or Subsidiary
Guarantees, (ii) reduce the principal of or change the final stated maturity of
any Note or alter the provisions with respect to the redemption of the Notes at
the option of the Company, (iii) reduce the rate of or change the time for
payment of interest on any Note, (iv) waive a past Default or past Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of a
majority in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Note payable in
money other than that stated in the Notes, (vi) except as otherwise provided in
this paragraph, make any change in the provisions of the Indenture, Notes or
Subsidiary Guarantees relating to waivers of past Defaults or Events of Defaults
or the rights of Holders of Notes to receive payments of principal of or
premium, if any, or interest on the Notes, or (vii) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Notes or
the Subsidiary Guarantees to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation or sale of all or substantially
all of the Company's assets, to make any change that would provide any
additional rights or benefits to the Holders of Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, to comply with
the procedures of the Depositary, Euroclear or Cedel or the Trustee with respect
to the provisions of the Indenture and the Notes relating to transfers and
exchanges of Notes or beneficial interests therein or to comply with
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue or
resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default will
occur (which will not be cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of Notes, unless such Holder will have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
the Registration Rights Agreement without charge by writing to the Company at
551 Fifth Avenue, Suite 3600, New York, New York 10176, Attention: Corporate
Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such
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specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured
by a Lien encumbering any asset acquired by such specified Person.
"AFFILIATE" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, will mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise; PROVIDED
that beneficial ownership of 10% or more of the voting securities of a Person
will be deemed to be control. Notwithstanding the foregoing, (a) the limited
partners of AIP Capital Funds will not be deemed to be Affiliates of AIP Capital
Funds or AIP solely by reason of their investment in AIP Capital Funds and (b)
no Person (other than the Company or any Subsidiary of the Company) in whom a
Receivables Subsidiary makes an Investment in connection with a Qualified
Receivables Transaction will be deemed to be an Affiliate of the Company or any
of its Subsidiaries solely by reason of such Investment.
"AIP" means American Industrial Partners, a Delaware general partnership.
"AIP CAPITAL FUNDS" means American Industrial Partners Capital Fund, L.P., a
Delaware limited partnership, and American Industrial Partners Capital Fund II,
L.P., a Delaware limited partnership.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition that
does not constitute a Restricted Payment or an Investment by such Person of any
of its non-cash assets (including, without limitation, by way of a sale and
leaseback and including the issuance, sale or other transfer of any of the
Capital Stock of any Subsidiary of such Person) other than to the Company or to
any of the Subsidiary Guarantors; and (ii) the issuance of Equity Interests in
any Subsidiaries or the sale of any Equity Interests in any Subsidiaries, in
each case, in one or a series of related transactions, PROVIDED, that
notwithstanding the foregoing, the term "Asset Sale" will not include: (a) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company, as permitted pursuant to the covenant entitled
"Merger, Consolidation or Sale of Assets"; (b) the sale or lease of equipment,
inventory, accounts receivable or other assets in the ordinary course of
business and to the extent that such sales or leases are not part of a sale of
the business (unless such sale of such business would not be an Asset Sale) in
which such equipment was used or in which such inventory or accounts receivable
arose; (c) a transfer of assets by the Company to a Subsidiary Guarantor or by a
Subsidiary Guarantor to the Company or another Subsidiary Guarantor or by a
Subsidiary of the Company that is not a Subsidiary Guarantor to the Company or
another Subsidiary of the Company; (d) an issuance of Equity Interests by a
Subsidiary Guarantor to the Company or to another Subsidiary Guarantor or by a
Subsidiary of the Company that is not a Subsidiary Guarantor to the Company or
another Subsidiary of the Company; (e) the surrender or waiver of contract
rights or the settlement, release or surrender of contract, tort or other claims
of any kind; (f) the grant in the ordinary course of business of any license of
patents, trademarks, registrations therefor and other similar intellectual
property; (g) Permitted Investments or Permitted Liens; (h) sales of accounts
receivable and related assets of the type specified in the definition of
"Qualified Receivables Transaction" to a Receivables Subsidiary for the fair
market value thereof, including cash in an amount at least equal to 75% of the
book value thereof as determined in accordance with GAAP; (i) transfers of
accounts receivable and related assets of the type specified in the definition
of "Qualified Receivables Transaction" (or a fractional undivided interest
therein) by a Receivables Subsidiary in a Qualified Receivables Transaction; and
(j) the sale or disposal of damaged, worn out or other obsolete personal
property, inventory or equipment in the ordinary course of business so long as
such property is no longer necessary for the proper conduct of the business of
the Company or such Subsidiary, as applicable. For the purposes of clause (h),
notes received in exchange for the transfer of accounts receivable and related
assets will be deemed cash if the Receivables Subsidiary or other payor is
required to repay said notes as soon as practicable from available cash
collections less amounts required to be established as reserves pursuant to
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contractual agreements with entities that are not Affiliates of the Company
entered into as part of a Qualified Receivables Transaction.
"BOARD OF DIRECTORS" means the Board of Directors of the Company, or any
authorized committee of the Board of Directors.
"BORROWING BASE" means, as of any date, an amount equal to the sum of (a)
75% of the face amount of all accounts receivable owned by the Company and its
Subsidiaries as of such date that are not more than 90 days past due, and (b)
50% of the book value of all inventory owned by the Company and its Subsidiaries
as of such date, minus (c) the aggregate amount of trade payables of the Company
and its Subsidiaries outstanding as of such date, all calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not available as to the amount of accounts receivable or inventory or trade
payables as of a specific date, the Company may utilize the most recent
available information for purposes of calculating the Borrowing Base.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $100.0
million or (ii) any bank whose short-term commercial paper rating from S&P is at
least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Lender"), in each case with
maturities of not more than twelve months from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any Approved Lender
(or by the parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-2 (or the equivalent thereof) or
better by S&P or P-2 (or the equivalent thereof) or better by Moody's and
maturing within twelve months of the date of acquisition, (d) repurchase
agreements with a bank or trust company or recognized securities dealer having
capital and surplus in excess of $100.0 million for direct obligations issued by
or fully guaranteed by the United States of America in which the Company will
have a perfected first priority security interest (subject to no other Liens)
and having, on the date of purchase thereof, a fair market value of at least
100% of the amount of repurchase obligations, (e) interests in money market
mutual funds which invest solely in assets or securities of the type described
in subparagraphs (a), (b), (c) or (d) hereof and (f) in the case of any Foreign
Subsidiary: (i) direct obligations of the sovereign nation (or any agency
thereof) in which such Foreign Subsidiary is organized and is conducting
business or in obligations fully and unconditionally guaranteed by such
sovereign nation (or any agency thereof), (ii) investments of the type and
maturity described in clauses (a) through (e) above of foreign obligors, which
investments or obligors (or the direct or indirect parents of such obligors)
have ratings described in such clauses or equivalent ratings from comparable
foreign rating agencies or (iii) investments of the type
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and maturity described in clauses (a) through (e) above of foreign obligors (or
the direct or indirect parents of such obligors), which investments or obligors
(or the direct or indirect parents of such obligors) are not rated as provided
in such clauses or in clause (ii) above but which are, in the reasonable
judgment of the Company, comparable in investment quality to such investments
and obligors (or the direct or indirect parent of such obligors).
"CHANGE OF CONTROL" means such time as (i) prior to the initial public
offering by the Company or any direct or indirect parent of the Company of its
common stock (other than a public offering pursuant to a registration statement
on Form S-8), AIP, AIP Capital Funds or any of their respective Affiliates
(collectively, the "Initial Investors") cease to be, directly or indirectly, the
beneficial owners, in the aggregate, of a majority of the voting power of the
voting Capital Stock of the Company or (ii) after the initial public offering by
the Company or any direct or indirect parent of the Company of its common stock
(other than a public offering pursuant to a registration statement on Form S-8),
(A) any Schedule 13D, Form 13F or Schedule 13G under the Exchange Act, or any
amendment to such Schedule or Form, is received by the Company which indicates
that, or the Company otherwise becomes aware that, a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) other than the
Initial Investors or their Related Parties (as defined below) has become,
directly or indirectly, the "beneficial owner," by way of merger, consolidation
or otherwise, of 35% or more of the voting power of the voting Capital Stock of
the Company and (B) such person or group has become, directly or indirectly, the
beneficial owner of a greater percentage of the voting Capital Stock of the
Company than beneficially owned by the Initial Investors or their Related
Parties, or (iii) the sale, lease or transfer of all or substantially all of the
assets of the Company to any person or group (other than a Subsidiary Guarantor
or the Initial Investors or their Related Parties), or (iv) during any period of
two consecutive calendar years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by the Board of Directors of the Company or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors of the Company, then in office. "Related Party" with
respect to any Initial Investor means (A) any controlling stockholder, 80% (or
more) owned Subsidiary, or spouse, or immediate family member (in the case of
any individual) of such Initial Investor or (B) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or persons beneficially holding an 80% or more controlling interest of which
consist of such Initial Investor and/or such other persons referred to in the
immediately preceding clause (A).
"CONSOLIDATED EBITDA" means, with respect to the Company and its
Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) the Fixed Charges for such
period, plus (iii) provision for taxes based on income or profits for such
period (to the extent such income or profits were included in computing
Consolidated Net Income for such period), plus (iv) consolidated depreciation,
amortization and other non-cash charges of the Company and its Subsidiaries
required to be reflected as expenses on the books and records of the Company,
minus (v) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (iv), and (vi) excluding the impact of
foreign currency translations. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and other non-cash charges of, a Subsidiary of a Person will be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in the same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; PROVIDED
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting will be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Subsidiary, (ii) the Net
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Income of any Subsidiary will be excluded solely to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (which has not been obtained) or by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders (PROVIDED that the Company's equity in Net Income of any such
Subsidiary shall be included up to the aggregate amount of dividends or similar
distributions that could have been declared or paid consistent with such
restrictions during such period), (iii) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition will be excluded, (iv) the cumulative effect of a change in
accounting principles will be excluded, (v) the Net Income of, or any dividends
or other distributions from, any Unrestricted Subsidiary, to the extent
otherwise included, shall be excluded, except to the extent cash or Cash
Equivalents are distributed to the Company or one of its Subsidiaries in a
transaction that does not relate to the liquidation of such Unrestricted
Subsidiary and (vi) all other extraordinary gains and extraordinary losses will
be excluded.
"COPETRO CREDIT AGREEMENT" means the credit agreement, dated as of February
4, 1997, between Copetro S.A., Banca Nazionale del Lavoro S.A. and the other
lenders party thereto, as amended, restated, supplemented or otherwise modified
from time to time.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DEPOSITARY" means, with respect to the Notes issuable or issued in whole or
in part in global form, the Person specified in the Indenture as the Depositary
with respect to the Notes, until a successor will have been appointed and become
such Depositary pursuant to the applicable provision of the Indenture, and,
thereafter, "Depositary" will mean or include such successor.
"DESIGNATED SENIOR INDEBTEDNESS" means (i) the Indebtedness under the New
Credit Agreement and (ii) any other Senior Indebtedness of the Company or any
Subsidiary of the Company permitted under the Indenture the original principal
amount of which is $25.0 million or more and that has been designated by the
Company as "Designated Senior Indebtedness."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than customary change
of control or asset sale provisions), matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the Holder thereof, in whole or in part, prior to the final stated
maturity of the Notes.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" means an underwritten public offering pursuant to a
registration statement filed with the SEC in accordance with the Securities Act
of (i) Equity Interests (other than Disqualified Stock) of the Company or (ii)
Equity Interests (other than Disqualified Stock) of the Company's parent or
indirect parent to the extent that the cash proceeds therefrom are contributed
to the equity capital of the Company or are used to purchase Equity Interests
(other than Disqualified Stock) of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE NOTES" means the securities substantially similar to the Notes or
Additional Notes, issued pursuant to an Exchange Offer.
"EXCHANGE OFFER" means an offer that may be made by the Company pursuant to
the Registration Rights Agreement (or another similar agreement entered into in
connection with the issuance of Additional Notes) to exchange Notes for Exchange
Notes.
"EXISTING INDEBTEDNESS" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Agreement) in
existence on the Issue Date or incurred subsequent to
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the Issue Date pursuant to commitments under the Copetro Credit Agreement as in
effect on the Issue Date, until such amounts are repaid.
"FINANCE SUBSIDIARY" means any Subsidiary of the Company (other than a
Subsidiary Guarantor or a Foreign Subsidiary) organized for the sole purpose of
issuing Capital Stock or other securities and loaning the proceeds thereof to
the Company or a Subsidiary Guarantor and which engages in no other transactions
except those incidental thereto.
"FINANCE SUBSIDIARY INDEBTEDNESS" means Indebtedness of or Disqualified
Stock issued by a Finance Subsidiary which Indebtedness or Disqualified Stock
does not have a final stated maturity and is not mandatorily redeemable or
redeemable at the option of the holder thereof (other than pursuant to customary
change of control or asset sale provisions), in whole or in part, prior to the
final stated maturity of the Notes.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), and (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon), and (iv) all cash dividend payments on any series of preferred
stock of such Person payable to a party other than the Company or a Subsidiary
of the Company.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Subsidiaries
for such period to the Fixed Charges of such Person and its Subsidiaries for
such period. In the event that the Company or any of its Subsidiaries incurs,
issues, assumes, retires, Guarantees, defeases or redeems any Indebtedness
(other than revolving credit borrowings) or preferred stock subsequent to the
commencement of the four-quarter reference period for which the Fixed Charge
Coverage Ratio is being calculated but on or prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated
giving PRO FORMA effect to such incurrence, issuance, assumption, retirement,
Guarantee, defeasance or redemption of Indebtedness or preferred stock, as if
the same had occurred at the beginning of the applicable four-quarter reference
period. For purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date will be deemed to have
occurred on the first day of the four-quarter reference period, and (ii) the
Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of on or prior to
the Calculation Date, will be excluded, and (iii) the Fixed Charges attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of on or prior to the Calculation Date, will
be excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"FOREIGN SUBSIDIARIES" means (i) Copetro S.A., an Argentine corporation, and
Great Lakes International Sales Corp., a Barbados corporation, and (ii) any
Subsidiary organized and incorporated in a jurisdiction outside of the United
States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements
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by such other entity as have been approved by a significant segment of the
accounting profession, which are in effect on the Issue Date. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that calculations
made for purposes of determining compliance with the terms of the covenants and
with other provisions of the Indenture shall be made without giving effect to
depreciation, amortization or other expenses recorded as a result of the
application of purchase accounting in accordance with Accounting Principles
Board Opinion Nos. 16 and 17.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates and (ii) currency swap or protection agreements and other agreements or
arrangements designed to protect such Person against fluctuations in currency
exchange rates.
"HOLDER" means a Person in whose name a Note is registered on the
Registrar's books.
"HOLDINGS DEBENTURES" means the Senior Discount Debentures due 2009 issued
by Holdings.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any such Indebtedness of any other Person; provided
that any indebtedness which has been defeased in accordance with GAAP or
defeased pursuant to the deposit of cash or Government Securities (in an amount
sufficient to satisfy all such indebtedness obligations at maturity or
redemption, as applicable, and all payments of interest and premium, if any,) in
a trust or account created or pledged for the sole benefit of the holders of
such indebtedness, and subject to no other Liens, and the other applicable terms
of the instrument governing such indebtedness, shall not constitute
"Indebtedness."
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees of Indebtedness or other obligations but excluding
guarantees of Indebtedness of the Company or any of its Subsidiaries), advances
or capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities and all other items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP; PROVIDED that an acquisition
of assets, Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company or any direct or indirect
parent of the Company will not be deemed to be an Investment.
"ISSUE DATE" means the date of first issuance of the Notes under the
Indenture.
"JOINT VENTURES" means joint ventures entered into by the Company or any of
its Subsidiaries for the primary purpose of operating a Related Business.
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"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest will accrue for
the intervening period.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
of a security agreement, any option or other agreement to grant or give a
security interest in and, except in connection with any Qualified Receivables
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"LIQUIDATED DAMAGES" means all liquidated damages then owing pursuant to the
Registration Rights Agreement.
"MOODY'S" means Moody's Investor Services.
"MORTGAGE FINANCINGS" means any mortgage, deed of trust or other instrument
creating a lien on an estate in fee simple or a leasehold estate in a property,
secured by a note or other evidence of an obligor indebtedness under such
mortgage, deed of trust or other instrument.
"NET CASH PROCEEDS" means the aggregate amount of cash and Cash Equivalents
received by the Company or any direct or indirect parent of the Company in the
case of a sale or equity contribution in respect of Equity Interests (other than
Disqualified Stock) plus, in the case of an issuance of Equity Interests (other
than Disqualified Stock) upon any exercise, exchange or conversion of securities
(including options, warrants, rights and convertible or exchangeable debt) of
the Company or any direct or indirect parent of the Company that were issued for
cash after the Issue Date, the amount of cash originally received by the Company
or any direct or indirect parent of the Company upon the issuance of such
securities (including options, warrants, rights and convertible or exchangeable
debt) less the sum of all payments, fees, commissions, and customary and
reasonable expenses (including, without limitation, the fees and expenses of
legal counsel and investment banking fees and expenses) incurred in connection
with such sale or equity contribution in respect of Equity Interests (other than
Disqualified Stock).
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"NET PROCEEDS" means the aggregate cash proceeds and Cash Equivalents
received by the Company or any of its Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than the Notes, the Subsidiary Guarantees
or Indebtedness under the New Credit Agreement) secured by a Lien on the asset
or assets that were the subject of such Asset Sale, any reserve for adjustment
in respect of the sale price of such asset or assets or liabilities associated
with such Asset Sale and retained by the Company or such Subsidiary established
in accordance with GAAP, all distributions and other payments required to be
made to minority interest holders in Subsidiaries or other parties to any Joint
Ventures as a result of such
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Asset Sale and all Purchase Money Obligations (and Permitted Refinancing
Indebtedness thereof) assumed by the purchaser in connection with such Asset
Sale.
"NEW CREDIT AGREEMENT" means that certain Credit Agreement, dated as of the
Issue Date, by and among Holdings, the Company, Bankers Trust Company, as
syndication and administrative agent, DLJ Capital Funding, Inc., as
documentation agent, Bank of America National Trust and Savings Association, as
co-agent, and the lenders parties thereto, including any related notes,
guarantees, collateral documents, instruments and agreements (including, without
limitation, agreements with respect to Hedging Obligations with lenders party to
the New Credit Agreement or their Affiliates) executed in connection therewith,
and in each case as amended, supplemented, modified, renewed, refunded,
replaced, restated or refinanced from time to time, including any agreement
restructuring or adding Holdings or Subsidiaries of the Company as additional
borrowers or guarantors thereunder and whether by the same or any other agent,
lender or group of lenders.
"NON-RECOURSE INDEBTEDNESS" means Indebtedness (i) as to which neither the
Company nor any of its Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERING" means the Offering of the Notes by the Company.
"OFFICER" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary, any Assistant Secretary or any Vice-President of such Person.
"PERMITTED INVESTMENTS" means (a) any Investments in the Company or in a
Subsidiary Guarantor that is engaged in one or more Related Businesses; (b) any
Investment by the Company or a Subsidiary Guarantor in a Receivables Subsidiary
or any Investment by a Receivables Subsidiary in any other Person in connection
with a Qualified Receivables Transaction PROVIDED, that the foregoing Investment
is in the form of a note or other instrument that the Receivables Subsidiary or
other Person is required to repay as soon as practicable from available cash
collections less amounts required to be established as reserves pursuant to
contractual agreements with entities that are not Affiliates of the Company
entered into as part of a Qualified Receivables Transaction; (c) any Investments
in Cash Equivalents; (d) Investments by the Company or any Subsidiary of the
Company in a Person if as a result of such Investment (i) such Person becomes a
Subsidiary Guarantor that is engaged in one or more Related Businesses or (ii)
such Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Subsidiary Guarantor that is engaged in one or more Related Businesses; (e)
Investments made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
entitled "Asset Sales"; (f) Investments outstanding as of the Issue Date; (g)
Investments in the form of promissory notes of members of the Company's or
Holdings' management in consideration of the purchase by such members of Equity
Interests (other than Disqualified Stock) in the Company; (h) Investments which
constitute Existing Indebtedness of the Company of any of its Subsidiaries; (i)
accounts receivable, endorsements for collection or deposits arising in the
ordinary course of business; (j) other Investments in any Person that do not
exceed $10.0 million at any time outstanding under and pursuant to this clause
(j), without giving effect to changes in the value of such Investment occurring
after the date of such Investment, but giving effect to all dividends,
distributions, principal, interest and other payments received in respect of
such Investments
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in cash or Cash Equivalents; (k) Investments in Foreign Subsidiaries or Joint
Ventures that do not exceed $35.0 million at any time outstanding under and
pursuant to this clause (k), without giving effect to changes in the value of
such Investment occurring after the date of such Investment, but giving effect
to all dividends, distributions, principal, interest and other payments received
in respect of such Investments in cash or Cash Equivalents; (l) Investments
constituting Indebtedness owed by one Foreign Subsidiary to one or more other
Foreign Subsidiaries or Investments by a Foreign Subsidiary in one or more other
Foreign Subsidiaries; (m) Investments constituting Indebtedness permitted under
clause (vii) of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Disqualified Stock"; and (n) capital stock,
obligations or other securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any of its Subsidiaries.
"PERMITTED JUNIOR SECURITIES" means securities that are subordinated at
least to the same extent as the Notes or a Subsidiary Guarantee to Designated
Senior Indebtedness of the Company or a Subsidiary Guarantor as applicable, and
that have a final maturity date, that is the same as or later than, and a
weighted average life to maturity that is the same as or greater than, the Notes
or the applicable Subsidiary Guarantees.
"PERMITTED LIENS" means (i) Liens securing the New Credit Agreement and
other Senior Indebtedness of the Company or the Subsidiary Guarantors and
Permitted Refinancing Indebtedness related thereto; (ii) Liens in favor of the
Company or any Subsidiary Guarantor; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with or acquired
by the Company or any Subsidiary of the Company in accordance with the
provisions of the Indenture; PROVIDED that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, PROVIDED that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens existing on the Issue Date and Liens securing any Permitted
Refinancing Indebtedness incurred to refinance any Indebtedness secured by such
Liens; (vii) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, PROVIDED that any
reserve or other appropriate provision as will be required in conformity with
GAAP will have been made therefor; (viii) Liens incurred in the ordinary course
of business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $5.0 million at any one time outstanding and that
(a) are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Company or such Subsidiary; (ix) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (x) easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any of its Subsidiaries; (xi) Purchase Money Liens
(including extensions and renewals thereof and Liens securing any Permitted
Refinancing Indebtedness incurred in respect of the applicable Purchase Money
Obligations); (xii) Liens securing reimbursement obligations with respect to
letters of credit and banker's acceptances which encumber only documents and
other property relating to such letters of credit and the products and proceeds
thereof; (xiii) judgment and attachment Liens not giving rise to an Event of
Default; (xiv) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements; (xv) Liens
arising out of consignment or similar arrangements for the sale of goods; (xvi)
any interest or title of a lessor in property subject to any Capital Lease
Obligation or operating lease; (xvii) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xviii) Liens on assets
of the Company or its Subsidiaries with respect to Acquired Indebtedness (and
Permitted Refinancing Indebtedness with respect thereto) provided that such
Liens
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were not created in contemplation of or in connection with such acquisition;
(xix) Liens on assets of the Company or a Receivables Subsidiary incurred in
connection with a Qualified Receivables Transaction; (xx) Liens securing
Indebtedness of any Foreign Subsidiary; (xxi) Liens securing the Notes and any
other obligations ranking PARI PASSU with the Notes; and (xxii) Liens securing
Permitted Refinancing Indebtedness incurred to refinance any indebtedness that
was previously subject to a Lien, in a manner no more adverse, taken as a whole,
to the Holders of the Notes, than the Liens securing such refinanced
Indebtedness.
"PERMITTED PAYMENTS TO HOLDINGS" means without duplication, (a) payments to
Holdings in an amount sufficient to permit Holdings to pay reasonable and
necessary operating expenses and other general corporate expenses to the extent
such expenses relate or are fairly allocable to the Company and its
Subsidiaries, including any reasonable professional fees and expenses not in
excess of $300,000 in any fiscal year, but excluding all expenses payable to or
to be paid to or on behalf of AIP, and (b) payments to Holdings to enable
Holdings to pay foreign, federal, state or local tax liabilities ("Tax
Payments"), not to exceed the amount of any tax liabilities that would be
otherwise payable by the Company and its Subsidiaries and Unrestricted
Subsidiaries to the appropriate taxing authorities if they filed separate tax
returns to the extent that Holdings has an obligation to pay such tax
liabilities relating to the operations, assets or capital of the Company or its
Subsidiaries and Unrestricted Subsidiaries; PROVIDED, HOWEVER, that (i),
notwithstanding the foregoing, in the case of determining the amount of a Tax
Payment that is permitted to be paid by the Company and any of its United States
Subsidiaries in respect of their Federal income tax liability, such payment
shall be determined on the basis of assuming that Company is the parent company
of an affiliated group (the "Company Affiliated Group") filing a consolidated
Federal income tax return and that Holdings and each such United States
Subsidiary is a member of the Company Affiliated Group and (ii) any Tax Payments
shall either be used by Holdings to pay such tax liabilities within 90 days of
Holdings' receipt of such payment or refunded to the payee.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund, other
Indebtedness of the Company or any of its Subsidiaries; PROVIDED that: (i) the
principal amount (or accreted value, if issued with an original issue discount)
of such Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if issued with an original issue discount) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith, the
accrued or unpaid interest thereon and any premium owed in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness is subordinated in right of payment to,
the Notes on terms at least as favorable, taken as a whole, to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded and the final
maturity date of such Permitted Refinancing Indebtedness is later than the final
maturity date of the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or agency or political subdivision thereof (including
any subdivision or ongoing business of any such entity or substantially all of
the assets of any such entity, subdivision or business).
"PURCHASE MONEY LIEN" means a Lien granted on an asset or property to secure
a Purchase Money Obligation permitted to be incurred under the Indenture and
incurred solely to finance the purchase (or
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lease), or the cost of construction or improvement, of such asset or property;
PROVIDED, HOWEVER, that such Lien encumbers only such asset or property and is
granted within 180 days of such acquisition.
"PURCHASE MONEY OBLIGATIONS" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
purchase (or lease), or the cost of construction or improvement, of real or
personal property to be used in the business of such Person or any of its
Subsidiaries in an amount that is not more than 100% of the cost, or fair market
value, as appropriate, of such property, and incurred within 180 days after the
date of such acquisition (excluding accounts payable to trade creditors incurred
in the ordinary course of business).
"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any of its Subsidiaries may sell, convey or
otherwise transfer to (i) a Receivables Subsidiary (in the case of a transfer by
the Company or any of its Subsidiaries) and (ii) any other Person (in the case
of a transfer by a Receivables Subsidiary), or may grant a security interest in,
any accounts receivable (whether now existing or arising in the future) of the
Company or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"RECEIVABLES SUBSIDIARY" means a Subsidiary of the Company 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 Receivables Subsidiary (a) no portion of the Indebtedness or any
other Obligations (contingent or otherwise) of which (i) is guaranteed by the
Company or any Subsidiary of the Company (excluding guarantees of Obligations
(other than the principal of, and interest on, Indebtedness) pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction), (ii) is recourse to or obligates the Company or any Subsidiary of
the Company in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction or (iii) subjects any
property or asset of the Company or any Subsidiary of the Company (other than
accounts receivable), directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction, (b) with which neither the
Company nor any Subsidiary of the Company has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company, other than fees payable in the
ordinary course of business in connection with servicing accounts receivable and
(c) with which neither the Company nor any Subsidiary of the Company has any
obligation to maintain or preserve such Subsidiary's financial condition or
cause such Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company will be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Issue Date, by and among the Company and the other parties named
on the signature pages thereof, as such agreement may be amended, modified or
supplemented from time to time.
"RELATED BUSINESS" means the business conducted by the Company and its
Subsidiaries as of the Issue Date and any and all businesses that in the good
faith judgment of the Board of Directors of the Company are related businesses,
including reasonable extensions or expansions thereof.
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"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative for any Designated Senior Indebtedness.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR INDEBTEDNESS" means the following obligations of the Company or the
Subsidiary Guarantors, whether outstanding on the Issue Date or thereafter
Incurred: (i) all Indebtedness and other Obligations under, and Guarantees of,
the New Credit Agreement and (ii) all other Indebtedness and all other monetary
obligations of the Company or the Subsidiary Guarantors (other than the Notes
and the Subsidiary Guarantees), unless such Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued, is PARI PASSU with, or subordinated in right of payment to, the Notes or
the Subsidiary Guarantees, as the case may be; PROVIDED that the term "Senior
Indebtedness" shall not include (a) any Indebtedness of the Company or the
Subsidiary Guarantors that, when Incurred, was without recourse to the Company
or the Subsidiary Guarantors, as the case may be, (b) any Indebtedness of the
Company to a Subsidiary of the Company, or to a Joint Venture in which the
Company has an interest, (c) any repurchase, redemption or other obligation in
respect of Disqualified Stock, (d) any Indebtedness to any employee of the
Company or any of its Subsidiaries, (e) any liability for taxes owed or owing by
the Company or any of its Subsidiaries, or (f) any trade payables. Senior
Indebtedness will also include interest accruing subsequent to events of
bankruptcy of the Company and its respective Subsidiaries at the rate provided
for in the document governing such Senior Indebtedness, whether or not such
interest is an allowed claim enforceable against the debtor in a bankruptcy case
under bankruptcy law.
"SENIOR REVOLVING DEBT" means revolving Indebtedness under the New Credit
Agreement as such agreement may be restated, further amended, supplemented or
otherwise modified, renewed, refunded, replaced or refinanced, in whole or in
part, from time to time.
"SENIOR TERM DEBT" means term Indebtedness under the New Credit Agreement as
such agreement may be restated, further amended, supplemented or otherwise
modified, renewed, refunded, replaced or refinanced, in whole or in part, from
time to time.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Exchange Act, as such Regulation is in effect on the date
hereof.
"SUBSIDIARY" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination thereof).
Unrestricted Subsidiaries will not be included in the definition of Subsidiary
for any purposes of the Indenture (except, as the context may otherwise require,
for purposes of the definition of "Unrestricted Subsidiary.")
"SUBSIDIARY GUARANTORS" means each Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"S&P" means Standard & Poor's Financial Information Services.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. SectionSection
77aaa-77bbbb) as in effect on the date on which the Indenture is qualified under
the TIA.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution;
but only to the extent that such Subsidiary:
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(a) has no Indebtedness other than Non-Recourse Indebtedness; (b) is not party
to any agreement, contract, arrangement or understanding with the Company or any
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Subsidiaries has any obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Subsidiaries. Any such designation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant entitled "Restricted Payments" hereof. If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing requirements
as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
will be deemed to be incurred by a Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant entitled "Limitation on Indebtedness and Issuance of Disqualified
Stock" hereof, the Company will be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Subsidiary; PROVIDED that such designation will be deemed to be an
incurrence of Indebtedness by a Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation will only be
permitted if (i) such Indebtedness is permitted under the covenant entitled
"Incurrence of Indebtedness and Issuance of Disqualified Stock" hereof, and (ii)
no Default or Event of Default would be in existence following such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
While the following description sets forth the material terms of the
Registration Rights Agreement, the following summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all provisions of the Registration Rights Agreement, a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on May 22, 1998 (the "Closing Date"). Pursuant to the Registration
Rights Agreement, the Company agreed to file with the SEC this Exchange Offer
Registration Statement with respect to the Exchange Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the Holders of Transfer Restricted Securities (as defined below)
pursuant to the Exchange Offer who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for Exchange Notes.
If (i) the Company is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or SEC policy or (ii) any Holder of
Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (a) it is prohibited by law or
SEC policy from participating in the Exchange Offer or (b) that it may not
resell the New Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales or (c)
that it is a broker-dealer and owns Old Notes acquired directly from the Company
or an affiliate of the Company, the
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Company will file with the SEC a Shelf Registration Statement to cover resales
of the Old Notes by the Holders thereof who satisfy certain conditions relating
to the provision of information in connection with the Shelf Registration
Statement. The Company will use its reasonable best efforts to cause the
Registration Statement of which this Prospectus forms a part to be declared
effective as promptly as reasonably practicable by the SEC. For purposes of the
foregoing, "Transfer Restricted Securities" means each Old Note until the
earliest to occur of (i) the date on which such Old Note is exchanged in the
Exchange Offer for a New Note which is entitled to be resold to the public by
the Holder thereof without complying with the prospectus delivery requirements
of the Securities Act (other than as a result of the Holder's status as an
Affiliate of the Company), (ii) the date on which such Old Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Notes that do not bear the Private Placement
Legend set forth in the Indenture), or (iv) the date on which such Old Note is
distributed to the public pursuant to Rule 144 under the Securities Act or may
be sold under Rule 144(k) under the Securities Act (and purchasers thereof have
been issued Notes that do not bear the Private Placement Legend set forth in the
Indenture) and each New Note until the date on which such New Note is disposed
of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Registration Statement of which this Prospectus forms a part (including the
delivery of this Prospectus).
The Registration Rights Agreement provides that (i) the Company will file
this Exchange Offer Registration Statement with the SEC on or prior to 60 days
after the Closing Date, (ii) the Company will use its reasonable best efforts to
have this Exchange Offer Registration Statement declared effective by the SEC on
or prior to 135 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or SEC policy, the Company will
commence the Exchange Offer and use its reasonable best efforts to issue, on or
prior to 30 Business Days after the date on which the Exchange Offer
Registration Statement was declared effective by the SEC, New Notes in exchange
for all Old Notes tendered prior thereto in the Exchange Offer and (iv) if
obligated to file the Shelf Registration Statement, the Company will use its
reasonable best efforts to file the Shelf Registration Statement with the SEC on
or prior to 30 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the SEC on or prior to 90 days after
such obligation arises. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the SEC on or prior to the date specified for such
effectiveness (the "Effectiveness Deadline"), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Deadline with respect to the Exchange Offer Registration Statement or (d) the
Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Transfer Restricted Securities affected
thereby, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default, in an amount equal to $.05 per
week per $1,000 principal amount of Transfer Restricted Securities held by such
Holder for each week that the Registration Default continues. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.25 per week per $1,000 principal
amount of Transfer Restricted Securities. All accrued Liquidated Damages will be
paid by the Company to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated Notes
by wire transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. The Company shall
not be required to pay Liquidated Damages for more than one Registration Default
at any given time. Following the cure of all Registration Defaults, the accrual
of Liquidated Damages will cease.
Holders of Old Notes are required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and are required to
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deliver information to be used in connection with the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Old Notes included in the Shelf Registration Statement
and benefit from the provisions regarding Liquidated Damages set forth above.
BOOK-ENTRY; DELIVERY AND FORM
The New Notes initially will be in the form of one or more registered,
global notes without interest coupons (collectively, the "Global Notes"). The
Global Notes will be deposited on the date on which the Exchange Offer is
consummated with the Trustee, as custodian for DTC, in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Notes and (ii) ownership of such interests in the Global
Notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations (including Euroclear and Cedel) which are Participants in such
system. All interests in a Global Note, including those held through Euroclear
or Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the procedures
and requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such persons will be limited to
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that extent. Because DTC can act only on behalf of Participants, which in turn
act on behalf of Indirect Participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interest in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Notes or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Company that its current practice, upon receipt of any payment in
respect of securities such as the Notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on the
records of DTC unless DTC has reason to believe it will not receive payment on
such payment date. Payments by the Participants and the Indirect Participants to
the beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee or
the Company. Neither the Company nor the Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. See "--Same Day Settlement and
Payment."
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between the Participants in DTC, on the
one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in such system in accordance with
the rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant Global Note in DTC, and making or
receiving payment in
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accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
DTC has advised the Company 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 DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the right
to exchange the Global Notes for Notes in certificated form, and to distribute
such Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among Participants in DTC,
Euroclear and Cedel, they are under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Trustee nor any of their respective agents will have
any responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive New Notes in certificated form
("Certificated Notes") if (i) DTC (x) notifies the Company that it is unwilling
or unable to continue as depositary for the Global Notes and the Company
thereupon fails to appoint a successor depositary within 120 days thereafter or
(y) has ceased to be a clearing agency registered under the Exchange Act, (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the Certificated Notes or (iii) upon the request of the
Trustee or holders of a majority of the aggregate principal amount of
outstanding Notes if there shall have occurred and be continuing a Default or
Event of Default with respect to the Notes. In addition, beneficial interests in
a Global Note may be exchanged for Certificated Notes upon request but only in
accordance with the procedures specified in the Indenture. In all cases,
Certificated Notes delivered in exchange for any Global Note or beneficial
interests therein will be registered with the Company in the names, and issued
in any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
Certificated Notes, the Company will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The Notes represented by the Global Notes are expected to be eligible
to trade in the PORTAL market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Notes will, therefore, be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in any
Certificated Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
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received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT AGREEMENT
On May 22, 1998, as part of the consummation of the Acquisition
Transactions, the Company entered into the New Credit Agreement among the
Company, Holdings, the several lenders from time to time parties thereto
(collectively, the "Lenders"), Bankers Trust Company, as syndication agent and
as administrative agent (the "Administrative Agent"), DLJ Capital Funding, Inc.,
as documentation agent, and Bank of America NT&SA ("Bank of America NT&SA"), as
co-agent. The following is a summary description of the principal terms of the
New Credit Agreement and the other loan documents related thereto. While the
material terms are set forth below, the following summary does not purport to be
complete and is qualified in its entirety by reference to certain agreements
setting forth the principal terms and conditions of the New Credit Agreement, a
copy of which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The Company's obligations under the New Credit
Agreement constitute Senior Indebtedness and Designated Senior Indebtedness with
respect to the Notes.
The Company borrowed $111.0 million of Term Loan Facilities on the Closing
Date to partially finance the Acquisition Transactions and to pay certain fees
and expenses related thereto. The New Credit Agreement also provides to a
Revolving Credit Facility that may be utilized to fund the Company's working
capital requirements, including issuance of stand-by and trade letters of
credit, and for other general corporate purposes.
The Term A Loan Facility is a single tranche term facility of approximately
$50.0 million that has a maturity of May 31, 2004, and is expected to amortize
over a six-year period, with annual principal payments ranging from $0.5 million
to $12.5 million. The Term B Loan Facility is a single tranche term facility of
approximately $31.0 million that has a maturity of May 31, 2006. The Term C Loan
Facility is a single tranche term facility of approximately $30.0 million that
has a maturity of May 31, 2006. The Term B and C Loan Facilities are each
expected to amortize at a rate of approximately $0.3 million per year, with the
remainder due in the final year of each such facility. Loans and letters of
credit under the Revolving Credit Facility will be available at any time during
its five-year term (which expires on May 31, 2003) subject to the fulfillment of
customary conditions precedent, including the absence of a default under the New
Credit Agreement. The full amount under each of the Term Loan Facilities is
currently outstanding. As of August 31, 1998, no funds had been drawn down on
the Company's existing lines of credit and approximately $3.6 million in letters
of credit under the New Credit Agreement were outstanding.
SECURITY; GUARANTY. The Company's obligations under the New Credit
Agreement are guaranteed by Holdings. The New Credit Agreement is secured by a
perfected first priority security interest in substantially all of the assets of
the Company including: (i) all real property owned by the Company; (ii) all
accounts receivable, inventory and intangibles; and (iii) 65% of the capital
stock of the Foreign Subsidiaries. The guaranty by Holdings is secured by a
pledge of all of the capital stock of the Company.
INTEREST, MATURITY. Borrowings under the New Credit Agreement bear interest
at a rate per annum equal (at the Company's option) to: (i) the Administrative
Agent's reserve-adjusted LIBO rate ("LIBOR") or (ii) an alternate base rate
equal to the highest of the Administrative Agent's prime rate, plus an
applicable margin. Initially, the applicable margin for the Term A Loan Facility
and the Revolving Credit Facility is 2.25% per annum for LIBOR loans and 1.25%
per annum for alternate base rate loans; the applicable margin for the Term B
Loan Facility is 2.75% per annum for LIBOR loans and 1.75% per annum for
alternate base rate loans; and the applicable margin for the Term C Loan
Facility is 3.00% per annum for LIBOR loans and 2.00% per annum for alternate
base rate loans. After the first six months following the closing date, such
margins will be subject to reduction based on the Company's leverage ratio.
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FEES. The Company is required to pay the Lenders, on a quarterly basis, a
commitment fee on the undrawn portion of the Revolving Credit Facility at a rate
equal to 0.50% per annum. The Company is also obligated to pay (i) a per annum
letter of credit fee on the aggregate amount of outstanding letters of credit;
(ii) a fronting bank fee for the letter of credit issuing bank; and (iii)
customary agent, arrangement and other similar fees.
COVENANTS. The New Credit Agreement contains a number of covenants that,
among other things, restrict the ability of Holdings, the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, prepay other
indebtedness or amend certain debt instruments (including the Indenture), pay
dividends, create liens on assets, enter into sale and leaseback transactions,
make investments, loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures, change the business conducted by the
Company or its subsidiaries or engage in certain transactions with affiliates
and otherwise restrict certain corporate activities. In addition, under the New
Credit Agreement, the Company is required to maintain (a) the ratio of
Consolidated Indebtedness (as defined in the New Credit Agreement, which
excludes the Debentures) to the sum of Consolidated EBITDA (as defined in the
New Credit Agreement) and the principal amount of any outstanding Additional
Notes, above certain levels, ranging from 5.75:1 to 5.00:1 (decreasing over
time) and (b) the ratio of Consolidated EBITDA to Consolidated Net Cash Interest
Expense (as defined in the New Credit Agreement), below certain levels, ranging
from 1.75:1 to 2.00:1 (increasing over time), in each case, as set forth in the
New Credit Agreement. The New Credit Agreement permits the Company to make
dividends to Holdings for the purposes of paying interest owed on the Holdings'
Debentures (after the fifth anniversary of the Issue Date) so long as (i) no
default or event of default under the New Credit Agreement has occurred and is
continuing and (ii) before and after giving effect to such payment, the
Consolidated Fixed Charge Coverage Ratio (as defined in the New Credit
Agreement) shall be equal to or greater than 1.0:1.0. See "Risk
Factors--Restrictive Debt Covenants."
EVENTS OF DEFAULT. The New Credit Agreement contains events of default
customary for facilities of this nature, including nonpayment of principal,
interest or fees, material inaccuracy of representations and warranties,
violation of covenants, cross-default to certain other indebtedness, certain
events of bankruptcy and insolvency, material judgments against the Company and
its Subsidiaries, invalidity of any guarantee or security interest and a change
of control of the Company in certain circumstances as set forth therein.
COPETRO CREDIT AGREEMENT
The Copetro Credit Agreement, dated as of February 4, 1997, among Copetro,
the financial institutions parties thereto and BNL, as agent, provided for
borrowings by Copetro prior to June 30, 1998 of up to $20.0 million, $16.0
million of such funds to be used by Copetro in order to finance the expansion of
plant facilities and $4.0 million to be used for working capital. Approximately
$15.9 million is currently outstanding under the Copetro Credit Agreement and
the remaining $4.1 million available prior to June 30, 1998 will not be
borrowed. The Copetro Credit Agreement, which is nonrecourse to the Company,
remains in effect after the consummation of the Acquisition Transactions. The
following is a summary description of the principal terms of the Copetro Credit
Agreement and other loan documents related thereto. The description set forth
below does not purport to be complete and is qualified in its entirety by
reference to certain agreements setting forth the principal terms and conditions
of the Copetro Credit Agreement, which are available upon request from the
Company. Copetro's obligations under the Copetro Credit Agreement will
constitute Senior Indebtedness of Copetro. Borrowings under the Copetro Credit
Agreement will be repaid in seven consecutive semiannual installments beginning
on June 30, 1999. The Copetro Credit Agreement imposes a prepayment penalty
equal to 1.0% per annum of the amount prepaid, calculated from the date of the
prepayment until the maturity date of the loan.
SECURITY. Copetro's obligations under the Copetro Credit Agreement are
secured by a first priority pledge in favor of BNL of Copetro's fixed assets.
Until September 30, 1998, Copetro must maintain a ratio
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of the assessed value of pledged assets to the unpaid loan amount of at least
82%.Thereafter, such ratio must be maintained at 120%. The Copetro Credit
Agreement provides for the release of pledged assets or the pledging of new
property or other guarantees, as the case may be, in order to maintain such
ratio.
INTEREST, MATURITY. Borrowings under the Copetro Credit Agreement bear
interest at a rate per annum equal to LIBOR plus 4.0%, payable semiannually. The
final maturity date of the Copetro Credit Agreement is June 30, 2002.
COVENANTS. Under the Copetro Credit Agreement, (i) any change in control of
the ownership of Copetro requires prior written approval of BNL; (ii) any
payment of cash dividends from Copetro is prohibited if Copetro is in default as
a result of non-compliance with specified financial ratios as set forth below,
or if such declaration or payment could result in future noncompliance with the
financial ratios; and (iii) the Company will not collect any fee or other
royalty payments from Copetro in connection with technical and commercial
assistance, if a payment default thereunder has occurred and is continuing.
Copetro is required to maintain the following financial ratios: (i) the
ratio of current assets over current liabilities must be greater than 1.5 to 1;
(ii) the ratio of long-term liabilities over net worth cannot exceed 1 to 1; and
(iii) the ratio of total liabilities to net worth cannot exceed 1.2 to 1. The
Copetro Credit Agreement contains covenants which, among other things, limit
Copetro's ability to dispose of assets, engage in mergers or consolidations and
create liens on assets.
EVENTS OF DEFAULT. The Copetro Credit Agreement contains customary events
of default, including, without limitation, nonpayment of principal, interest or
fees, material inaccuracy of representations and warranties, violation of
covenants, cross-acceleration to other obligations of Copetro, certain events of
bankruptcy and insolvency, material judgments against Copetro and a change of
control of Copetro in certain circumstances as set forth therein. Following an
event of default, interest (and interest on interest) accrues at a penalty rate
50% in excess of the rate otherwise applicable.
HOLDINGS DEBENTURES
The Old Holdings Debentures were and the New Holdings Debentures will be
issued at a discount to their aggregate principal amount at maturity. The
issuance of the Old Holdings Debentures generated gross proceeds to Holdings of
approximately $30.1 million (before deducting discounts and commissions). The
Company is currently conducting the Debenture Exchange Offer to exchange New
Holdings Debentures for the Old Holdings Debentures. The yield to maturity of
the Holdings Debentures will be approximately 13 1/8% (computed on a semiannual
bond equivalent basis), calculated from May 22, 1998. The Old Holdings
Debentures were and the New Holdings Debentures will be issued under an
Indenture dated as of May 22, 1998 (the "Holdings Indenture") between Holdings
and the Trustee, and are senior unsecured obligations of Holdings. Cash interest
will not accrue or be payable on the Holdings Debentures prior to May 15, 2003.
Thereafter, cash interest on the Holdings Debentures will accrue at a rate of
13 1/8% per annum and will be payable in arrears on May 15 and November 15 of
each year, commencing November 15, 2003. The Holdings Debentures will mature on
May 15, 2009.
The Old Holdings Debentures are and the New Holdings Debentures will be
redeemable at the option of Holdings, in whole or in part, at any time on or
after May 15, 2003, in cash at the redemption prices set forth below, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of redemption if redeemed during the 12-month period commencing May 15 of the
years set forth below.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2003........................................................................ 106.563%
2004........................................................................ 104.375%
2005........................................................................ 102.188%
2006 and thereafter......................................................... 100.000%
</TABLE>
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Notwithstanding the foregoing, at any time on or prior to May 15, 2001,
Holdings may use the net proceeds of one or more Equity Offerings (as defined
therein) to redeem up to 35% of the Holdings Debentures at a redemption price
equal to 113.125% of the Accreted Value thereof plus Liquidated Damages (both as
defined in the Holdings Indenture), if any, thereon to the redemption date;
PROVIDED that at least 65% of the original aggregate principal amount at
maturity of the New Holdings Debentures and the Old Holdings Debentures not
exchanged in the Debentures Exchange Offer remains outstanding immediately after
each such redemption.
In the event of a Change of Control (as defined in the Holdings Indenture),
each holder of Old Holdings Debentures has and each holder of New Exchange
Debentures will have the right to require the repurchase of such holder's
Holdings Debentures at a purchase price equal to 101% of the Accreted Value
thereof, plus Liquidated Damages, if any, thereon, in the case of any such
purchase prior to May 15, 2003, or 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon in the case
of any such purchase on or after May 15, 2003.
The Holdings Indenture contains covenants that, among other things, limit
the ability of Holdings to enter into certain mergers or consolidations or incur
certain liens and of Holdings and its subsidiaries to incur additional
indebtedness, pay dividends, redeem capital stock or make certain other
restricted payments and engage in certain transactions with affiliates. Under
certain circumstances, Holdings will be required to make an offer to purchase
the Holdings Debentures with the proceeds of certain asset sales at a price
equal to 100% of the Accreted Value thereof, plus Liquidated Damages, if any,
thereon in the case of any such purchase prior to May 15, 2003, or of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase, in the case of any purchase on or
after May 15, 2003. The Holdings Indenture contains certain events of defaults
customary for securities of this nature, which include the failure to pay
interest and principal, the failure to comply with certain covenants in the
Holdings Debentures or the Holdings Indenture, an acceleration under certain
indebtedness, the imposition of certain final judgments or warrants of
attachment and certain events occurring under bankruptcy laws.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States Federal income tax
considerations associated with the exchange of Old Notes for New Notes and the
ownership and disposition of the Notes. This discussion is based upon existing
United States Federal income tax law, which is subject to change, possibly
retroactively. This discussion does not describe all relevant aspects of United
States Federal income taxation that may be important to particular Holders in
light of their individual investment circumstances or certain types of Holders
subject to special tax rules (E.G., financial institutions, insurance companies,
broker-dealers, tax-exempt organizations or, except to the extent discussed
below, Non-U.S. Holders (as defined below)) or to persons that hold or will hold
the Notes as part of a straddle, hedging, or synthetic security transaction, all
of whom may be subject to tax rules that differ significantly from those
described below. In addition, this discussion does not describe any foreign,
state or local tax considerations. This summary addresses tax consequences only
to current Holders of the Notes and assumes that such Holders hold their Notes
as "capital assets" (generally, property held for investment) for United States
Federal income tax purposes. Current Holders of the Notes are urged to consult
their tax advisors concerning the particular tax consequences of the exchange of
Old Notes for New Notes and the ownership and disposition of the Notes,
including the applicability and effect of any United States Federal, state,
local and foreign income and other tax laws.
For purposes of this discussion, a "U.S. Holder" is a beneficial owner of a
Note who is (i) an individual citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) an
estate that is subject to United States Federal income taxation without regard
to the source of its income, or (iv) a trust whose administration is subject to
the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust. For purposes of this discussion, a "Non-U.S. Holder" is
any Holder who is not a U.S. Holder.
U.S. HOLDERS AND NON-U.S. HOLDERS
There will be no United States Federal income tax consequences to a U.S.
Holder or Non-U.S. Holder exchanging an Old Note for a New Note pursuant to the
Exchange Offer and such Holder will have the same adjusted basis and holding
period in the New Note as it had in the Old Note immediately before the
exchange.
U.S. HOLDERS
ORIGINAL ISSUE DISCOUNT
Because the Notes provide that the Company may elect to issue Additional
Notes in lieu of the payment of interest in cash due thereon as described above
under the heading "--Principal, Maturity and Interest," the Notes have been
issued with original issue discount for United States Federal income tax
purposes. Consequently, subject to adjustment under the acquisition premium
rules discussed below, U.S. Holders will be required to include original issue
discount in ordinary income over the period that they hold the Notes in advance
of the receipt of cash attributable thereto. In general, in the event that the
Company determines not to exercise its election to issue Additional Notes in
lieu of the payment of interest in cash, the amount of original issued discount
includible in income during a complete taxable year should be equal to the
amount of scheduled interest payments made during such year.
The initial amount of original issue discount on the Notes is equal to the
excess of (i) the sum of the principal amount due at maturity plus all scheduled
interest payments over (ii) the issue price of the Notes. The amount of original
issue discount to be included in income will be determined using a constant
yield method, which will result in a greater portion of such discount being
included in income in the later part of the term of the Notes. Any amount of
discount included in income will increase a Holder's tax basis in the Notes and
any payments of interest in cash will decrease such Holder's tax basis in the
Notes.
98
<PAGE>
The Company will report annually to the Internal Revenue Service and to
record U.S. Holders information with respect to the amount of original issue
discount accruing during the calendar year.
EXERCISE OF ELECTION TO ISSUE ADDITIONAL NOTE. In the event that the Company
elects to issue Additional Notes, the issuance of the Additional Notes will not
be treated, for United States Federal income tax purposes, as a payment of
interest and the Notes will be deemed to be "reissued" on the PIK Notice Date
solely for purposes of computing the amount of original issue discount
includible in income during the then remaining term of the Notes. Under these
rules, the Notes will be deemed to be reissued at their then adjusted issue
price (I.E., their original issue price plus accrued original issue discount
less previous payments of interest in cash). The amount of original issue
discount includible in ordinary income over the remaining term of the Notes,
determined on the basis of a constant yield method described above, will be
equal to the excess of (i) the sum of the principal amount due at maturity, the
Additional Notes issued in lieu of cash payments, plus all remaining cash
payments of stated interest over (ii) the adjusted issue price of the Notes.
REDEMPTION, SALE OR EXCHANGE OF NOTES
A U.S. Holder will recognize capital gain or loss upon the sale, redemption
or other disposition of a Note in an amount equal to the difference between the
amount realized from such disposition and his adjusted tax basis in the Note.
Under recently enacted amendments to the Code, net capital gain (I.E.,
generally, capital gain in excess of capital loss) recognized by an individual
upon the disposition of a Note that has been held for more than 12 months will
generally be subject to a maximum tax rate of 20% or, in the case of a Note that
has been held for 12 months or less, will be subject to tax at ordinary income
tax rates. In addition, any net capital gain recognized by a corporation upon
the disposition of a Note will be subject to tax at ordinary income tax rates.
MARKET DISCOUNT AND ACQUISITION PREMIUM
U.S. Holders, other than original purchasers of the Old Notes in the
original offering, should be aware that the sale of the New Notes may be
affected by the market discount and acquisition premium provisions of the Code.
MARKET DISCOUNT RULES. The market discount rules generally provide that if
a U.S. Holder of a Note purchased the Note, subsequent to the original offering,
at a "market discount" (I.E., at an amount less than the adjusted issue price of
the Note as determined on the date of such purchase) in excess of a
statutorily-defined DE MINIMIS amount, and thereafter recognizes gain upon a
disposition (including a partial redemption) of the New Note received in
exchange for an Old Note, the lesser of such gain or the portion of the market
discount that accrued while the Old Note and New Note were held by such U.S.
Holder will be treated as ordinary interest income at the time of disposition.
The rules also provide that a U.S. Holder who acquires a Note at a market
discount may be required to defer a portion of any interest expense that may
otherwise be deductible on any indebtedness incurred or maintained to purchase
or carry such Note until the U.S. Holder disposes of such Note in a taxable
transaction. If a holder of such a Note elects to include market discount in
income currently, both of the foregoing rules would not apply.
ACQUISITION PREMIUM RULES. The acquisition premium rules generally provide
that if a U.S. Holder of a Note purchased the Note, subsequent to the original
offering, at an acquisition premium (I.E., at an amount greater than the
adjusted issue price of the Note as determined on the date of such purchase),
the amount of original issue discount that the U.S. Holder includes in gross
income is reduced to reflect such acquisition premium. Acquisition premium is
allocated on a pro rata basis to each accrual of original issue discount
reducing original issue discount by a constant fraction, the numerator of which
is the excess of the adjusted basis of the Note over its adjusted issue price
and the denominator of which is the excess of the sum of all amounts payable on
the Note after the purchase date over its adjusted issue price.
99
<PAGE>
APPLICATION OF AHYDO RULES
The Notes will constitute "applicable high yield discount obligations"
("AHYDOs"), for United States Federal income tax purposes, if the yield to
maturity of such Notes exceeds the sum of the "applicable Federal rate" in
effect at the time of their issuance (the "AFR") plus five percentage points. If
the Notes are AHYDOs, the Company will not be entitled to claim a deduction for
original issue discount that accrues with respect to such Notes for United
States Federal income tax purposes, until amounts attributable to such original
issue discount are paid in cash. In addition, to the extent that the yield to
maturity of the Notes exceeds the sum of the AFR plus six percentage points (the
"Excess Yield"), any deduction claimed by the Company that is attributable to
such Excess Yield will be disallowed. Subject to otherwise applicable
limitations, U.S. Holders that are corporations will be entitled to a dividends
received deduction (generally at a 70% rate) with respect to any disqualified
portion of the accrued original issue discount to the extent that the Company
has sufficient current or accumulated earnings and profits. If the disqualified
portion exceeds the Company's current and accumulated earnings and profits, the
excess will continue to be subject to tax as ordinary original issue discount
income in accordance with the original issue discount rules described above.
NON-U.S. HOLDERS
Under present United States Federal income and estate tax law, assuming
certain certification requirements are satisfied (which include identification
of the beneficial owner of the instrument), and subject to the discussion of
backup withholding below:
(a) payments of interest on the Notes to any Non-U.S. Holder generally will
not be subject to United States Federal income or withholding tax,
provided that (1) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (2) the Non-U.S.
Holder is not a controlled foreign corporation that is related to the
Company through stock ownership, and (3) such interest payments are not
effectively connected with the conduct of a United States trade or
business of the Non-U.S. Holder;
(b) a Non-U.S. Holder generally will not be subject to the United States
Federal income tax on gain realized on the sale, exchange or other
disposition of the Note, unless (1) such Non-U.S. Holder is an
individual who is present in the United States for 183 days or more
during the taxable year and certain other requirements are met or (2)
the gain is effectively connected with the conduct of a United States
trade or business of the Non-U.S. Holder; and
(c) if interest on the Notes is exempt from withholding of United States
Federal income tax under the rules described above, the Notes will not
be included in the estate of a deceased Non-U.S. Holder for United
States Federal estate tax purposes.
The certification referred to above may be made on an Internal Revenue
Service Form W-8 or substantially similar substitute form.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal and interest on a Note, and the proceeds of the sale of a Note before
maturity within the United States (and, under certain circumstances, outside of
the United States) to, and to the accrual of original issue discount with
respect to, non-corporate Holders. A Holder of a Note may be subject to backup
withholding at the rate of 31% with respect to interest paid on the Note and
proceeds from the sale, exchange, redemption or retirement of the Note, unless
such Holder (a) is a corporation or comes within certain other exempt
categories, and, when required, demonstrates such fact, (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of
100
<PAGE>
the backup withholding rules or (c) in the case of a Non-U.S. Holder, such
Holder certifies as to its status as a Non-U.S. Holder on an Internal Revenue
Service Form W-8 or substantially similar substitute form. A U.S. Holder who
does not provide the Company with the Holder's correct taxpayer identification
number may be subject to penalties imposed by the Internal Revenue Service.
Amounts withheld under the backup withholding rules may be credited against
a Holder's tax liability, and a Holder may obtain a refund or any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the Internal Revenue Service.
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 this Prospectus in
connection with any resale of such 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
such Old Notes were acquired as a result of market-making activities or other
trading activities. Until January 6, 1999, all dealers effecting transactions in
the New Notes may be required to deliver this Prospectus. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company 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 such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchaser of any such 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
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such person may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering this Prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses in connection with
the Exchange Offer and to reimburse the Initial Purchasers for the reasonable
fees and expenses of counsel for the Holders of the Notes. Each Holder will pay
all expenses of its counsel other than as described in the preceding sentence,
transfer taxes, if any, and any commissions or concessions of any brokers or
dealers. The Company has agreed in the Registration Rights Agreement to
indemnify the Holders of the Notes (including any broker-dealer) against certain
liabilities, including liabilities under the Securities Act.
In addition, to comply with the securities laws of certain jurisdictions,
the New Notes may not be offered or sold unless they have been registered or
qualified for offer and sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement, subject to certain
limitations specified therein, to register or qualify the New Notes for offer or
sale under all applicable state securities or Blue Sky laws by the time the
Registration Statement (of which this Prospectus forms a part) is declared
effective by the SEC.
101
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the New Notes offered hereby will be
passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California.
EXPERTS
The consolidated financial statements of Great Lakes Carbon Corporation at
December 31, 1996 and 1997, and for each of the three years in the period ended
December 31, 1997, appearing in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
102
<PAGE>
INDEX TO FINANCIAL STATEMENTS
GREAT LAKES CARBON CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1996,
1997............................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995, 1996 and 1997................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997............................................................................... F-6
Notes to Consolidated Financial Statements........................................... F-7
Condensed Consolidated Balance Sheet as of June 30, 1998 (unaudited)................. F-16
Condensed Consolidated Statements of Operations of the Company for the period from
May 22, 1998 to June 30, 1998 and the six months ended June 30, 1997 (predecessor)
and the period from January 1, 1998 to May 21, 1998 (predecessor) (unaudited)...... F-17
Condensed Consolidated Statements of Stockholders' Equity of the Company for the
period from May 22, 1998 to June 30, 1998 and the period from January 1, 1998 to
May 21, 1998 (predecessor) (unaudited)............................................. F-18
Condensed Consolidated Statements of Cash Flows of the Company for the period from
May 22, 1998 to June 30, 1998 and the six months ended June 30, 1997 (predecessor)
and the period from January 1, 1998 to May 21, 1998 (predecessor) (unaudited)...... F-19
Notes to Condensed Consolidated Financial Statements (unaudited)..................... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Great Lakes Carbon Corporation
We have audited the accompanying consolidated balance sheets of Great Lakes
Carbon Corporation and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Great Lakes
Carbon Corporation and subsidiaries at December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 13, 1998
F-2
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 24,097 $ 43,596
Accounts receivable--net of allowance for doubtful accounts of $600 in 1996 and 1997.... 28,934 29,908
Inventories............................................................................. 39,872 32,455
Other current assets.................................................................... 2,958 4,349
---------- ----------
Total current assets...................................................................... 95,861 110,308
Property, plant and equipment, net........................................................ 47,530 59,165
Other assets.............................................................................. 5,514 5,438
---------- ----------
Total assets.............................................................................. $ 148,905 $ 174,911
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 22,222 $ 13,601
Accrued expenses........................................................................ 11,592 14,057
Income taxes payable.................................................................... 3,840 1,796
Current portion of long-term debt....................................................... 1,389 1,419
---------- ----------
Total current liabilities................................................................. 39,043 30,873
Long-term debt, less current portion...................................................... 71,496 82,595
Other long-term liabilities............................................................... 3,857 4,190
Deferred taxes............................................................................ 2,554 4,814
Stockholders' equity:
Common Stock, par value $0.01 per share, 100,000 shares authorized and outstanding...... 1 1
Additional paid-in capital.............................................................. 5,509 5,509
Retained earnings....................................................................... 26,445 46,929
---------- ----------
Total stockholders' equity................................................................ 31,955 52,439
---------- ----------
Total liabilities and stockholders' equity................................................ $ 148,905 $ 174,911
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................................... $ 178,628 $ 242,744 $ 231,911
Cost of goods sold........................................................... 142,188 176,371 172,390
---------- ---------- ----------
Gross profit................................................................. 36,440 66,373 59,521
Selling, general and administrative expenses................................. 9,687 15,321 18,510
---------- ---------- ----------
Operating income............................................................. 26,753 51,052 41,011
Other income (expense):
Interest expense, net........................................................ (1,127) (7,573) (6,287)
Asset utilization fee to parent.............................................. (6,286) -- --
Other, net................................................................... 2,111 (772) (49)
---------- ---------- ----------
(5,302) (8,345) (6,336)
---------- ---------- ----------
Income before income taxes................................................... 21,451 42,707 34,675
Income tax expense........................................................... 7,633 15,148 12,691
---------- ---------- ----------
Net income................................................................... $ 13,818 $ 27,559 $ 21,984
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
COMMON STOCK CAPITAL EARNINGS EQUITY
------------- ----------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1995....................................... $ 1 $ 53,637 $ 15,019 $ 68,657
Net income..................................................... -- -- 13,818 13,818
Distributions.................................................. -- (48,128) (28,451) (76,579)
--
----------- ---------- ------------
Balance at December 31, 1995..................................... $ 1 $ 5,509 $ 386 $ 5,896
Net income..................................................... -- -- 27,559 27,559
Dividends...................................................... -- -- (1,500) (1,500)
--
----------- ---------- ------------
Balance at December 31, 1996..................................... $ 1 $ 5,509 $ 26,445 $ 31,955
Net income..................................................... -- -- $ 21,984 $ 21,984
Dividends...................................................... -- -- (1,500) (1,500)
--
----------- ---------- ------------
Balance at December 31, 1997..................................... $ 1 $ 5,509 $ 46,929 $ 52,439
--
--
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................................... $ 13,818 $ 27,559 $ 21,984
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................... 8,420 9,551 10,220
Deferred taxes.......................................................... 4,181 462 2,260
Changes in operating assets and liabilities:
Accounts receivable................................................... (8,418) (6,851) (974)
Inventories........................................................... (7,167) (13,701) 7,417
Other current assets.................................................. 621 306 (1,391)
Income taxes payable.................................................. 3,523 743 (2,044)
Accounts payable and accrued expenses................................. 4,103 8,158 (6,156)
Other, net............................................................ (1,846) 1,495 (55)
---------- ---------- ----------
Net cash provided by operating activities..................................... 17,235 27,722 31,261
INVESTING ACTIVITIES
Capital expenditures.......................................................... (5,774) (6,371) (21,391)
---------- ---------- ----------
Net cash used in investing activities......................................... (5,774) (6,371) (21,391)
FINANCING ACTIVITIES
Repayments of long-term debt................................................ (2,616) (1,406) (1,389)
Additions to long-term debt................................................. 65,000 -- 12,518
Transfers to parent......................................................... (68,503) -- --
Dividends................................................................... -- (1,500) (1,500)
---------- ---------- ----------
Net cash provided by (used in) financing activities........................... (6,119) (2,906) 9,629
Increase in cash and cash equivalents......................................... 5,342 18,445 19,499
Cash and cash equivalents at beginning of year................................ 310 5,652 24,097
---------- ---------- ----------
Cash and cash equivalents at end of year...................................... $ 5,652 $ 24,097 $ 43,596
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Great Lakes Carbon Corporation (the "Company") is a producer of calcined
coke principally for customers in the aluminum industry. The consolidated
financial statements include the accounts of the Company and its subsidiaries.
Significant intercompany accounts have been eliminated in consolidation.
On December 20, 1995, the Company, formerly a wholly-owned subsidiary of
Horsehead Industries, Inc. ("Horsehead"), sold $65,000,000 of 10% Senior Secured
Notes due 2006. Immediately upon the completion of the sale, the net proceeds
therefrom were distributed by the Company as a cash dividend to Horsehead, all
indebtedness of Horsehead owing to the Company was canceled and 100% of the
common stock of the Company was distributed by Horsehead on a pro rata basis to
the holders of the common stock of Horsehead.
Through December 20, 1995 a monthly asset utilization fee was charged by
Horsehead equal to 1% of the Company's net assets, adjusted for intercompany
balances and tax assets and liabilities. A portion of this fee ($1,400,000 in
1995) is included in selling, general and administrative expenses, as it
represents estimates of various ongoing management services provided to the
Company by Horsehead. The balance is included in other income (expense).
Management believes that the allocation method is reasonable and that, after
giving affect to such allocation, selling, general and administrative expenses
in 1995 approximate what the costs would have been for the Company if it had
operated as an unaffiliated entity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts and disclosures reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS
Investments with maturities of less than 90 days when purchased are
considered the equivalent of cash.
INVENTORIES
Inventories are stated at the lower of cost (principally average cost
method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Enhancements
are capitalized and depreciated over the period benefited. The provision for
depreciation is determined by the straight-line method over the estimated useful
lives of the related assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" effective January 1, 1996, which requires impairment
losses to be recorded on long-lived assets used in operations
F-7
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. The adoption did not have an effect on the financial condition of the
Company.
SIGNIFICANT CUSTOMERS
The Company had one customer which represented 15.1% of net sales in 1995,
two customers which represented 22% and 15.3% of net sales in 1996 and 23.7% and
15.5% of net sales in 1997.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................................... $ 26,377 $ 18,483
Finished goods......................................................... 8,534 7,821
Supplies and spare parts............................................... 4,961 6,151
--------- ----------
$ 39,872 $ 32,455
--------- ----------
--------- ----------
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements.................................................. $ 2,449 $ 2,718
Buildings.............................................................. 8,835 9,193
Machinery, equipment and other......................................... 110,955 116,786
Construction in progress............................................... 2,175 16,866
--------- ----------
124,414 145,563
Accumulated depreciation............................................... (76,884) (86,398)
--------- ----------
$ 47,530 $ 59,165
--------- ----------
--------- ----------
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses included interest payable of $3,370,000 and $3,467,000 at
December 31, 1996 and 1997, respectively.
F-8
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. LONG-TERM DEBT
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
10% Senior Secured Notes due January 1, 2006............................ $ 65,000 $ 65,000
Various pollution control and industrial revenue bonds bearing interest
at rates from 6.75% to 7.125% due in varying amounts at various dates
through 2002.......................................................... 5,919 4,834
Facility expansion credit line bearing interest at LIBOR plus 4% (9.9%
at December 31, 1997) due in varying amounts semi-annually from June
1999 through June 2002................................................ -- 11,850
Capital lease obligations, bearing interest of 9.3%..................... 1,966 1,662
Other................................................................... -- 668
--------- ---------
72,885 84,014
Current portion......................................................... (1,389) (1,419)
--------- ---------
$ 71,496 $ 82,595
--------- ---------
--------- ---------
</TABLE>
The Senior Secured Notes are secured by essentially all property, plant and
equipment not otherwise pledged and certain other assets of the Company. At the
option of the Company, the Senior Secured Notes may be redeemed, in whole or in
part, commencing January 1, 2001 at various redemption prices ranging from 105%
in 2001 to par in 2004 and beyond. The Senior Secured Notes indenture imposes
limitations on restricted payments, including dividends.
The pollution control and industrial development revenue bonds were issued
by various state and local governmental authorities. Under agreements with these
authorities, the Company has either leased (with nominal value purchase options)
or purchased on an installment basis the facilities constructed with the funds
financed. The Company has the option of redeeming the bonds in whole or in part
at par.
The facility expansion credit line provides for credit of up to $20,000,000
for use in connection with a major facility expansion at the Company's La Plata,
Argentina plant operated by its wholly-owned subsidiary, Copetro S.A.
("Copetro"). The loan is secured by the property, plant and equipment of Copetro
including the assets constructed with funds financed. The agreement requires
that Copetro satisfy certain financial ratios and imposes limitations on the
payment of dividends.
The Company's revolving credit agreement, which is in effect until December
1998, provides for borrowings, subject to borrowing base limitations, of up to
$15,000,000 (with a $10,000,000 sublimit for letters of credit). The agreement
is secured by substantially all domestic accounts receivable and inventory of
the Company and requires that the Company satisfy certain financial ratios. At
December 31, 1996 and 1997, there were no borrowings under this credit agreement
and outstanding letters of credit were $6,153,000 and $3,420,000, respectively.
The fair market value of the Company's long-term debt obligations
approximated $77,400,000 and $89,000,000 at December 31, 1996 and 1997,
respectively.
F-9
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt for the succeeding five years and thereafter
are as follows:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES TOTAL
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1998......................................................... $ 1,085 $ 334 $ 1,419
1999......................................................... 3,568 367 3,935
2000......................................................... 4,768 403 5,171
2001......................................................... 4,906 442 5,348
2002......................................................... 2,869 116 2,985
Thereafter................................................... 65,156 -- 65,156
----------- --------- ---------
$ 82,352 $ 1,662 $ 84,014
----------- --------- ---------
----------- --------- ---------
</TABLE>
Interest paid amounted to $1,223,000, $4,989,000 and $7,773,000 for the
years ended December 31, 1995, 1996 and 1997 respectively.
The Company capitalized interest on construction in progress of $808,000 for
the year ended December 31, 1997.
6. LEASES
The Company leases various production equipment under capital leases, some
of which contain renewal options and/or options to purchase. Amortization under
capital leases is included in depreciation expense.
Future minimum payments as of December 31, 1997, by year and in the
aggregate, under capital leases and noncancelable operating leases with initial
or remaining terms of one year or more consist of the following:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
1998..................................................................... $ 615 $ 1,622
1999..................................................................... 615 892
2000..................................................................... 615 857
2001..................................................................... 615 648
2002..................................................................... 154 633
Thereafter............................................................... -- 2,085
--------- -----------
Total minimum lease payments............................................. 2,614 $ 6,737
-----------
-----------
Amounts representing interest............................................ (952)
---------
Present value of net minimum lease payments.............................. $ 1,662
---------
---------
</TABLE>
Rental expense for all operating leases was $2,691,000, $2,685,000, and
$2,770,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
F-10
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. PENSION PLAN
The Company has various defined benefit retirement plans which cover
substantially all employees. Benefits are based upon the number of years of
service and the employee's compensation under varying formulas. The funding
policy is generally to contribute at least the minimum amount that is acceptable
under federal law. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future. As of December 31, 1997, the assets of the plan were invested
principally in listed stocks, bonds, money market certificates and cash.
Pension expense for the plans related to the Company included the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................................... $ 481 $ 545 $ 501
Interest cost..................................................... 411 483 571
Actual return on assets........................................... (905) (889) (1,595)
Net amortization and deferral..................................... 541 498 1,010
--------- --------- ---------
$ 528 $ 637 $ 487
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the Company's balance sheets:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................................. $ (5,310) $ (6,781)
--------- ---------
--------- ---------
Accumulated benefit obligation......................................... $ (5,673) $ (7,146)
--------- ---------
--------- ---------
Projected benefit obligation........................................... $ (7,041) $ (8,538)
Plan assets, at fair value............................................... 6,763 9,003
--------- ---------
Projected benefit obligation less than (in excess of) plan assets........ (278) 465
Unrecognized net gain.................................................... (45) (542)
Prior service cost....................................................... (9) 80
--------- ---------
Pension asset (liability) recognized in the balance sheet................ $ (332) $ 3
--------- ---------
--------- ---------
</TABLE>
The expected long-term rate of return on plan assets was 9% for 1995, 1996
and 1997. The weighted average discount rate and weighted average rate of
increase in future compensation levels used were 7.25% and 4.25% for 1995, 8%
and 5% for 1996, and 7.5% and 5% for 1997.
8. POSTRETIREMENT OBLIGATIONS
The Company provides certain health care and life insurance benefits to all
full time employees who satisfy certain eligibility requirements and reach
retirement age while employed by the Company. The Company does not fund these
benefits and accrues for the related cost generally over the employees' service
period.
F-11
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. POSTRETIREMENT OBLIGATIONS (CONTINUED)
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.......................................................... $ 196 $ 198 $ 204
Interest cost......................................................... 175 184 223
Amortization of transition obligation................................. 68 68 68
--------- --------- ---------
Net periodic postretirement benefit liability......................... $ 439 $ 450 $ 495
--------- --------- ---------
--------- --------- ---------
</TABLE>
Postretirement benefit obligations at December 31, 1996 and 1997 were as
follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation (APBO):
Retirees............................................................... $ (544) $ (653)
Active fully-eligible.................................................. (1,106) (1,459)
Other active........................................................... (1,145) (1,265)
--------- ---------
Total APBO............................................................... (2,795) (3,377)
Unrecognized net loss.................................................... 50 267
Unrecognized transition obligation....................................... 1,088 1,020
--------- ---------
Accrued postretirement benefit liability................................. $ (1,657) $ (2,090)
--------- ---------
--------- ---------
</TABLE>
The health care cost trend used in determining the APBO was 6.31% grading
down to 5.0% in three years. That assumption may have a significant effect on
the amounts reported. To illustrate, increasing the assumed trend by 1% for all
years would increase the APBO as of December 31, 1997 by $478,000 and the
service and interest cost components of net periodic postretirement benefit cost
for the year then ended by $71,000.
Assumptions used to develop net periodic postretirement benefit cost and the
actuarial present value of accumulated benefit obligations include the weighted
average rate of increase in future compensation levels and the weighted average
discount rate of 5% and 7.25% for 1995, 5% and 8% for 1996, and 5% and 7.5% for
1997.
9. OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Department of Energy refund........................................ $ 2,390 $ -- $ --
Other.............................................................. (279) (772) (49)
--------- --------- ---------
$ 2,111 $ (772) $ (49)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
10. INCOME TAXES
The Company was included in the consolidated federal income tax return of
Horsehead through December 20, 1995. Income taxes have been provided in the
Company's 1995 statements of operations as if the Company was a separate taxable
entity. Components of the Company's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Book over tax depreciable basis.......................................... $ 3,601 $ 4,460
Other--net............................................................... 605 2,315
--------- ---------
Total deferred tax liabilities............................................. 4,206 6,775
Deferred tax assets:
Accrued liabilities...................................................... 1,333 1,571
Other--net............................................................... 319 390
--------- ---------
Total deferred tax assets.................................................. 1,652 1,961
--------- ---------
Net deferred tax liability................................................. $ 2,554 $ 4,814
--------- ---------
--------- ---------
</TABLE>
The differences between tax expense computed at the statutory federal income
tax rate and actual tax expense are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at statutory rates applied to pretax earnings..... $ 7,508 $ 14,947 $ 12,143
State income tax, net of federal tax effects.................. 428 1,029 1,020
Tax exempt earnings........................................... (371) (480) (938)
Effects of foreign operations................................. 45 (657) (91)
Other......................................................... 23 309 557
--------- --------- ---------
$ 7,633 $ 15,148 $ 12,691
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
10. INCOME TAXES (CONTINUED)
Income taxes consist of the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................................... $ 1,934 $ 9,252 $ 7,229
State....................................................... 240 1,465 1,481
Foreign..................................................... 1,278 3,969 2,852
--------- --------- ---------
3,452 14,686 11,562
Deferred:
Federal..................................................... 3,763 564 1,001
State....................................................... 418 118 88
Foreign..................................................... -- (220) 40
--------- --------- ---------
4,181 462 1,129
--------- --------- ---------
Total......................................................... $ 7,633 $ 15,148 $ 12,691
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income taxes paid were approximately $161,000, $13,723,000 and $12,485,000
in 1995, 1996 and 1997, respectively.
U.S. income taxes have not been provided on the undistributed earnings of
Copetro ($23,415,000 as of December 31, 1997) because such earnings are expected
to be reinvested. Upon distribution of those earnings, the Company would be
subject to U.S. income taxes (subject to an adjustment for foreign tax credits
and withholding taxes, if any).
Income before income taxes attributable to domestic operations (which
included results from export sales) was $16,356,000, $30,601,000 and $25,723,000
for the years ended December 31, 1995, 1996 and 1997, respectively, while income
before income taxes attributable to foreign operations was $5,095,000,
$12,106,000, $8,952,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
F-14
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
11. OPERATIONS BY GEOGRAPHIC AREA
The following is a summary of the Company's operations by geographic area:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
United States.......................................... $ 146,819 $ 197,296 $ 189,730
Foreign................................................ 31,809 45,448 42,181
---------- ---------- ----------
$ 178,628 $ 242,744 $ 231,911
---------- ---------- ----------
---------- ---------- ----------
Operating income:
United States.......................................... $ 21,841 $ 38,266 $ 32,358
Foreign................................................ 4,912 12,786 8,653
---------- ---------- ----------
$ 26,753 $ 51,052 $ 41,011
---------- ---------- ----------
---------- ---------- ----------
Assets:
United States.......................................... $ 90,153 $ 114,864 $ 125,448
Foreign................................................ 23,777 34,041 49,463
---------- ---------- ----------
$ 113,930 $ 148,905 $ 174,911
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Exports of U.S. produced products were approximately $87,287,000,
$111,482,000 and $104,826,000 for the years ended December 31, 1995, 1996 and
1997, respectively. Export sales as a percentage of United States net sales
represented 25.6%, 23.0% and 22.9% to Western Europe in 1995, 1996 and 1997,
respectively, 11.1%, 18.8% and 18.9% to Africa in 1995, 1996 and 1997,
respectively. The Company's foreign operations are conducted principally in
South America.
12. LITIGATION AND CONTINGENCIES
The Company is a party to several proceedings which are in various stages of
resolution. Management of the Company, after discussion with legal counsel, is
of the opinion that the ultimate resolution of these matters will not have a
material effect upon the financial condition of the Company.
F-15
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................ $ 9,957
Accounts receivable, net........................................................ 27,318
Inventories..................................................................... 34,845
Prepaid expenses and other current assets....................................... 5,873
---------
Total current assets.............................................................. 77,993
Property, plant and equipment, net................................................ 215,432
Goodwill.......................................................................... 179,315
Capitalized financing costs....................................................... 19,328
Other assets...................................................................... 6,355
---------
$ 498,423
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 20,879
Accrued expenses................................................................ 11,466
Current portion of long-term debt............................................... 4,506
---------
Total current liabilities......................................................... 36,851
Long-term debt, less current portion.............................................. 305,728
Other long-term liabilities....................................................... 4,615
Deferred taxes.................................................................... 57,750
Stockholders' equity:
Common stock, par value; $0.01 per share, 92,380 shares authorized and
outstanding................................................................... 1
Additional paid-in capital...................................................... 92,379
Retained earnings............................................................... 1,099
---------
93,479
---------
$ 498,423
---------
---------
</TABLE>
See notes to condensed consolidated financial statements.
F-16
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------
PERIOD FROM PERIOD FROM
SIX MONTHS JANUARY 1, MAY 22, 1998
ENDED JUNE 30, 1998 TO MAY TO JUNE 30,
1997 21, 1998 1998
-------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales......................................................... $ 113,610 $ 90,849 $ 28,511
Cost of goods sold................................................ 86,543 67,168 20,676
-------------- -------------- -------------
Gross profit...................................................... 27,067 23,681 7,835
Selling, general and administrative expenses...................... 8,987 13,070 1,720
-------------- -------------- -------------
Operating income.................................................. 18,080 10,611 6,115
Other income (expense):
Interest, net................................................... (3,607) (1,776) (3,309)
Other, net...................................................... 117 (472) 491
-------------- -------------- -------------
(3,490) (2,248) (2,818)
-------------- -------------- -------------
Income before income taxes and extraordinary item................. 14,590 8,363 3,297
Provision for income taxes........................................ 5,544 2,839 2,198
-------------- -------------- -------------
Income before extraordinary item.................................. 9,046 5,524 1,099
Extraordinary loss on early extinguishment of debt................ -- 7,113 --
-------------- -------------- -------------
Net income (loss)................................................. $ 9,046 $ (1,589) $ 1,099
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
F-17
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Predecessor balance at December 31, 1997......................... $ 1 $ 5,509 $ 46,929 $ 52,439
Net (loss) through May 21, 1998................................ -- -- (1,589) (1,589)
----- ----------- ---------- ------------
Predecessor balance at May 21, 1998............................ $ (1) $ (5,509) $ (45,340) $ (50,850)
----- ----------- ---------- ------------
----- ----------- ---------- ------------
Balance at May 22, 1998.......................................... $ -- $ -- $ -- $ --
Capital contributions.......................................... 1 92,379 -- 92,380
Net income from May 22, 1998
through June 30, 1998........................................ 1,099 1,099
----- ----------- ---------- ------------
Balance at June 30, 1998......................................... $ 1 $ 92,379 $ 1,099 $ 93,479
----- ----------- ---------- ------------
----- ----------- ---------- ------------
</TABLE>
See notes to condensed consolidated financial statements.
F-18
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------
PERIOD FROM PERIOD FROM
SIX MONTHS JANUARY 1, MAY 22, 1998
ENDED JUNE 30, 1998 TO MAY TO JUNE 30,
1997 21, 1998 1998
--------------- -------------- -------------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities.............. $ 9,097 $ 12,738 $ (26,126)
--------------- -------------- -------------
Investing activities
Capital expenditures........................................... (7,744) (9,058) (1,848)
Consideration paid to former shareholders...................... -- -- (279,678)
--------------- -------------- -------------
Net cash provided by (used in) investing activities.............. (7,744) (9,058) (281,526)
--------------- -------------- -------------
Financing activities
Repayments of long-term debt................................... (180) (161) (65,035)
Additions to long-term debt.................................... 3,250 4,928 286,488
Capital contribution........................................... -- -- 92,380
Dividends...................................................... (750) -- --
--------------- -------------- -------------
Net cash provided by (used in) financing activities.............. 2,320 4,767 313,833
--------------- -------------- -------------
Net increase (decrease) in cash.................................. 3,673 8,447 6,181
Cash at beginning of period...................................... 24,097 43,596 3,776
--------------- -------------- -------------
Cash at end of period............................................ $ 27,770 $ 52,043 $ 9,957
--------------- -------------- -------------
--------------- -------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
1. ORGANIZATION
On May 22, 1998, the Company was acquired by Great Lakes Acquisition Corp.
("GLAC"), a substantially wholly owned subsidiary of American Industrial Capital
Fund II, L.P. ("AIP"), whereby GLAC acquired all of the Company's outstanding
common stock in a transaction accounted for as a purchase. The acquisition and
related transaction costs were funded by a cash contribution from GLAC of
approximately $92 million (including approximately $30 million from the sale by
GLAC of Senior Discount Debentures), and proceeds of approximately $175 million
from the sale by the Company of 10 1/4% Senior Subordinated Notes and
approximately $111 million pursuant to a new credit facility entered into by the
Company. In addition, as a condition to the transaction, the Company committed
to repurchase its then outstanding 10% Senior Secured Notes, through a public
tender offer, for total consideration of approximately $76 million. Net
shareholders' equity upon consummation of the above transactions was
approximately $92 million, and based upon estimates of the fair value of assets
required and liabilities assumed, goodwill of approximately $180 million was
established.
2. BASIS OF PRESENTATION
The accompanying financial statements as of June 30, 1998 and for the period
from May 22, 1998 through June 30, 1998 reflect the results of operations of the
Company subsequent to the Acquisition and include adjustments required under the
purchase method of accounting. The principle amount related to the 13 1/8%
Senior Discount Debentures sold by GLAC has not been pushed down to the
Company's financial statements as the Company has not guaranteed or otherwise
pledged its assets as collateral for the Debentures. The accompanying
predecessor financial statements for periods prior to the date of the
acquisition are presented under the predecessor Company's historical basis of
accounting and do not reflect any adjustments that would be required as a result
of the acquisition by GLAC.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Article 10 of Regulation S-X and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. The information furnished reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair summary of the results of
operations.
3. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------
<S> <C>
(IN THOUSANDS)
Raw materials................................................................. $ 21,969
Finished goods................................................................ 6,737
Supplies and spare parts...................................................... 6,139
-------
$ 34,845
-------
-------
</TABLE>
F-20
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
4. ACCRUED EXPENSES
Accrued expenses included interest payable of $3,345,000 at June 30, 1998.
5. LONG-TERM DEBT
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
(IN THOUSANDS)
<S> <C> <C>
10.25% Senior Subordinated Notes due May 15, 2008.................................... 175,000
Term Loan Credit Facility bearing interest at the Company's option at LIBOR (5.78% at
June 30, 1998) plus a margin ranging from 2.25% to 3.00% or Prime plus a margin
ranging from 1.25% to 2.00% (subject to an interest reduction discount ranging from
0% to 0.75% based on the achievement of certain leverage ratios) due in varying
amounts quarterly from September, 1998 through June, 2006.......................... 111,000
Various pollution control and industrial revenue bonds bearing interest at rates from
6.75% to 7.125% due in varying amounts at various dates through 2002............... 4,801
Facility expansion credit line bearing interest at LIBOR (5.78% at June 30, 1998)
plus 4% due in varying amounts semi-annually from March, 1999 through March,
2002............................................................................... 15,850
Capital lease obligation bearing interest of 9.3%.................................... 1,499
Other................................................................................ 2,084
-
-------
310,234
Current portion...................................................................... (4,506)
-
-------
305,728
-
-
-------
-------
</TABLE>
The Senior Subordinated Notes are unsecured general obligations of the
Company. At the option of the Company, the Senior Subordinated Notes may be
redeemed, in whole or in part, commencing May 15, 2003 at various prices ranging
from 105% in 2003 to par in 2006 and beyond. At any time prior to May 15, 2001,
the Company may redeem up to 35% of the Senior Subordinated Notes at a price of
110.25% with the Net Cash Proceeds of one or more Equity Offerings, provided
that at least $100.0 million principal remain outstanding. For interest payments
through May 15, 2003, the Company may, at its option, make up to four semiannual
interest payments through the issuance of additional notes for an amount equal
to the amount of interest that would be payable if the interest rate were
11.75%. The Senior Subordinated Notes indenture imposes limitations on certain
payments, including dividends.
The term loan credit facility is comprised of three single tranche term
loans in the amount of $50,000,000, $31,000,000 and $30,000,000 maturing on May
31, 2004, 2005 and 2006, respectively, and a revolving credit agreement in
effect until May 31, 2003 which provides for borrowings of up to $25,000,000
(with a $7,500,000 sublimit for letters of credit). The agreement is secured by
substantially all the assets of the Company and requires that the Company
satisfy certain financial ratios. At June 30, 1998, there were
F-21
<PAGE>
GREAT LAKES CARBON CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
5. LONG-TERM DEBT (CONTINUED)
no borrowings under the revolving credit portion of the facility and outstanding
letters of credit were $3,420,000.
The pollution control and industrial development revenue bonds were issued
by various state and local governmental authorities. Under agreements with these
authorities, the Company has either leased (with nominal value purchase options)
or purchased on an installment basis the facilities constructed with the funds
financed. The Company has the option of redeeming the bonds in whole or in part
at par.
The facility expansion credit line provided for credit of up to $20,000,000
($15,850,000 was borrowed) for use in connection with a major facility expansion
at the Company's La Plata, Argentina plant operated by its wholly-owned
subsidiary, Copetro S.A. (Copetro). The loan is secured by the property, plan
and equipment of Copetro, including, the assets constructed with the funds
financed. The agreement requires that Copetro satisfy certain financial ratios
and imposes limitations on the payment of dividends.
The Company's common stock has been pledged as collateral for the 13 1/8%
Senior Discount Debentures sold by GLAC. The Debentures require GLAC to make
cash interest payments semiannually commencing in November 2003 of approximately
$7,432,000 per year, and a principal payment of approximately $56,600,000 in May
2009.
6. EXTRAORDINARY ITEM
In connection with the repurchase of 10% Senior Secured Notes described in
Note 1, an extraordinary loss of approximately $7,113,000, net of taxes of
approximately $4,001,000, has been reflected in the predecessor Statement of
Operations for the period from January 1, 1998 to May 21, 1998.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE NOTES OFFERED HEREBY, TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 16
Acquisition Transactions.................................................. 23
Use of Proceeds........................................................... 23
Unaudited Pro Forma Condensed Consolidated Financial Data................. 25
Selected Historical Financial and Other Data.............................. 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 29
The Exchange Offer........................................................ 36
Business.................................................................. 43
Management................................................................ 54
Certain Relationships and Related Transactions............................ 56
Security Ownership........................................................ 57
Description of Company Common Stock....................................... 57
Description of Notes...................................................... 58
Description of Other Indebtedness......................................... 94
Certain United States Federal Income Tax Considerations................... 98
Plan of Distribution...................................................... 101
Legal Matters............................................................. 102
Experts................................................................... 102
Index to Financial Statements............................................. F-1
</TABLE>
$219,893,171
[LOGO]
GREAT LAKES CARBON CORPORATION
10 1/4% SERIES B
SENIOR SUBORDINATED NOTES
DUE 2008
INCLUDING $44,893,171
OF
ADDITIONAL NOTES
---------------------------
PROSPECTUS
---------------------------
OCTOBER 6, 1998
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