AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TEXAS PETROCHEMICALS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 2869 74-1778313
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
<TABLE>
<CAPTION>
<S> <C>
STEPHEN R. WRIGHT
THREE RIVERWAY, SUITE 1500 THREE RIVERWAY, SUITE 1500
HOUSTON, TEXAS 77056 HOUSTON, TEXAS 77056
(713) 627-7474 (713) 627-7474
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S INCLUDING AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES) AGENT FOR SERVICE OF PROCESS)
</TABLE>
------------------------
COPY TO:
GARY W. ORLOFF
BRACEWELL & PATTERSON, L.L.P.
SOUTH TOWER PENNZOIL PLACE, SUITE 2900
711 LOUISIANA STREET
HOUSTON, TEXAS 77002-2781
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company or there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=========================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/8% Series B Senior Subordinated
Notes due 2006........................ $50,000,000 106% $53,000,000 $16,061.00
=========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED APRIL 4, 1997
TEXAS PETROCHEMICALS CORPORATION
OFFER TO EXCHANGE ITS
11 1/8% SERIES B EXCHANGE SENIOR SUBORDINATED NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ANY AND ALL OUTSTANDING
11 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
.................., 1997, UNLESS EXTENDED BY TEXAS PETROCHEMICALS CORPORATION IN
ITS SOLE DISCRETION (THE "EXPIRATION DATE"). ALTHOUGH TEXAS PETROCHEMICALS
CORPORATION HAS NO PRESENT INTENTION TO CONDUCT ITS EXCHANGE OFFER LONGER THAN
30 DAYS, IT RESERVES THE RIGHT TO EXTEND THE EXCHANGE OFFER.
- --------------------------------------------------------------------------------
Texas Petrochemicals Corporation, a Texas corporation (the "Company" or
"TPC"), hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal" and, together with the Prospectus,
the "Exchange Offer"), to exchange $1,000 principal amount of its 11 1/8%
Series B Exchange Senior Subordinated Notes due 2006 (the "Exchange Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for each $1,000 principal amount of its outstanding
11 1/8% Series B Senior Subordinated Notes due 2006 (the "Original Series B
Notes"), of which an aggregate of $50,000,000 principal amount is outstanding.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Series B Notes except that (i) the Exchange Notes will have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer pursuant to the Securities Act, and (ii) holders of
the Exchange Notes generally will not be entitled to the rights of holders of
the Original Series B Notes under the Registration Rights Agreement (as defined
under "Prospectus Summary -- The Exchange Offer") following the consummation
of the Exchange Offer. See "The Exchange Offer -- Registration Rights,"
"-- Consequences of Failure to Exchange" and "-- Resale of the Exchange
Notes; Plan of Distribution." The Exchange Notes will evidence the same debt as
the Original Series B Notes (which they replace) and will be issued under, and
be entitled to the benefits of, the indenture governing both the Original Series
B Notes and the Exchange Notes.
The Company will accept for exchange any and all Original Series B Notes
validly tendered and not withdrawn prior to the Expiration Date. Tenders of
Original Series B Notes may be withdrawn at any time prior to the Expiration
Date. The Exchange Offer is subject to certain customary conditions. See "The
Exchange Offer." The Original Series B Notes may be tendered only in integral
multiples of $1,000 principal amount.
(PROSPECTUS COVER CONTINUED ON FOLLOWING PAGE)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED 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 , 1997.
<PAGE>
The Original Series B Notes and the Exchange Notes are referred to herein
collectively as the "Notes."
Interest on the Notes is payable semiannually on January 1 and July 1 of
each year, commencing January 1, 1997. Except as described below, the Notes are
not redeemable at the option of the Company prior to February 15, 1999.
Thereafter, the Notes will be redeemable, in whole or in part, at the option of
the Company, at the redemption prices set forth herein, together with accrued
and unpaid interest, if any, to the date of redemption. Up to 35% of the
original principal amount of the Notes will be redeemable at any time and from
time to time prior to July 1, 1999, at the option of the Company, with the
proceeds of any Public Equity Offerings (as defined under "Description of the
Notes -- Certain Definitions") following which there is a Public Market (as
defined under "Description of the Notes -- Certain Definitions") at a
redemption price equal to 110% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of redemption; provided,
however, that at least 65% of the original aggregate principal amount of the
Notes must remain outstanding after each such redemption. Upon a Change in
Control (as defined under "Description of the Notes -- Change of Control"),
each holder of Notes may require the Company to purchase all or a portion of
such holder's Notes at 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase. The Notes are
unsecured senior subordinated obligations of the Company and will rank
subordinate in right of payment to all existing and future Senior Indebtedness
(as defined under "Description of the Notes -- Certain Definitions") of the
Company. As of December 31, 1996, on a pro forma basis after giving effect to
the issuance of the Notes and the application of the proceeds therefrom, the
Company would have had approximately $85.5 million of Senior Indebtedness
outstanding. For a more complete description of the Notes, see "Description of
the Notes."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission" or the "SEC") set forth in no-action letters
issued to third parties, the Company believes, except as otherwise described
herein, the Exchange Notes issued pursuant to the Exchange Offer in exchange for
the Original Series B Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 of the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and that such holder does not intend
to participate and there is no arrangement or understanding with any person to
participate, in the distribution of such Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such 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 180 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Exchange Offer -- Resale of the Exchange Notes; Plan of
Distribution."
Prior to this offering, there has been no public market for the Notes. The
Notes are not, and are not expected to be, listed on any securities exchange or
authorized for trading on NASDAQ. The Company does not expect that an active
market for the Notes will develop. The Original Series B Notes have been
eligible for trading in the Private Offerings, Resale and Trading through
Automated Linkages (PORTAL) Market of The Nasdaq Stock Market, Inc., but the
Exchange Notes will not be so eligible. To the extent that an active market for
Notes does develop, the market value thereof will depend on many factors,
including among other things, prevailing interest rates, general economic
conditions, the Company's financial condition and results of operations, the
volatility of the market for non-investment grade debt and other factors. Such
conditions might cause the Notes, to the extent that they are traded, to trade
at a discount. See "Risk Factors -- Lack of Public Market for the Notes."
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any and all amendments thereto) on Form S-4 (the
"Registration Statement") under the Securities Act, with respect to, among
other things, the Exchange Notes offered hereby. This Prospectus, which is part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain items
of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. For further
information with respect to the Company and the Notes, reference is hereby made
to the Registration Statement and such exhibits and schedules filed as a part
thereof, which may be inspected, without charge, at the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
Commission, upon payment of prescribed fees. The Commission maintains a Web site
that contains reports and information regarding registrants that file
electronically with the Commission at Web site (http://www.sec.gov).
Pursuant to the Indenture (as defined under "Description of the
Notes -- General"), so long as any of the Notes are outstanding, whether or not
the Company is subject to the reporting requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Company is obligated to send to the Commission the annual reports, quarterly
reports and other documents that the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) if the Company were
subject to such reporting requirements; PROVIDED, HOWEVER, that if Holdings (as
defined) shall have become a Guarantor (as defined under "Description of the
Notes -- Certain Definitions") with respect to all obligations relating to the
Notes, the reports, information and other documents required to be filed and
provided as described hereunder may, at the Company's option, be filed by and be
those of Holdings rather than the Company; PROVIDED FURTHER, HOWEVER, that in
the event Holdings conducts, directly or indirectly, any business or holds,
directly or indirectly, any significant assets other than the capital stock of
TPC Holding (as defined) or the Company at the time of filing and providing any
such report, information or other document containing financial statements of
Holdings, Holdings shall include in such report, information or other document
summarized financial information (as defined in Rule 1-02(bb) of Regulation S-X
promulgated by the Commission) with respect to the Company. The Company is also
obligated to provide to all holders of the Notes, and file with the Trustee (as
defined under "Description of the Notes"), copies of such annual reports,
quarterly reports and other documents and, if filing such documents by the
Company with the Commission is not permitted under the Exchange Act, promptly
upon written request supply copies of such documents to any prospective
purchaser of the Notes and to securities analysts and broker-dealers upon their
request.
3
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PRODUCT OVERVIEW
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TWELVE MONTHS
NORTH TWELVE MONTHS ENDED MAY 31,
AMERICAN ENDED 1996
MARKET MAY 31, 1996 SALES
PRODUCT POSITION(1) REVENUES VOLUME(2) COMMENTS
- ------------------------------------- ---------- ------------- ------------- ---------------------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BUTADIENE 1 $ 112.6 623 Only significant North American
producer whose core business is
the production of butadiene. Only
domestic producer with
"on-purpose" capability.
MTBE 2 $ 187.4 14,335 MTBE, produced by reacting
Bbls./day(3) methanol and isobutylene, is the
preferred oxygenate and a major
component of reformulated
gasoline in the U.S.
N-BUTYLENES $ 48.2
Butene-1 1 229 The Company has the ability to
produce butene-1 from two
different production processes.
Butene-2(4) 1 55 The Company either recycles or
upgrades by-product streams into
butene-2, which is sold at higher
margins.
SPECIALTY ISOBUTYLENES $ 74.5
Isobutylene
Concentrate 1 256 Sole U.S. producer.
High Purity
Isobutylene(5) 1 74 Of three U.S. producers, the
Company is the largest merchant
supplier to the chemical market.
Diisobutylene 1 38 Sole U.S. producer.
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(1) The Company's (as defined) North American market share position, in terms of
annual rated production capacity. Rated capacities reflect production levels
achievable if plant operations are dedicated to maximizing output of that
particular product, which exceeds actual capacities available under typical
multi-product configurations.
(2) In millions of pounds per year, unless expressed in barrels per day.
Relevant conversion ratios for the Company's products are as follows:
POUNDS PER GALLON POUNDS PER BARREL
----------------- -----------------
MTBE 6.22 261.11
Butene-1, high purity isobutylene,
isobutylene concentrate 5.01 210.21
Butene-2 5.10 213.99
Diisobutylene 6.00 252.00
(3) Refers to sales of MTBE to third parties and excludes MTBE production
volumes used to produce high purity isobutylene.
(4) High purity butene-2 sold by the Company for use in chemical applications.
(5) High purity isobutylene sold by the Company for use in chemical
applications.
4
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND HISTORICAL AND PRO FORMA
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. FOR THE PERIODS PRIOR TO JULY 1, 1996, THE FINANCIAL STATEMENTS AND
OTHER INFORMATION SET FORTH HEREIN COMBINE THE HISTORICAL RESULTS OF TEXAS
OLEFINS COMPANY, A TEXAS CORPORATION ("TOC"), ITS SUBSIDIARIES AND CLARKSTON
CORPORATION ("CLARKSTON"). UNLESS THE CONTEXT OTHERWISE REQUIRES, AS USED
HEREIN THE TERM "COMPANY" REFERS TO TOC AND ITS SUBSIDIARIES PRIOR TO THE
CONSUMMATION OF THE TRANSACTIONS (AS DEFINED), AND TO TPC AND ITS SUBSIDIARIES
FOLLOWING THE CONSUMMATION OF THE TRANSACTIONS. ALL REFERENCES TO FISCAL YEARS
IN THIS PROSPECTUS UP TO AND INCLUDING FISCAL 1995 REFER TO THE FISCAL YEARS
ENDED MAY 31 IN THE CALENDAR YEARS INDICATED. THE COMPANY HAS CHANGED ITS FISCAL
YEAR END TO JUNE 30 AND INFORMATION FOR FISCAL YEARS ENDED SUBSEQUENT TO MAY 31,
1995 IS SO PRESENTED. ALL REFERENCES IN THIS PROSPECTUS TO THE COMPANY'S
CAPACITY TO PRODUCE CERTAIN PRODUCTS REFLECT PRODUCTION LEVELS ACHIEVABLE IF
PLANT OPERATIONS ARE DEDICATED TO MAXIMIZING OUTPUT OF THAT PARTICULAR PRODUCT,
WHICH EXCEEDS ACTUAL CAPACITY AVAILABLE UNDER TYPICAL MULTI-PRODUCT PRODUCTION
CONFIGURATIONS. UNLESS OTHERWISE INDICATED, INDUSTRY DATA CONTAINED HEREIN,
OTHER THAN WITH RESPECT TO THE COMPANY, IS DERIVED FROM PUBLICLY AVAILABLE
INDUSTRY TRADE JOURNALS AND OTHER PUBLICLY AVAILABLE INDUSTRY SOURCES, WHICH THE
COMPANY HAS NOT INDEPENDENTLY VERIFIED BUT WHICH THE COMPANY BELIEVES TO BE
RELIABLE.
THE COMPANY
The Company is the largest producer of butadiene and butene-1, and the
second largest producer of methyl TERTIARY-butyl ether ("MTBE"), in North
America, in terms of production capacity. In addition, the Company is the sole
producer of diisobutylene and isobutylene concentrate in the United States and
the largest domestic merchant supplier of high purity isobutylene to the
chemical market. The Company's products include: (i) butadiene, primarily used
to produce synthetic rubber; (ii) MTBE, used as an oxygenate and octane enhancer
in gasoline; (iii) n-butylenes (butene-1 and butene-2), used in the manufacture
of plastic resins, fuel additives and synthetic alcohols; and (iv) specialty
isobutylenes, primarily used in the production of specialty rubbers, lubricant
additives, detergents and coatings. For the six months ended December 31, 1996
and the twelve months ended May 31, 1996, butadiene represented 25% and 25% of
the Company's total revenues, respectively, MTBE represented 52% and 41%,
respectively, n-butylenes 9% and 11%, respectively, specialty isobutylenes 11%
and 16%, respectively, and other revenues the remaining 3% and 7%, respectively.
On a pro forma basis after giving effect to the Transactions, the Company's
revenues for the six months ended December 31, 1996, the twelve months ended May
31, 1996 and the one month ended June 30, 1996 would have been $246.7 million,
$454.2 million and $41.2 million, respectively, and EBITDA (as defined) for the
six months ended December 31, 1996, the twelve months ended May 31, 1996 and the
one month ended June 30, 1996 would have been $26.0 million, $74.2 million and
$4.3 million, respectively.
The Company seeks to reduce its exposure to the cyclical nature of the
petrochemical industry through long-term, fixed profit contracts and to increase
its profitability by maximizing its production flexibility and increasing sales
of high margin n-butylenes and specialty isobutylenes. For the twelve months
ended May 31, 1996 and the one month ended June 30, 1996, approximately 43% and
45% of the Company's total revenues were derived from products sold on a fixed
profit basis or whose selling prices were linked, directly or indirectly, to raw
material costs. The Company believes that the combination of its fixed profit
contracts, competitive cost position and specialty product sales provides
stability to its cash flows and helps to offset the effects of cyclical
downturns.
Butadiene is the most widely used feedstock for synthetic rubber products
and is also used in the manufacture of engineered plastics, nylon fibers and
other products. The Company sells butadiene to a stable customer base ,
including The Goodyear Tire & Rubber Company, The Dow Chemical Company, American
Synthetic Rubber Inc. and Bridgestone/Firestone, Inc. As the largest producer of
butadiene in
5
<PAGE>
North America, the Company believes that many of its customers place significant
value on its ability to provide a reliable domestic supply of butadiene and as a
result have entered into long-term sales contracts with the Company, which, in
aggregate, accounted for 92% and 88% of its butadiene sales in the twelve months
ended May 31, 1996 and the one month ended June 30, 1996, respectively.
The Company extracts butadiene from crude butadiene, which is generated
from the production of ethylene and is comprised of a number of valuable
components, including butadiene, isobutylene, n-butylenes, isobutane and
n-butane. Many U.S. ethylene producers rely on third parties such as the Company
to process their crude butadiene streams, as the crude butadiene volumes they
produce are not sufficient to justify the construction of on-site butadiene
recovery facilities. The Company estimates that producers accounting for 65% of
U.S. and Canadian ethylene production capacity do not internally process crude
butadiene by-product streams. The Company is the largest non-integrated crude
butadiene processor in North America and as a result of its strategic importance
to ethylene producers, the Company has been able to secure long-term supply
contracts covering the majority of its crude butadiene requirements. Such
contracts provide for a fixed profit based on the Company's selling prices for
butadiene, and account for the relatively stable profitability of the Company's
butadiene operations. For the twelve months ended May 31, 1996 and the one month
ended June 30, 1996, fixed profit supply contracts for crude butadiene accounted
for approximately 92% and 72%, respectively, of the Company's butadiene sales
volume.
MTBE is a blending stock which reduces carbon monoxide and volatile organic
compound emissions and enhances the octane content of gasoline, and has been one
of the fastest growing petrochemicals, in terms of volume, over the past fifteen
years. Today, MTBE is the preferred oxygenate for, and a major component of,
reformulated gasoline ("RFG") and is used in over 25% of the U.S. gasoline
pool. MTBE is produced by reacting methanol and isobutylene, and the Company's
ability to produce isobutylene by three alternative methods enables it to
produce MTBE by the most economical processes available to the Company. In
addition, the Company has the ability to add incremental capacity to capitalize
on expected future growth, at a significantly lower cost than the cost of adding
new capacity. The Company believes that this incremental capacity gives it a
competitive advantage over other producers who would have to incur greater cost
to increase capacity. The Company sells MTBE to oil refiners and gasoline
producers, including Mobil Oil Corporation, Lyondell Petrochemical Company and
CITGO Petroleum Corporation on both a contract and spot basis at prices linked
to prevailing market prices.
The Company is the leading producer of high margin n-butylenes and
specialty isobutylenes in North America. In recent years, the Company has
increased its sales of these products by increasing its market share in
polyolefin applications and the development of new end-use applications. The
Company's principal customers for n-butylenes include Union Carbide Corporation,
The Dow Chemical Company, NOVA Chemicals Ltd., Shell Chemical Company and
Lyondell Petrochemical Company. The Company's principal customers for specialty
isobutylenes include Bayer Inc., Mobil Chemical Company Inc., Rhone-Poulenc
Inc., The Lubrizol Corporation and Schenectady International, Inc. Historically,
the profitability of the Company's n-butylenes sales has been relatively stable
as the majority of the sales of these products are made under contracts which
link their selling prices to the prices of products (principally gasoline and
butanes) whose prices fluctuate closely with those of the raw materials used to
manufacture n-butylenes and specialty isobutylenes. In the six months ended
December 31, 1996, the twelve months ended May 31, 1996 and the one month ended
June 30, 1996, sales of n-butylenes and specialty isobutylenes represented 20%,
27% and 21%, respectively, of the Company's revenues as compared to 19% in
fiscal 1993.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. One of the Company's intermediate feedstocks, isobutylene, is used in
the manufacture of MTBE and specialty isobutylenes. As part of its production
strategy, the Company uses its manufactured isobutylene first to maximize the
production of high margin specialty isobutylenes, second, to satisfy its
contractual MTBE requirements, and finally to produce MTBE for sale in the spot
market. In the twelve months ended May 31, 1996 and the one month ended June 30,
1996, approximately 18% and 11%, respectively, of the Company's
6
<PAGE>
isobutylene was used in the production of specialty isobutylenes with the
remainder being used for MTBE production. In addition, the Company maintains the
production flexibility to upgrade n-butylenes contained in crude butadiene
streams to either isobutylene or butene-1 using its patented skeletal
isomerization process ("SKIP"). This flexibility allows the Company to meet its
customers' needs through the most economical process, to produce additional
products and to capitalize on favorable market conditions.
The Company's manufacturing facility, located approximately one mile from
the Houston Ship Channel, provides convenient access to other Gulf Coast
petrochemical producers and is connected to several of its customers and raw
materials suppliers through an extensive pipeline network. In addition, the
Company's facility is serviced by rail, tank truck and barge.
The Company's principal executive offices are located at Three Riverway,
Suite 1500, Houston, Texas 77056. The Company's telephone number is (713)
627-7474.
THE TRANSACTIONS
Texas Petrochemical Holdings, Inc., a Delaware corporation ("Holdings"),
TPC Holding Corp., a Delaware corporation ("TPC Holding"), and TPC Finance
Corp., a Texas corporation ("Finance Co."), were organized in May 1996 to
effect the acquisition (the "Acquisition") of TOC and its subsidiaries,
including TPC, and to assume a raw materials supply contract from Clarkston. On
July 1, 1996 (the "Closing Date"), Holdings issued and sold $43.8 million of
its common stock ("Common Stock"), issued $6.2 million of its Common Stock for
the shares contributed by the Rollover Investors (as defined), sold a sufficient
amount of 13.5% Senior Discount Notes Due 2007 (the "Discount Notes") and
Common Stock, as an investment unit to raise $30 million, and contributed the
proceeds thereof to TPC Holding. Finance Co. borrowed approximately $140.0
million under the Bank Credit Agreement and received approximately $169 million
in net proceeds from the sale at such time of $175 million aggregate principal
amount of 11 1/8% Senior Subordinated Notes due 2006 (the "Original Notes")
and loaned the combined net proceeds to TPC Holding. TPC Holding used the
capital contributions received from Holdings, cash on hand and the proceeds of
the loan from Finance Co. to effect the Acquisition pursuant to a stock purchase
agreement dated as of May 14, 1996 (the "Stock Purchase Agreement"), to fund
the ESOP (as defined) and pay fees and expenses in connection with the
Transactions. TOC and Finance Co. then merged into TPC.
As a result of the foregoing, TPC is the primary obligor on the Original
Notes and the loans made pursuant to the Bank Credit Agreement, is a
wholly-owned subsidiary of TPC Holding (which in turn is wholly-owned by
Holdings) and operates the principal business of the Company. The form and terms
of the Original Series B Notes are the same as the form and terms of the
Original Notes except that (i) the Original Notes have been registered under the
Securities Act and, therefore, do not bear legends restricting their transfer
pursuant to the Securities Act, and (ii) holders of the Original Notes will not
be entitled to the rights of holders of the Original Series B Notes under the
Registration Rights Agreement (as defined under "Description of the
Notes -- Registered Exchange Offer; Registration Rights"). The sale of the
Original Notes, the execution of and initial borrowings under the Bank Credit
Agreement, the placement of the Common Stock and the sale of the Discount Notes
are hereinafter referred to as the "Financings." The Financings, the
Acquisition, the establishment of the ESOP, the payment of certain fees and
expenses, and other related transactions are collectively referred to herein as
"The Transactions." See "The Transactions."
7
<PAGE>
The following charts depict (i) the organizational structure of Holdings
and its subsidiaries (the acquiring companies), and TOC and its subsidiaries
(the companies that were acquired) prior to the Transactions and (ii) the
organizational structure upon consummation of the Transactions.
PRIOR TO THE TRANSACTIONS
Acquiring Companies Companies to be Acquired
Texas Petrochemical Texas Olefins Company Other
Holdings, Inc. ("TOC") Stockholders
("Holdings")
Issuer of Common Stock
and Discount Notes 81% 19%
100% Texas Petrochemicals
Corporation
TPC Holding Corp. ("TPC")
("TPC Holding")
100%
TPC Finance Corp.
("Finance Co.")
Initial borrower under the
Bank Credit Agreement
and issuer of the Notes
Following the Transactions
Texas Petrochemical
Holdings, Inc. Discount Notes
Common Stock ("Holdings") and Common Stock
$50 million Issuer of Common Stock $30 million
and Discount Notes
100%
TPC Holding Corp.
("TPC Holding")
100%
Bank Credit
Agreement Texas Petrochemicals
$140.6 million Corporation
("TPC")
Successor obligor on loans
under the Bank Credit
Agreement
Notes and the Notes
$175 million
8
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<CAPTION>
<S> <C>
Registration Rights Agreement........... In order to capitalize on advantageous conditions in the bond market and
the market for the Original Notes, the Company sold $50 million in
aggregate principal amount of Original Series B Notes to qualified
institutional buyers as defined in Rule 144A under the Securities Act
through Chase Securities Inc., as initial purchaser (the "Initial Pur-
chaser"). The Company and the Initial Purchaser entered into a
Registration Rights Agreement dated as of March 13, 1997 (the
"Registration Rights Agreement"), which grants the holders of the
Original Series B Notes certain exchange and registration rights. The
Exchange Offer made hereby is intended to satisfy such exchange rights.
The Exchange Offer...................... $1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of Original Series B Notes. As of the date hereof, $50
million aggregate principal amount of the Original Series B Notes are
outstanding. The Company will issue the Exchange Notes to holders on the
earliest practicable date following the Expiration Date.
Resales of the Exchange Notes........... Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that,
except as described below, the Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred
by a holder thereof (other than any such holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and pro-
spectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's
business and that such holder has no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes.
Each broker-dealer that receives Exchange Notes pursuant to the Exchange
Offer in exchange for Original Series B Notes that such broker-dealer
acquired for its own account as a result of market-making activities or
other trading activities (other than Original Series B Notes acquired
directly from the Company or its affiliates) must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. If the Company
receives certain notices in the Letter of Transmittal, this Prospectus, as
it may be amended or supplemented from time to time, may be used for the
period described below by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Original Series B Notes where such
Original Series B Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities and not acquired
directly from the Company. The Company has agreed that, if it receives
certain notices in the Letter of Transmittal, for a period of 180 days
after the date on which the Registration Statement becomes effective, it
will make this Prospectus available to any such broker-dealer for use in
connection with any such resale. The Letter of Transmittal requires
broker-dealers tendering Original Series B Notes in the Exchange Offer to
indicate whether such broker-dealer acquired such Original Series B Notes
for its own account as a result of market-making activities or other
trading activities (other than Original Series B Notes acquired directly
from the Company or any of its affiliates), and if no broker-dealer
indicates that such Original Series B Notes were so acquired, the Company
has no obligation under the Registration Rights Agreement to maintain the
effectiveness of the
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Registration Statement past the consummation of the Exchange Offer or
to allow the use of this Prospectus for such resales. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer"; " -- Registration
Rights" and " -- Resale of the Exchange Notes; Plan of Distribution."
Expiration Date......................... The Exchange Offer expires at 5:00 p.m., New York City time, on
................ ...., 1997, unless such Exchange Offer is extended by the
Company in its sole discretion, in which case the term "Expiration Date"
means the latest date and time to which such Exchange Offer is extended.
Conditions to the Exchange Offer........ The Exchange Offer is subject to certain conditions, which may be waived by
the Company. See "The Exchange Offer -- Conditions to the Exchange
Offer."
Procedures for Tendering the Original
Series B Notes......................... Each holder of Original Series B Notes wishing to accept the Exchange Offer
must complete, sign and date the accompanying Letter of Transmittal in
accordance with the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal together with the Original
Series B Notes and any other required documentation to the Exchange Agent
(as defined below under "Exchange Agent") at the address set forth
herein. By executing the Letter of Transmittal, a holder will make certain
representations to the Company. See "The Exchange Offer -- Registration
Rights" and " -- Procedures for Tendering Original Series B Notes."
Special Procedures for Beneficial
Owners................................. Any beneficial owner whose Original Series B Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on such beneficial owner's
behalf. See "The Exchange Offer -- Procedures for Tendering Original
Series B Notes."
Guaranteed Delivery Procedures.......... Holders of Original Series B Notes who wish to tender their Original Series
B Notes when those securities are not immediately available or who cannot
deliver their Original Series B Notes, the Letter of Transmittal or any
other documents required by such Letter of Transmittal to the Exchange
Agent prior to the Expiration Date, must tender their Original Series B
Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer -- Procedures for Tendering Original Series B
Notes -- GUARANTEED DELIVERY."
Withdrawal Rights....................... Tenders of Original Series B Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
Acceptance of Original Series B Notes
and Delivery of Exchange Notes......... The Company will accept for exchange any and all Original Series B Notes
that are properly tendered in the Exchange Offer, and not withdrawn, prior
to the Expiration Date. The Exchange Notes issued pursuant to the Exchange
Offer will be issued on the earliest practicable date following the
acceptance for exchange of Original Series B Notes by the Company. See
"The Exchange Offer -- Terms of the Exchange Offer."
Exchange Agent.......................... Fleet National Bank is serving as exchange agent (the "Exchange Agent")
in connection with the Exchange Offer.
Federal Income Tax Considerations....... The Company has received an opinion of counsel advising that the exchange
of Original Series B Notes for Exchange Notes pursuant to the Exchange
Offer will not be treated as a taxable exchange for federal income tax
purposes. See "Certain Federal Income Tax Considerations."
</TABLE>
10
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Maturity Date........................ July 1, 2006.
Interest Payment Dates............... January 1 and July 1 of each year, commencing July 1, 1997.
Optional Redemption.................. Except as described below, the Company may not redeem the Notes prior to
July 1, 2001. On or after such date, the Company may redeem the Notes,
in whole or in part, at any time at the redemption prices set forth
herein plus accrued interest to the date of redemption. In addition, at
any time and from time to time on or prior to July 1, 1999, the Company
may redeem in the aggregate up to 35% of the original principal amount
of the Notes with the net proceeds received after the issuance of the
Notes of one or more Public Equity Offerings following which there is a
Public Market at a redemption price equal to 110% of the principal
amount to be redeemed, together with accrued and unpaid interest, if
any, to the date of redemption, provided that at least 65% of the
original aggregate principal amount of the Notes remains outstanding
after each such redemption. See "Description of the Notes -- Optional
Redemption."
Change of Control.................... Upon the occurrence of a Change of Control, each holder will have the
right to require the Company to make an offer to repurchase the Notes at
a price equal to 101% of the principal amount thereof plus accrued and
unpaid interest to the date of repurchase. See "Description of the
Notes -- Change of Control."
Ranking.............................. The Notes are unsecured and subordinated to all existing and future
Senior Indebtedness of the Company. The Notes rank PARI PASSU with all
Senior Subordinated Indebtedness of the Company and will rank senior to
all other subordinated indebtedness of the Company. As of December 31,
1996, after giving effect to the issuance of the Notes and the
application of the proceeds therefrom, the Company would have had
outstanding approximately $85.5 million (exclusive of unused
commitments) in aggregate amount of Senior Indebtedness and $225.0
million of Senior Subordinated Indebtedness. See "Description of
Notes -- Ranking."
Restrictive Covenants................ The indenture under which the Notes will be issued (the "Indenture")
will contain certain covenants that, among other things, limit the
ability of the Company and/or its Restricted Subsidiaries (as defined)
to (i) incur additional indebtedness, (ii) pay dividends or make certain
other restricted payments, (iii) make investments, (iv) enter into
transactions with affiliates, (v) make certain asset dispositions, and
(vi) merge or consolidate with, or transfer substantially all of its
assets to, another person. The Indenture will also limit the ability of
the Company's Restricted Subsidiaries to issue Capital Stock (as
defined) and to create restrictions on the ability of such Restricted
Subsidiaries to pay dividends or make any other distributions. In
addition, the Company will be obligated, under certain circumstances, to
offer to repurchase Notes at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase, with the net cash proceeds of certain sales or
other dispositions of assets. However, all of these limitations and
prohibitions will be subject to a number of important qualifications.
See "Description of the Notes -- Certain Covenants."
</TABLE>
11
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the
information set forth under the caption "Risk Factors" and all other
information set forth in this Prospectus before making any investment in the
Notes.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER INFORMATION
The summary historical financial information set forth below has been
derived from the combined financial statements of TOC, its subsidiaries and
Clarkston for the period prior to July 1, 1996 and from the consolidated
financial statements of the Company since July 1, 1996, and should be read in
conjunction with, and is qualified in its entirety by reference to, financial
statements which appear elsewhere in this Prospectus and their accompanying
notes. Such combined financial information is combined to reflect the assumption
by the Company of a raw material supply contract. The combined financial
information set forth below for each of the years in the three-year period ended
May 31, 1995, the twelve month period ended May 31, 1996 and the one-month
period ended June 30, 1996 has been derived from the financial statements of
TOC, its subsidiaries and Clarkston, which were audited by Coopers & Lybrand
L.L.P., independent auditors for such entities. The financial information set
forth below for the year ended May 31, 1992 and for the six months ended
December 31, 1995 and 1996 has been derived from unaudited financial statements,
which, in the opinion of management, have been prepared on a basis consistent
with the audited financial statements of such entities and contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results for these periods. The unaudited combined
financial information for the year ended May 31, 1992 has been prepared from
audited financial statements of TOC and its subsidiaries and unaudited financial
statements of Clarkston. The results of the one-month and interim periods are
not necessarily indicative of the results of the entire year or any other
period. The pro forma combined financial information of TOC, its subsidiaries
and Clarkston for the periods prior to July 1, 1996 and the pro forma
consolidated financial information of the Company since July 1, 1996 presented
below have been derived from the unaudited pro forma financial statements
included elsewhere herein. The pro forma combined financial information for the
periods prior to July 1, 1996 give effect to the Transactions (including the
Acquisition, the Financings, the sale of certain assets and the new employee
compensation arrangements) and the offering of the Notes and the application of
the proceeds therefrom as if they had occurred on June 1, 1995. The pro forma
balance sheet as of December 31, 1996 and the pro forma statement of operations
data for the six months ended December 31, 1996 are as adjusted to give effect
to the offering of the Notes and the application of the proceeds therefrom as if
it had occurred as of December 31, 1996 for balance sheet information and July
1, 1996 for statement of operations information.
The summary pro forma financial information does not necessarily represent
what such entities' financial position and results of operations would have been
if the Transactions and the offering of the Notes had actually been completed as
of the dates indicated and are not intended to project such entities' financial
position or results of operations for any future period or as of any date. The
information presented below should be read in conjunction with the consolidated
financial statements of the Company and the related notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Pro Forma Financial Information and the related notes
thereto included elsewhere herein.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
PRO PRO
FORMA FORMA
TWELVE ONE TWELVE ONE SIX
MONTHS MONTH MONTHS MONTH MONTHS
ENDED ENDED ENDED ENDED ENDED
YEAR ENDED MAY 31, MAY 31, JUNE 30, MAY 31, JUNE 30, DECEMBER 31,
------------------------------------------ ------- -------- ------------ ----------- ------------
1992 1993 1994 1995 1996 1996 1996 1996 1995
--------- --------- --------- --------- ------- -------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues............ $ 416.1 $ 410.7 $ 352.4 $ 474.7 $455.6 $ 41.4 $454.2 $41.2 $226.5
Cost of goods
sold(1)............. 318.3 340.8 268.8 396.3 379.5 36.0 367.3 35.4 187.6
Depreciation and
amortization...... 12.0 12.6 13.6 14.3 15.0 1.3 36.3 3.1 7.4
--------- --------- --------- --------- ------- -------- ------------ ----------- ------------
Gross profit........ 85.8 57.3 70.0 64.1 61.1 4.1 50.6 2.7 31.5
Selling, general and
administrative
expenses(1)....... 15.4 14.4 16.7 16.6 19.1 1.7 12.7 1.5 5.8
--------- --------- --------- --------- ------- -------- ------------ ----------- ------------
Income from
operations........ 70.4 42.9 53.3 47.5 42.0 2.4 37.9 1.2 25.7
Interest income
(expense), net.... (0.6) (0.6) (0.2) 0.7 (1.6 ) (0.1) (32.7) (2.7) (1.6)
Other income
(expense)(2)...... (6.3) (1.2) (0.8) 1.1 (15.9 ) (0.3) (15.6) (0.2) 0.2
--------- --------- --------- --------- ------- -------- ------------ ----------- ------------
Income (loss) before
income taxes and
minority
interest.......... 63.5 41.1 52.3 49.3 24.5 2.0 (10.4) (1.7) 24.3
Provision (benefit)
for income taxes.. 24.3 13.0 18.4 16.9 7.9 0.8 (1.7) (0.4) 8.1
Minority interest in
net loss of
consolidated
subsidiary........ -- -- 0.0 0.1 0.1 0.0 -- -- 0.1
--------- --------- --------- --------- ------- -------- ------------ ----------- ------------
Net income (loss)... 39.2 28.1 33.9 32.5 16.7 1.2 (8.7) (1.3) 16.3
OPERATING DATA:
Revenues by product:
Butadiene(3).... $ 64.9 $ 81.3 $ 68.7 $ 106.2 $112.6 $ 10.2 $112.6 $10.2 $ 60.4
MTBE............ 252.0 211.0 175.2 199.1 187.4 21.0 187.4 21.0 91.7
n-Butylenes..... 29.2 21.7 28.1 42.7 48.2 3.2 48.2 3.2 25.3
Specialty
Isobutylenes.... 38.2 54.8 59.9 75.5 74.5 5.5 74.5 5.5 34.0
Other(4)........ 31.8 41.9 20.5 51.2 32.9 1.5 31.5 1.3 15.1
Sales volumes (in
millions of
pounds):
Butadiene....... 559.1 556.2 484.4 580.8 622.6 64.6 622.6 64.6 295.3
MTBE(5)......... 254.4 225.1 194.8 211.1 219.8 26.6 219.8 26.6 111.2
n-Butylenes..... 158.7 114.7 150.8 245.9 284.6 17.1 284.6 17.1 153.2
Specialty
Isobutylenes.... 240.4 309.0 312.2 398.0 368.2 23.0 368.2 23.0 184.6
</TABLE>
SIX PRO FORMA
MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1996 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
STATEMENT OF
OPERATIONS DATA:
Revenues............ $246.7 $246.7
Cost of goods
sold(1)............. 216.5 216.5
Depreciation and
amortization...... 15.9 15.9
------------ ------------
Gross profit........ 14.3 14.3
Selling, general and
administrative
expenses(1)....... 4.2 4.2
------------ ------------
Income from
operations........ 10.1 10.1
Interest income
(expense), net.... (17.4) (17.7)
Other income
(expense)(2)...... 1.5 1.5
------------ ------------
Income (loss) before
income taxes and
minority
interest.......... (5.8) (6.1)
Provision (benefit)
for income taxes.. (0.9) (1.0)
Minority interest in
net loss of
consolidated
subsidiary........ -- --
------------ ------------
Net income (loss)... (4.9) (5.1)
OPERATING DATA:
Revenues by product:
Butadiene(3).... $ 62.6 $ 62.6
MTBE............ 128.1 128.1
n-Butylenes..... 21.5 21.5
Specialty
Isobutylenes.... 25.9 25.9
Other(4)........ 8.6 8.6
Sales volumes (in
millions of
pounds):
Butadiene....... 356.4 356.4
MTBE(5)......... 150.3 150.3
n-Butylenes..... 115.5 115.5
Specialty
Isobutylenes.... 100.8 100.8
<TABLE>
<CAPTION>
AS ADJUSTED
MAY 31, JUNE 30, DECEMBER 31, DECEMBER 31,
------------------------------------------ -------- ------------ ------------
1992 1993 1994 1995 1996 1996 1996
--------- --------- --------- --------- -------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital...................... $ 33.9 $ 38.6 $ 50.6 $ 67.3 $ 25.0 $ (6.4) $ (1.7)
Property, plant and equipment, net... 101.8 101.6 95.9 90.1 81.8 251.6 251.6
Total assets......................... 203.2 194.1 214.6 230.7 167.9 572.5 570.9
Long-term debt (including current
portion)........................... 14.4 10.9 11.0 -- 13.0 313.0 313.5
Total stockholders' equity........... 123.7 128.2 140.4 163.3 92.5 61.9 60.6
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
13
<PAGE>
<TABLE>
<CAPTION>
PRO PRO
FORMA FORMA
TWELVE ONE TWELVE ONE
MONTHS MONTH MONTHS MONTH
ENDED ENDED ENDED ENDED
YEAR ENDED MAY 31, MAY 31, JUNE 30, MAY 31, JUNE 30,
------------------------------------------ ------- -------- ------- --------
1992 1993 1994 1995 1996 1996 1996 1996
--------- --------- --------- --------- ------- -------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(6)............................ $ 82.4 $ 55.5 $ 66.9 $ 61.8 $57.0 $3.7 $74.2 $ 4.3
Employee profit sharing and
bonuses(1)......................... 22.5 18.6 23.6 20.9 23.5 1.0 8.3 .5
Capital expenditures................. 7.1 12.0 12.5 8.7 5.5 2.0 5.5 2.0
Net cash provided by (used in)
operating activities............... 53.9 44.5 30.2 50.3 44.5 13.9 -- --
Net cash provided by (used in)
investing activities............... (24.5) (7.2) (5.3) (25.9) 8.2 (1.3) -- --
Net cash provided by (used in)
financing activities............... (31.3) (29.9) (17.6) (23.3) (69.0) (9.4) -- --
Cash dividends....................... 8.7 23.7 21.4 6.2 16.5 -- -- --
Pro forma ratio of EBITDA to interest
expense, net....................... 2.3x 1.7x
Pro forma ratio of long-term debt to
EBITDA(7).......................... 4.2x 6.1x
Pro forma ratio of earnings to fixed
charges(8)......................... -- --
</TABLE>
PRO
FORMA
SIX SIX SIX
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
1995 1996 1996
------------ ------------ ------------
OTHER DATA:
EBITDA(6)............................ $ 33.1 $ 26.0 $ 26.0
Employee profit sharing and
bonuses(1)......................... 10.2 1.4 1.4
Capital expenditures................. 2.1 5.2 5.2
Net cash provided by (used in)
operating activities............... 29.7 (0.1) --
Net cash provided by (used in)
investing activities............... (8.4) (358.4) --
Net cash provided by (used in)
financing activities............... (42.3) 353.9 --
Cash dividends.......................
Pro forma ratio of EBITDA to interest
expense, net....................... 1.5x
Pro forma ratio of long-term debt to
EBITDA(7).......................... 6.0x
Pro forma ratio of earnings to fixed
charges(8)......................... --
- ------------
(1) Historically, the Company has allocated employee profit sharing and bonuses
to cost of goods sold and selling, general and administrative expenses. For
the period subsequent to July 1, 1996, all profit sharing and bonuses have
been allocated to selling, general and administrative expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations." Employee profit sharing and bonuses
on a pro forma basis are restated to reflect amounts that would have been
paid under new plans to be established as part of the Acquisition.
(2) Includes dividend income, charitable contributions, gain (loss) on disposal
of assets and investment securities, net, and other, net. For the twelve
months ended May 31, 1996, other expense includes an impairment of
investment in land of $12.6 million.
(3) Approximately 95% of the Company's butadiene sales are under fixed profit
contracts with suppliers of crude butadiene.
(4) Includes Clarkston's trading revenues from third parties (for the periods
prior to July 1, 1996), utility revenues, revenues realized from the
Company's terminalling facilities and sales of chemical by-products.
(5) Volumes in millions of gallons.
(6) EBITDA represents income from operations before taking into consideration
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to incur and service
debt. EBITDA should not be construed by an investor as an alternative to
income from operations (as determined in accordance with generally accepted
accounting principles), as an indicator of the operating performance of the
Company or as an alternative to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of liquidity.
(7) For the purposes of calculating the pro forma ratio of long-term debt to
EBITDA for the one month ended June 30, 1996 and the six months ended
December 31, 1996, EBITDA has been calculated on an annualized basis.
(8) For purposes of this ratio, earnings consist of income before income taxes
and minority interest. Fixed charges consist of interest expense and the
portion of rents representative of an interest factor. For the pro forma
twelve months ended May 31, 1996, the one month ended June 30, 1996 and the
six months ended December 31, 1996, earnings were insufficient to cover
fixed charges in the amount of $(10.4) million, $(1.7) million and $(6.1)
million, respectively. For the twelve months ended May 31, 1996, income
before taxes and minority interest includes a $12.6 million non-cash
provision for the impairment of certain non-strategic properties which TPC
intends to sell.
14
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PURCHASERS OF THE
NOTES OFFERED HEREBY SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW.
SUBSTANTIAL LEVERAGE
In connection with the Transactions, the Company incurred a significant
amount of indebtedness and has significant debt service requirements. As of
December 31, 1996, on a pro forma basis after giving effect to the issuance of
the Notes and the application of the proceeds therefrom as if they had occurred
on such date, the Company would have had outstanding indebtedness of $310.5
million, including the Notes, and the Company's stockholders' equity would have
been $60.6 million. See "Capitalization" and "Pro Forma Financial
Information." In addition, the Company may incur additional indebtedness in the
future, subject to limitations imposed by its debt instruments including,
without limitation, both the indenture under which the $175 million aggregate
principal amount of Original Notes were issued (the "Original Indenture") and
the Indenture (collectively, the "Indentures") and the Bank Credit Agreement.
The Company also has additional borrowing capacity on a revolving credit basis
under the Bank Credit Agreement.
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, debt service requirements, general corporate
purposes or other purposes may be impaired in the future; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available to the Company for other purposes, including its operations and
future business opportunities; (iii) certain of the Company's borrowings,
including certain borrowings under the Bank Credit Agreement, are at variable
rates of interest, which will expose the Company to the risk of increased
interest rates; (iv) the indebtedness outstanding under the Bank Credit
Agreement is secured by substantially all the assets of the Company and will
mature prior to the maturity of the Notes; and (v) the Company's flexibility to
adjust to changing market conditions and ability to withstand competitive
pressures could be limited by its leveraged position and the covenants contained
in its debt instruments, thus putting the Company at a competitive disadvantage,
and the Company may be more vulnerable to a downturn in general economic
conditions or in its business or be unable to carry out capital spending that is
important to its growth and productivity improvement programs. See "Description
of the Bank Credit Agreement" and "Description of the Notes."
The Company began making scheduled principal payments under the Bank Credit
Agreement commencing on September 30, 1996. See "Description of the Bank Credit
Agreement." The Company's ability to make scheduled payments or to refinance
its obligations with respect to its indebtedness, including the Notes, will
depend on its financial and operating performance, which is subject to
prevailing economic and competitive conditions and to certain financial,
business and other factors beyond its control, including interest rates,
unscheduled plant shutdowns, increased operating costs, raw material and product
prices, and regulatory developments. There can be no assurance that the Company
will maintain a level of cash flow from operations sufficient to permit it to
pay the principal, premium, if any, and interest on its indebtedness (including
the Notes).
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, or seek to obtain additional equity capital
or restructure or refinance its debt (including the Notes). There can be no
assurance that such alternative measures would be successful or would permit the
Company to meet its scheduled debt service obligations. In the absence of such
operating results and resources, the Company could face substantial liquidity
problems and might be required to dispose of material assets or operations to
meet its debt service and other obligations. The Bank Credit Agreement and the
Indentures will restrict the Company's ability to sell assets and use the
proceeds therefrom. See "Description of the Bank Credit Agreement" and
"Description of the Notes." There can be no assurance as to the ability of the
Company to consummate
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such sales or the proceeds which the Company could realize therefrom or that
such proceeds would be adequate to meet the obligations then due.
In the event that the Company is unable to generate sufficient cash flow
and the Company is otherwise unable to obtain funds necessary to meet required
payments of principal, premium, if any, and interest on its indebtedness, or if
the Company otherwise fails to comply with the various covenants in the
instruments governing such indebtedness (including covenants in the Indentures
and the Bank Credit Agreement), the Company could be in default under the terms
of the agreements governing such indebtedness, including the Indentures and the
Bank Credit Agreement. In the event of such default, the holders of such
indebtedness could elect to declare all of the funds borrowed thereunder to be
due and payable together with accrued and unpaid interest, the lenders under the
Bank Credit Agreement could elect to terminate their commitments thereunder and
the Company could be forced into bankruptcy or liquidation. Any default under
the agreements governing the indebtedness of the Company could have a
significant adverse effect on the Company's ability to pay principal, premium,
if any, and interest on the Notes and on the market value of the Notes. See
"Description of the Notes" and "Description of the Bank Credit Agreement."
RESTRICTIVE FINANCING COVENANTS
The Bank Credit Agreement contains a number of significant covenants that,
among other things, restricts the ability of the Company to dispose of assets or
merge, incur additional indebtedness, incur guarantee obligations, repay the
Notes or amend the Indentures, 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 or
engage in certain transactions with affiliates, and otherwise restrict corporate
activities. In addition, under the Bank Credit Agreement, the Company is
required to comply with specified financial ratios and tests, including a
limitation on capital expenditures, an EBITDA to fixed charges ratio, a minimum
net worth test, a total debt to EBITDA ratio, and a current ratio. The Company
received waivers of compliance with certain of these ratios as of December 31,
1996 and an amendment to the Bank Credit Agreement on March 28, 1997 to update
these financial ratios. See "Description of the Bank Credit Agreement." The
Indentures also contain a number of restrictive covenants. See "Description of
the Notes -- Certain Covenants."
The Company's ability to comply with the covenants and restrictions
contained in the Bank Credit Agreement and the Indentures may be affected by
events beyond its control, including prevailing economic, financial and industry
conditions. The breach of any such covenants or restrictions could result in a
default under the Bank Credit Agreement or the Indentures which would permit the
lenders under the Bank Credit Agreement or the holders of the Original Notes or
the Notes, as the case may be, to declare all amounts outstanding thereunder to
be due and payable, together with accrued and unpaid interest, and the
commitments of the lenders under the Bank Credit Agreement to make further
extensions of credit could be terminated. In addition, in the event of a default
under the Bank Credit Agreement, in certain circumstances the lenders under the
Bank Credit Agreement could elect to prevent the Company from making any
payments on the Notes. See "Description of the Notes -- Ranking." If the
Company were unable to repay its indebtedness to the lenders under the Bank
Credit Agreement, such lenders could proceed against the collateral securing
such indebtedness as described under "Description of the Bank Credit
Agreement." There can be no assurance that in the event of any such default the
Company will have adequate resources to repay in full principal, premium, if
any, and interest on the Notes.
SUBORDINATION OF THE NOTES; UNSECURED STATUS OF THE NOTES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes is subordinated in right of payment to
the prior payment in full of all existing and future Senior Indebtedness of the
Company, including all amounts owing under the Bank Credit Agreement. As of
December 31, 1996, on a pro forma basis after giving effect to the issuance of
the Notes and the application of the proceeds therefrom as if they had occurred
on such date, the aggregate principal amount of such Senior Indebtedness of the
Company would have been $85.5 million. Therefore, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Company, the
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assets of the Company will be available to pay obligations on the Notes only
after all Senior Indebtedness of the Company has been paid in full, and there
can be no assurance that there will be sufficient assets remaining to pay
amounts due on all or any of the Notes. In addition, the Company may not pay
principal of, premium, if any, or interest on the Notes, or purchase, redeem or
otherwise retire the Notes, if any principal, premium, if any, or interest on
any Designated Senior Indebtedness (as defined under "Description of the
Notes -- Certain Definitions") is not paid when due (whether at final maturity,
upon scheduled redemption or installment, acceleration or otherwise) unless such
default has been cured or waived or such indebtedness has been repaid in full.
In addition, under certain circumstances, if any nonpayment default exists with
respect to Designated Senior Indebtedness, the Company may not make any payments
on the Notes for a specified period of time, unless such default is cured or
waived or such Designated Senior Indebtedness has been repaid in full. See
"Description of the Notes -- Ranking."
The Indentures permit the Company to incur certain secured indebtedness,
including indebtedness under the Bank Credit Agreement, which is secured by a
lien on substantially all of the assets of Holdings, TPC Holding and the
Company, including pledges of all of the capital stock of the Company and TPC
Holding. The Notes are unsecured and therefore do not have the benefit of such
collateral. Accordingly, if an event of default occurs under the Bank Credit
Agreement, the lenders under the Bank Credit Agreement will have a prior right
to the assets of the Company, and may foreclose upon such collateral, to the
exclusion of the holders of the Notes. In either such event, such assets would
first be used to repay in full amounts outstanding under the Bank Credit
Agreement, resulting in all or a portion of the Company's assets being
unavailable to satisfy the claims of the holders of Notes and other unsecured
indebtedness.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined under "Description
of the Notes -- Certain Definitions"), the Company is required to offer to
purchase all of the outstanding Notes at a price equal to 101% of the principal
amount thereof at the date of purchase plus accrued and unpaid interest, if any,
to the date of purchase. In addition, a similar repurchase right would be
triggered under the Original Indenture for the Original Notes upon the
occurrence of the same events that constitute a Change of Control. The
occurrence of certain of the events which would constitute a Change of Control
constitute a default under the Bank Credit Agreement. In addition, the Bank
Credit Agreement prohibits the purchase of the Original Notes and the Notes by
the Company in the event of a Change of Control, unless and until such time as
the indebtedness under the Bank Credit Agreement is repaid in full. The
Company's failure to purchase the Notes in such instance would result in a
default under each of the Indentures and the Bank Credit Agreement. The
inability to repay the indebtedness under the Bank Credit Agreement, if
accelerated, would also constitute an event of default under the Indentures,
which could have materially adverse consequences to the Company and to the
holders of the Notes. In the event of a Change of Control, there can be no
assurance that the Company would have sufficient assets to satisfy all of its
obligations under the Bank Credit Agreement, the Original Notes and the Notes.
See "Description of the Notes -- Change of Control" and "Description of the
Bank Credit Agreement."
CYCLICAL INDUSTRIES
The Company's primary business consists of the production of butadiene,
MTBE, n-butylenes and specialty isobutylenes. The prices of certain of these
products have historically been cyclical and have been sensitive to overall
production capacity relative to demand, the availability and price of feedstocks
and the level of general business activity. In the past, certain of these
products have experienced market shortages, accompanied by relatively high
prices, and periods of oversupply, accompanied by relatively low prices.
While the Company has achieved relatively stable profitability on its sales
of butadiene due to the nature of the supply contracts under which it purchases
crude butadiene, industry profitability for MTBE has fluctuated considerably
over the past several years. In the early 1990s, considerable additional
production capacity was installed in the U.S. in anticipation of demand for MTBE
created by the Federal Clean Air Act Amendments of 1990 ("CAAA"). This demand
did not completely materialize due to states opting-out of the programs
promulgated by the CAAA as well as less than anticipated demand in states not
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required to comply with such programs, resulting in an industry overcapacity
condition that has resulted in lower average selling prices and margins.
HIGHLY COMPETITIVE INDUSTRY
The petrochemical businesses in which the Company operates are highly
competitive. Many of the Company's competitors are larger and have greater
financial resources than the Company. Among the Company's competitors are some
of the world's largest chemical companies and major integrated petroleum
companies that have their own raw material resources. In addition, a significant
portion of the Company's business is based upon widely available technology.
Accordingly, barriers to entry, apart from capital availability, may be low in
the commodity product section of the Company's business, and the entrance of new
competitors into the industry may reduce the Company's ability to capture
improving profit margins in circumstances where overcapacity in the industry is
diminishing. Furthermore, petroleum-rich countries have recently become more
significant participants in the petrochemical industry and may expand such role
significantly in the future. Any of these developments could have a negative
impact on the Company's financial position, results of operations and cash
flows. See "Business -- Competition."
DEPENDENCE ON KEY CUSTOMERS
Certain of the Company's largest customers account for a significant
percentage of the Company's sales of particular products. In the twelve months
ended May 31, 1996 and the one month ended June 30, 1996, over 84% and 71%,
respectively, of the Company's butadiene and MTBE sales were made to its five
largest customers for each product. In addition, in the twelve-month period
ended May 31, 1996 and the one-month period ended June 30, 1996, approximately
16.1% and 14.1%, respectively, of the Company's total revenues were derived from
a single butadiene customer. Although the Company believes its relationships
with its largest customers are good, the loss of a significant customer or a
number of significant customers would have a material adverse effect on the
Company's financial condition, results of operations and cash flows. There can
be no assurance that the historic levels of business from these customers or the
Company's ability to replace a lost customer will be maintained in the future.
ENVIRONMENTAL REGULATION
The Company's operations are subject to extensive Federal, state and local
laws, regulations and decrees governing, among other things, emissions to air,
discharges to waters and the generation, handling, storage, transportation,
treatment and disposal of waste materials. The Company's production facilities
require operating permits that are subject to revocation, modification and
renewal, violations of which may provide for substantial fines and civil or
criminal sanctions. The operation of any chemical manufacturing plant entails
risk of adverse environmental effect, including exposure to chemical products
and by-products from the Company's operations, and there can be no assurance
that material costs or liabilities will not be incurred to rectify any such
damage. In addition, potentially significant expenditures could be required in
order to comply with environmental, health and safety laws and regulations that
may be adopted or imposed in the future. To meet changing licensing and
regulatory standards, the Company may be required to make additional significant
site or operational modifications, potentially involving substantial
expenditures or the reduction or suspension of certain operations. See
"-- Dependence on Single Facility" and "Business -- Environmental
Regulation."
PRICE VOLATILITY OF PETROCHEMICAL FEEDSTOCKS
The Company uses large amounts of petrochemical feedstocks in the
manufacturing of its chemical products. While the Company tries to match cost
increases with corresponding price increases, there may be periods of time
during which increases in feedstock prices are not recovered by the Company due
to an inability to increase the selling prices of its products because of
weakness in demand for, or oversupply of, such products.
The principal raw material feedstocks purchased by the Company are crude
butadiene, isobutane and methanol. A number of the Company's raw material
suppliers provide the Company with a significant
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amount of its raw materials, and if one significant supplier or a number of
significant suppliers were unable to meet their obligations under present supply
arrangements, or if such arrangements could not be renewed upon expiration, the
Company could be required to incur increased costs for its raw materials. The
ability to pass on increases in raw material prices to the Company's customers
is, to a large extent, dependent on market conditions. There may be periods of
time in which increases in feedstock prices are not recovered by the Company due
to an inability to increase the selling prices of its products because of
weakness in demand for, or oversupply of, such products, and therefore, certain
increases in raw materials prices may have a material adverse effect on the
operations of the Company.
DEPENDENCE ON SINGLE FACILITY
The Company has one major operating facility located approximately one mile
from the Houston Ship Channel. The loss or shutdown of operations over an
extended period of time at such facility would have a material adverse effect on
the Company. The Company's operations are subject to the usual hazards
associated with chemical manufacturing and the related storage and
transportation of feedstocks, products and wastes, including explosions, fires,
inclement weather and natural disasters, mechanical failure, unscheduled
downtime, transportation interruptions, chemical spills, discharges or releases
of toxic or hazardous substances or gases and other environmental risks, such as
required remediation of contamination. These hazards can cause personal injury
and loss of life, severe damage to or destruction of property and equipment and
environmental damage, and may result in suspension of operations and the
imposition of civil or criminal penalties. The Company maintains property,
business interruption and casualty insurance at levels which it believes are in
accordance with customary industry practice, but there can be no assurance that
the Company will not incur losses beyond the limits or outside the coverage of
its insurance.
FACTORS AFFECTING DEMAND FOR MTBE
One of the Company's core products is MTBE, an oxygenate and octane
enhancer used in reformulated gasoline. The CAAA mandates numerous comprehensive
specifications for motor vehicle fuel, including minimum oxygen content and
reduced emissions of ozone precursors. Future demand for MTBE will depend on,
among other things, the degree to which the CAAA is implemented and enforced,
the possible adoption of additional legislation, the degree to which existing
ozone non-attainment areas come into compliance with air quality standards, the
degree to which gasoline suppliers can isolate ozone non-attainment areas where
the use of oxygenates is not required and the results of ongoing and any future
scientific studies regarding the health effects of oxygenates added to gasoline.
In addition, although the Company expects that there will be a continued market
preference and governmental support for MTBE, it is possible that alternative
oxygenates or octane enhancers could make inroads into MTBE's market share. See
"Business -- Industry Overview -- MTBE" and "Business -- Environmental
Regulation."
REGULATION OF EXPOSURE TO BUTADIENE
Butadiene is a known carcinogen in laboratory animals at high doses and is
being studied for its potential adverse health effects. Effective February 1997,
the Occupational Safety and Health Administration lowered substantially the
employee permissible exposure limit for butadiene. Although the Company believes
that it will be able to comply with the new regulatory limit without incurring
significant costs, there can be no assurance that future scientific studies
regarding the health effects of butadiene or any other product handled by the
Company will not result in more stringent regulations or in restrictions on the
use of, or exposure to, such products. See "Business -- Environmental
Regulation."
FRAUDULENT TRANSFER CONSIDERATIONS
In connection with the Transactions, TPC incurred substantial indebtedness,
including through its incurrence of indebtedness under the Bank Credit Agreement
and the Original Notes and the refinancing of a portion of such indebtedness
with the Original Series B Notes. If, under relevant federal and state
fraudulent transfer and conveyance statues, in a bankruptcy, reorganization or
rehabilitation case or similar preceding or a lawsuit by or on behalf of unpaid
creditors of TPC, a court were to find that, at the time any such indebtedness
was incurred by TPC, (a) TPC incurred such indebtedness with the intent of
hindering,
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delaying or defrauding current or future creditors or (b) (i) TPC received less
than reasonably equivalent value or fair consideration for incurring such
indebtedness and (ii) TPC (A) was insolvent or was rendered insolvent by reason
of any of the Transactions, including the incurrence of any such indebtedness to
fund the Transactions, (B) was engaged, or about to engage, in a business or
transaction for which its assets constituted unreasonably small capital to carry
on its business, or (C) intended to incur, or believed or reasonably should have
believed that it would incur, debts beyond its ability to pay as such debts
matured or became due (as all of the foregoing terms are defined in or
interpreted under the relevant fraudulent transfer or conveyance statutes), such
court could avoid the obligations under the Notes or subordinate the Notes to
presently existing and future indebtedness of TPC or take other action
detrimental to the holders of the Notes, including, under certain circumstances,
invalidating the Notes. In that event, there can be no assurance that any
repayment on the Notes would ever be recovered by holders of the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, TPC would be considered insolvent if, at
the time it incurred the indebtedness constituting the Notes or such
indebtedness refinanced thereby, either (i) the sum of its debts (including
contingent liabilities) was greater than its assets, at a fair valuation, or
(ii) the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether TPC was solvent at the relevant time, or whether, whatever
standard was used, the Notes would not be avoided on another of the grounds set
forth above.
LACK OF PUBLIC MARKET FOR THE NOTES
The Original Series B Notes have not been registered under the Securities
Act, and may not be resold by purchasers thereof unless the Original Series B
Notes are subsequently registered or an exemption from the registration
requirements of the Securities Act is available. While the Original Series B
Notes are at present eligible for trading in the PORTAL market of the Nasdaq
Stock Market, Inc., the Exchange Notes will not be so eligible, and there can be
no assurance, even following registration or exchange of the Original Series B
Notes for Exchange Notes, that an active trading market for the Original Series
B Notes or the Exchange Notes will exist. At the time of the private placement
of the Original Series B Notes, the Initial Purchaser advised the Company that
it intended to make a market in the Original Series B Notes and, if issued, the
Exchange Notes. However, the Initial Purchaser is not obligated to make a market
in the Original Series B Notes or the Exchange Notes, and any such market-making
may be discontinued at any time at the sole discretion of the Initial Purchaser.
No assurance can be given as to the liquidity of or trading market for the
Original Series B Notes or the Exchange Notes.
CONSEQUENCES TO NON-TENDERED HOLDERS OF ORIGINAL SERIES B NOTES
CONSEQUENCES OF FAILURE TO EXCHANGE. To the extent that Original Series B
Notes are tendered and accepted for exchange pursuant to the Exchange Offer, the
trading market for Original Series B Notes that remain outstanding may be
significantly more limited, which might adversely affect the liquidity of the
Original Series B Notes not tendered for exchange. The extent of the market
therefor and the availability of price quotations would depend upon a number of
factors, including the number of holders of Original Series B Notes remaining at
such time and the interest in maintaining a market in such Original Series B
Notes on the part of securities firms. An issue of securities with a smaller
outstanding market value available for trading (the "float") may command a
lower price than would a comparable issue of securities with a greater float.
Therefore, the market price for Original Series B Notes that are not exchanged
in the Exchange Offer may be affected adversely to the extent that the amount of
Original Series B Notes exchanged pursuant to the Exchange Offer reduces the
float. The reduced float also may tend to make the trading price of the Original
Series B Notes that are not exchanged more volatile.
CONSEQUENCES OF FAILURE TO PROPERLY TENDER. Issuance of the Exchange Notes
in exchange for the Original Series B Notes pursuant to the Exchange Offer will
be made following the prior satisfaction, or waiver, of the conditions set forth
in "The Exchange Offer -- Conditions to the Exchange Offer" and only
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<PAGE>
after timely receipt by the Exchange Agent of such Original Series B Notes, a
properly completed and duly executed Letter of Transmittal and all other
required documents. Therefore, holders of Original Series B Notes desiring to
tender such Original Series B Notes in exchange for Exchange Notes should allow
sufficient time to ensure timely delivery of all required documentation. Neither
the Exchange Agent, the Company or any other person is under any duty to give
notification of defects or irregularities with respect to the tenders of
Original Series B Notes for exchange. Original Series B Notes that may be
tendered in the Exchange Offer but which are not validly tendered will,
following the consummnation of the Exchange Offer, remain outstanding and will
continue to be subject to the same transfer restrictions currently applicable to
such Original Series B Notes.
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THE TRANSACTIONS
Holdings, its wholly-owned subsidiary, TPC Holding, and TPC Holding's
wholly-owned subsidiary, Finance Co., were organized to effect the Acquisition.
Prior to the Acquisition, TOC was owned by various individuals, foundations and
trusts, including approximately 5% by certain members of management of TPC. TOC
owned approximately 81% of the outstanding capital stock of TPC, which was its
principal operating subsidiary. Approximately 19% of the outstanding capital
stock of TPC was owned by certain individuals and trusts, including
approximately 3% by certain members of management of TPC.
TPC Holding, Holdings, the shareholders of TOC, the shareholders of TPC
(other than TOC) and Mr. Dave C. Swalm, as representative of certain of such
shareholders, entered into the Stock Purchase Agreement pursuant to which TPC
Holding acquired 3,830,000 shares (95.75%) of the outstanding capital stock of
TOC and 734,962 shares (18.55%) of the outstanding capital stock of TPC for a
total consideration of $361.8 million in cash. This total consideration was
based on a per share purchase price for TOC and TPC shares of $77.076 and
$90.626, respectively. Fifty thousand shares (1.25%) of capital stock of TOC and
the remaining 26,038 shares (0.66%) of capital stock of TPC (not held by TOC)
were contributed by certain shareholders of TOC and TPC (the "Rollover
Investors") to Holdings in exchange for $6.2 million of Holdings' Common Stock
at the closing (the "Closing") of the Acquisition.
CASH BONUS PLAN. Prior to the Closing, TPC established the Cash Bonus Plan
providing generally for $35 million for certain present employees of the Company
and certain present employees of its independent contractors. Within 45 days
after Closing, 10% of this amount was paid to eligible participants and the
remaining payments will be made in sixteen quarterly installments of
approximately 5.63% each, plus an interest factor, payable within 15 days of
each of the sixteen quarterly installment dates. See "Management -- Cash Bonus
Plan."
ASSET SALES. On the Closing Date of the Acquisition, prior to the Closing,
TOC sold to Mr. Swalm for $7.8 million in cash a ranch of approximately 1,900
acres and the livestock and personalty thereon (collectively, the "Ranch") and
the 80% of the outstanding capital stock of The Texas Falls Corporation owned by
TOC.
On the Closing Date, prior to the Closing, Holdings (i) issued
approximately $50 million in common equity comprised of (a) approximately $43.8
million of Common Stock to an investor group (the "Investor Group") led by
Gordon A. Cain and The Sterling Group, Inc. ("Sterling"), the ESOP, certain
directors and officers of Holdings and the Company, and certain employees of the
Company, and (b) approximately $6.2 million of Common Stock to the Rollover
Investors in exchange for their contribution to Holdings of 1.25% of the
outstanding capital stock of TOC and 0.66% of the outstanding capital stock of
TPC, representing the aggregate fair value of such shares; and (ii) raised $30
million in cash by the issue of the Discount Notes and Common Stock of Holdings,
as an investment unit. After Holdings had been so capitalized, Holdings
contributed to TPC Holding, its wholly-owned subsidiary, the cash received from
the issuance of its Common Stock, the Discount Notes and the capital stock of
TOC and TPC contributed to Holdings by the Rollover Investors.
In connection with the Acquisition, Finance Co. borrowed approximately
$140.0 million under the Bank Credit Agreement and received approximately $169
million in net proceeds from the consummation of the sale of the Original Notes.
TPC Holding then borrowed all of such funds from Finance Co. pursuant to an
intercompany promissory note.
THE CLOSING. Pursuant to the Stock Purchase Agreement, TPC Holding
purchased 3,830,000 shares of TOC common stock (95.75% of the total outstanding
capital stock of TOC) for $295.2 million in cash of which $13.3 million ($3.473
per share of TOC common stock) was deposited in a post-closing indemnity escrow
(the "Indemnity Escrow"). An additional $0.173 million was deposited in the
Indemnity Escrow by a Rollover Investor who has contributed 50,000 shares of TOC
common stock to Holdings.
Pursuant to the Stock Purchase Agreement, TPC Holding also purchased
734,962 shares of TPC common stock (18.55% of the total outstanding capital
stock of TPC) for $66.6 million in cash of which $3 million ($4.084 per share of
TPC common stock) was deposited in the Indemnity Escrow. An additional
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$0.11 million was deposited in the Indemnity Escrow by the Rollover Investors
who contributed 26,038 shares of TPC common stock to Holdings.
On the Closing Date, 120,000 shares of TOC common stock (3% of the
outstanding capital stock of TOC) was deposited in a subsequent closing escrow
(the "Subsequent Escrow") and TPC Holding deposited into the Subsequent Escrow
$9.2 million ($76.94 per share), representing the estimated purchase price for
such shares. On or about September 16, 1996, $0.4 million of the cash deposited
into the Subsequent Escrow was funded into the Indemnity Escrow, the escrowed
shares were distributed to TPC Holding, and $8.8 million was distributed to
former holders of the escrowed shares. An additional $16,320 ($0.136 per share)
was paid to such former holders by TPC Holding, representing the difference
between the final purchase price and the estimated purchase price initially
deposited in the Subsequent Escrow.
As a result of these transactions, on the Closing Date immediately after
the Closing, TOC was a 97.0% owned subsidiary of TPC Holding, and TPC was owned
80.79% by TOC and 19.21% by TPC Holding (including shares contributed by the
Rollover Investors). Following the Mergers (as defined) and the delivery to TPC
Holding on or about September 16, 1996 of the shares held in the Subsequent
Escrow, TPC is a wholly-owned subsidiary of TPC Holding.
MERGERS. On the Closing Date immediately after the Closing, TOC merged
with and into TPC, with TPC as the surviving corporation (the "Initial
Merger"). In the Initial Merger, each outstanding share of TOC was converted
into .85 of a share of TPC and, except for the shares of TPC held by TOC which
were canceled, the outstanding shares of TPC remained unchanged. On the Closing
Date, immediately after the Initial Merger, Finance Co. merged with and into
TPC, with TPC as the surviving corporation (the "Second Merger" and, together
with the Initial Merger, the "Mergers"). In the Second Merger, each
outstanding share of Finance Co. was converted into one share of common stock of
TPC. As a result of the Mergers, TPC holds the promissory note payable by TPC
Holding to Finance Co., and TPC is a 97.5% owned subsidiary of TPC Holding,
which in turn is a wholly-owned subsidiary of Holdings. In addition, TPC is the
primary obligor with respect to borrowings under the Bank Credit Agreement and
the primary obligor on the Notes. On or about September 16, 1996, the shares of
capital stock formerly representing shares of TOC, and at that time representing
shares of common stock of TPC, held in the Subsequent Escrow were delivered to
TPC Holding, and TPC became a wholly-owned subsidiary of TPC Holding.
INDEMNITY ESCROW. Pursuant to the Stock Purchase Agreement, the Company
has indemnified the present and former officers and directors of TOC and TPC for
certain matters arising prior to the Closing. In addition, the Company has the
right to recover from the Indemnity Escrow losses and liabilities arising from
or in connection with certain matters, including but not limited to, the
following: (i) breach of any covenant, representation or warranty in the Stock
Purchase Agreement by any TOC or TPC shareholder; (ii) failure by TOC, TPC or
any subsidiary to perform any obligation in the Stock Purchase Agreement, and
the inaccuracy of certain statements of fact regarding TOC, TPC and their
subsidiary in the Stock Purchase Agreement; (iii) losses arising from claims in
connection with the sale, purchase or issuance of common stock of TOC or TPC;
(iv) any taxes payable by TOC, TPC or any subsidiary attributable to periods
prior to March 31, 1996 to the extent not accrued on the consolidated balance
sheet of TOC as of March 31, 1996; (v) losses or claims paid to any present or
former director, officer, employee or agent of the Company pursuant to the
contractual right described in the preceding sentence arising prior to the
Closing; and (vi) losses arising from certain acts, omissions, events,
circumstances or conditions, including environmental matters, occurring or
existing prior to the Closing Date and not disclosed to TPC Holding. All claims
to recover such losses and liabilities from the Indemnity Escrow must be brought
within one year from the Closing Date, with the exception of losses and
liabilities arising from environmental matters and taxes, which must be brought
within eighteen months from the Closing Date. The Company has the right to
indemnification from the selling shareholders for the breach of any covenant,
representation or warranty made severally by them in the Stock Purchase
Agreement (generally relating to title to the shares being sold and authority to
perform their obligations under the Stock Purchase Agreement). Beyond that, in
the absence of fraud, the Company's rights to recovery for breach of the Stock
Purchase Agreement or for losses arising from pre-closing matters are limited to
recovery against the Indemnity Escrow.
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COMMON STOCK PLACEMENT. Substantially concurrently with the consummation
of the Acquisition, Holdings completed the sale of approximately 438,000 shares
of its Common Stock to the ESOP, certain directors and officers of Holdings and
the Company, certain employees of the Company, and the Investor Group. See
"Related Transactions" and "Beneficial Ownership of Holdings' Common Stock."
DISCOUNT NOTES. The Discount Notes are senior unsecured obligations of
Holdings ranking PARI PASSU with other senior unsecured indebtedness of
Holdings. The purchaser of the Discount Notes purchased the Discount Notes and
shares of Common Stock as an investment unit. The Discount Notes are limited to
approximately $57.7 million aggregate principal amount at final maturity
(providing $30.0 million of proceeds) and will mature on July 1, 2007. No
interest will accrue on the Discount Notes prior to July 1, 2001. From and after
July 1, 2001, interest on the Discount Notes will be payable semiannually at the
rate of 13.5% per annum.
THE BANK CREDIT AGREEMENT. The Bank Credit Agreement provides for, (i) the
Revolving Credit Facility, and (ii) the Tranche A Term Loan, the Tranche B Term
Loan and the ESOP Term Loan. See "Description of the Bank Credit Agreement."
RAW MATERIAL SUPPLY. Clarkston was an affiliate of the Company that
primarily sold isobutane to, and also purchased n-butane from, the Company and
certain third parties. Clarkston purchased substantially all of its isobutane
requirements at market prices under a supply contract with EPC Venture, Inc.
("Enterprise"). In connection with the Transactions, this supply contract with
Enterprise was assigned to the Company.
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THE EXCHANGE OFFER
REGISTRATION RIGHTS
In connection with the sale of the Original Series B Notes, the Company
entered into the Registration Rights Agreement with the Initial Purchaser
pursuant to which the Company agreed, for the benefit of the holders of the
Original Series B Notes, at its cost, (i) within 75 days after the date of the
original issue of the Original Series B Notes, to file an Exchange Offer
Registration Statement with the Commission with respect to the Exchange Offer
for the Exchange Notes, and (ii) to use all reasonable efforts to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 120 days after the date of original issuance of the
Original Series B Notes. Upon the Exchange Offer Registration Statement being
declared effective, the Company agreed to offer the Exchange Notes in exchange
for surrender of the Original Series B Notes. The Company agreed to keep the
Exchange Offer open for not less than 30 calendar days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Original Series B Notes. For each Original Series B Note
surrendered to the Company pursuant to its Exchange Offer, the holder of such
Original Series B Note will receive an Exchange Note having a principal amount
equal to that of the surrendered Note. Interest on each Exchange Note will
accrue from the last interest payment date on which interest was paid on the
Original Series B Note surrendered in exchange therefor or, if no interest has
been paid on such Original Series B Note, from the date of its original issue.
The Registration Rights Agreement also provides an agreement to include in the
prospectus for the Exchange Offer certain information necessary to allow a
broker-dealer who holds Original Series B Notes that were acquired for its own
account as a result of market-making activities or other ordinary course trading
activities (other than Original Series B Notes acquired directly from the
Company or one of its affiliates) to exchange such Original Series B Notes
pursuant to the Exchange Offer and to satisfy the prospectus delivery
requirements in connection with resales of Exchange Notes received by such
broker-dealer in the Exchange Offer, and to maintain the effectiveness of the
Registration Statement for such purposes for 180 days.
The foregoing agreement is needed because any broker-dealer who acquires
Original Series B Notes for its own account as a result of market-making
activities or other trading activities is required to deliver a prospectus
meeting the requirements of the Securities Act. This Prospectus covers the offer
and sale of the Exchange Notes pursuant to the Exchange Offer made hereby and
the resale of Exchange Notes received in the Exchange Offer by any broker-dealer
who held Original Series B Notes acquired for its own account as a result of
market-making activities or other trading activities (other than Original Series
B Notes acquired directly from the Company or one of its affiliates).
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in general
be freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Original Series B Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing the Exchange Notes (i) will not be able to rely
on the interpretation of the staff of the Commission, (ii) will not be able to
tender its Original Series B Notes in the Exchange Offer and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or transfer of the Original Series B Notes unless
such sale or transfer is made pursuant to an exemption from such requirements.
Each holder of the Original Series B Notes (other than certain specified
holders) who wishes to exchange Original Series B Notes for Exchange Notes in
the Exchange Offer will be required to make certain representations, including
that (i) it is not an affiliate of the Company, (ii) any Exchange Notes to be
received by it were acquired in the ordinary course of its business and (iii) at
the time of commencement of the Exchange Offer, it has no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Notes.
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
150 days of the date of issuance and sale of the Original Series B Notes, or
upon
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request of the Initial Purchaser (under certain circumstances), the Company
will, at its cost, (i) as promptly as practicable, file a Shelf Registration
Statement (which may be an amendment of the Registration Statement of which this
Prospectus is a part) covering resales of the Original Series B Notes, (ii) use
all reasonable efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (iii) use all reasonable efforts to keep
effective the Shelf Registration Statement until two years after its effective
date (or until one year after such effective date if such Shelf Registration
Statement is filed at the request of the Initial Purchaser under certain
circumstances). The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the Original Series B Notes
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement for the Original
Series B Notes has become effective and take certain other actions as are
required to permit unrestricted resales of the Original Series B Notes. A holder
of Original Series B Notes that sells such Original Series B Notes pursuant to
the Shelf Registration Statement generally will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each holder
of the Original Series B Notes will be required to deliver information to be
used in connection with the Shelf Registration Statement and to provide comments
on the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have such holder's Original Series B
Notes included in the Shelf Registration Statement and to benefit from the
provisions regarding liquidated damages set forth in the following paragraph.
In the event that either (i) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the 75th calendar day following the
date of original issue of the Original Series B Notes, (ii) the Exchange Offer
Registration Statement or, if required in lieu thereof, the Shelf Registration
Statement, is not declared effective on or prior to the 120th calendar day
following the date of original issue of the Original Series B Notes or (iii)
once effective, the Exchange Offer Registration Statement or the Shelf
Registration Statement ceases to be effective or the prospectus ceases to be
usable (under certain circumstances), the interest rate borne by the Original
Series B Notes shall be increased by one-half of one percent per annum following
such 75-day period in the case of (i) above, such 120-day period in the case of
clause (ii) above or any such period in the case of (iii) above, in each case
payable in cash semiannually, in arrears, on January 1 and July 1 of each year.
Upon (x) the filing of the Exchange Offer Registration Statement in the case of
clause (i) above, (y) the effectiveness of the Exchange Offer Registration
Statement or Shelf Registration Statement in the case of clause (ii) above or
(z) the reeffectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement in the case of clause (iii) above, and provided that none
of the conditions set forth in clauses (i), (ii) and (iii) above continues to
exist, the interest rate borne by the Original Series B Notes from the date of
such filing, effectiveness or reeffectiveness, as the case may be, will be
reduced to the original interest rate.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement.
Except as set forth above, after consummation of the Exchange Offer,
holders of Original Series B Notes have no registration or exchange rights under
the Registration Rights Agreement. See "-- Consequences of Failure to
Exchange," and "-- Resales of Exchange Notes; Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Series B Notes which are not exchanged for Exchange Notes
pursuant to the Exchange Offer and are not included in a resale prospectus
which, if required, will be filed as part of an amendment to the Registration
Statement, will remain restricted securities and subject to restrictions on
transfer. Accordingly, such Original Series B Notes may be resold (i) to the
Company (upon redemption thereof or otherwise), (ii) so long as the Original
Series B Notes are eligible for resale pursuant to Rule 144A, to a person whom
the seller reasonably believes is a qualified institutional buyer within the
meaning of Rule
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144A under the Securities Act, purchasing for its own account or for the account
of a qualified institutional buyer to whom notice is given that the resale,
pledge or other transfer is being made in reliance on Rule 144A, (iii) in an
offshore transaction in accordance with Regulation S under the Securities Act,
(iv) pursuant to an exemption from registration in accordance with Rule 144 (if
available) under the Securities Act, (v) in reliance on another exemption from
the registration requirements of the Securities Act, or (vi) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United States
and subject to certain requirements of the registrar or co-registrar being met,
including receipt by the registrar or co-registrar of a certification and (in
the case of (iii), (iv) and (v)) an opinion of counsel reasonably acceptable to
the Company and the registrar.
To the extent Original Series B Notes are tendered and accepted in the
Exchange Offer, the principal amount of outstanding Original Series B Notes will
decrease with a resulting decrease in the liquidity in the market therefor.
Accordingly, the liquidity of the market for the Original Series B Notes could
be adversely affected. See "Risk Factors -- Consequences to Non-Tendering
Holders of Original Series B Notes."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in the Prospectus
and in the Letter of Transmittal, a copy of which is attached to this Prospectus
as Annex A, the Company will accept any and all Original Series B Notes validly
tendered and not withdrawn prior to the Expiration Date. The Company will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of Original Series B Notes accepted in the Exchange Offer. Holders may
tender some or all of their Original Series B Notes pursuant to the Exchange
Offer. However, Original Series B Notes may be tendered only in integral
multiples of $1,000 principal amount.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Series B Notes, except that (i) the Exchange Notes will have
been registered under the Securities Act and hence will not bear legends
restricting their transfer pursuant to the Securities Act, and (ii) except as
otherwise described above, holders of the Exchange Notes will not be entitled to
the rights of holders of Original Series B Notes under the Registration Rights
Agreement. The Exchange Notes will evidence the same debt as the Original Series
B Notes (which they replace), and will be issued under, and be entitled to the
benefits of, the Indenture which governs all of the Notes.
Solely for reasons of administration (and for no other purpose) the Company
has fixed the close of business on , 1997 as the record date
for the Exchange Offer for purposes of determining the persons to whom this
Prospectus and the Letter of Transmittal will be mailed initially. Only a
registered holder of Original Series B Notes (or such holder's legal
representative or attorney-in-fact) as reflected on the records of the trustee
under the Indenture may participate in the Exchange Offer. There will be no
fixed record date for determining registered holders of the Original Series B
Notes entitled to participate in the Exchange Offer.
Holders of the Original Series B Notes do not have any appraisal or
dissenters' rights under the Texas Business Corporation Act or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original
Series B Notes when, as and if they have given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of the Original Series B Notes for the purposes of receiving the
Exchange Notes. The Exchange Notes delivered pursuant to the Exchange Offer will
be issued on the earliest practicable date following the acceptance for exchange
of Original Series B Notes by the Company.
If any tendered Original Series B Notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Original Series B
Notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
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Holders who tender Original Series B Notes in the Exchange Offer will not
be required to pay brokerage commissions of fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of the
Original Series B Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Series B Notes, (ii) to extend the Exchange Offer, (iii)
if any of the conditions set forth below under " -- Conditions to the Exchange
Offer" shall not have been satisfied, to terminate the Exchange Offer, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent, or (iv) to amend the terms of the Exchange Offer in any manner.
Except as specified in the immediately preceding paragraph, any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offer is amended
in a manner determined by it to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders of the Original Series B Notes, and the
Exchange Offer will be extended for a period of five to 10 business days, as
required by law, depending upon the significance of the amendment and the manner
of disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to 10 business day period.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, termination or amendment of its
Exchange Offer, the Company shall not have an obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
PROCEDURES FOR TENDERING ORIGINAL SERIES B NOTES
TENDERS OF ORIGINAL SERIES B NOTES. The tender by a holder of Original
Series B Notes pursuant to any of the procedures set forth below will constitute
the tendering holder's acceptance of the terms and conditions of the Exchange
Offer. The Company's acceptance for exchange of Original Series B Notes tendered
pursuant to any of the procedures described below will constitute a binding
agreement between such tendering holder and the Company in accordance with the
terms and subject to the conditions of the Exchange Offer. Only holders are
authorized to tender their Original Series B Notes. The procedures by which
Original Series B Notes may be tendered by beneficial owners that are not
holders will depend upon the manner in which the Original Series B Notes are
held.
DTC has authorized DTC participants that are beneficial owners of Original
Series B Notes through DTC to tender their Original Series B Notes as if they
were holders. To effect a tender, DTC participants should either (i) complete
and sign the Letter of Transmittal (or a facsimile thereof), have the signature
thereon guaranteed if required by Instruction 1 of the Letter of Transmittal,
and mail or deliver the Letter of Transmittal or such facsimile pursuant to the
procedures for book-entry transfer set forth below under " -- BOOK-ENTRY
DELIVERY PROCEDURES," or (ii) transmit their acceptance to DTC through the DTC
Automated Tender Offer Program ("ATOP"), for which the transaction will be
eligible, and follow the procedures for book-entry transfer set forth below
under " -- BOOK-ENTRY DELIVERY PROCEDURES."
TENDER OF ORIGINAL SERIES B NOTES HELD IN PHYSICAL FORM. To tender
effectively Original Series B Notes held in physical form pursuant to the
Exchange Offer, a properly completed Letter of Transmittal (or a facsimile
thereof) duly executed by the holder thereof, and any other documents required
by the Letter of
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Transmittal, must be received by the Exchange Agent at one of its addresses set
forth below, and tendered Original Series B Notes must be received by the
Exchange Agent at such address (or delivery effected through the deposit of
Original Series B Notes into the Exchange Agent's account with DTC and making
book-entry delivery as set forth below) on or prior to the Expiration Date, or
the tendering holder must comply with the guaranteed delivery procedure set
forth below. LETTERS OF TRANSMITTAL OR ORIGINAL SERIES B NOTES SHOULD BE SENT
ONLY TO THE EXCHANGE AGENT AND SHOULD NOT BE SENT TO THE COMPANY.
TENDER OF ORIGINAL SERIES B NOTES HELD THROUGH A CUSTODIAN. To tender
effectively Original Series B Notes that are held of record by a custodian bank,
depository, broker, trust company or other nominee, the beneficial owner thereof
must instruct such holder to tender the Original Series B Notes on the
beneficial owner's behalf. A Letter of Instructions from the record owner to the
beneficial owner may be included in the materials provided along with this
Prospectus which may be used by the beneficial owner in this process to instruct
the registered holder of such owner's Original Series B Notes to effect the
tender.
TENDER OF ORIGINAL SERIES B NOTES HELD THROUGH DTC. To tender effectively
Original Series B Notes that are held through DTC, DTC participants should
either (i) properly complete and duly execute the Letter of Transmittal (or a
facsimile thereof), and any other documents required by the Letter of
Transmittal, and mail or deliver the Letter of Transmittal or such facsimile
pursuant to the procedures for book-entry transfer set forth below or (ii)
transmit their acceptance through ATOP, for which the transaction will be
eligible, and DTC will then edit and verify the acceptance and send an Agent's
Message to the Exchange Agent for its acceptance. Delivery of tendered Original
Series B Notes held through DTC must be made to the Exchange Agent pursuant to
the book-entry delivery procedures set forth below or the tendering DTC
participant must comply with the guaranteed delivery procedures set forth below.
THE METHOD OF DELIVERY OF ORIGINAL SERIES B NOTES AND LETTERS OF
TRANSMITTAL, ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS,
INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OR AGENT'S MESSAGE TRANSMITTED
THROUGH ATOP, IS AT THE ELECTION AND RISK OF THE PERSON TENDERING ORIGINAL
SERIES B NOTES AND DELIVERING LETTERS OF TRANSMITTAL AND, EXCEPT AS OTHERWISE
PROVIDED IN THE LETTER OF TRANSMITTAL, DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, IT IS SUGGESTED
THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO SUCH DATE.
Except as provided below, unless the Original Series B Notes being tendered
are deposited with the Exchange Agent on or prior to the Expiration Date
(accompanied by a properly completed and duly executed Letter of Transmittal or
a properly transmitted Agent's Message), the Company may, at its option, reject
such tender. Exchange of Exchange Notes for the Original Series B Notes will be
made only against deposit of the tendered Original Series B Notes and delivery
of all other required documents.
BOOK-ENTRY DELIVERY PROCEDURES. The Exchange Agent will establish accounts
with respect to the Original Series B Notes at DTC for purposes of the Exchange
Offer within two business days after the date of this Prospectus, and any
financial institution that is a participant in DTC may make book-entry delivery
of the Original Series B Notes by causing DTC to transfer such Original Series B
Notes into the Exchange Agent's account in accordance with DTC's procedures for
such transfer. However, although delivery of Original Series B Notes may be
effected through book-entry at DTC, the Letter of Transmittal (or facsimile
thereof), with any required signature guarantees or an Agent's Message in
connection with a book-entry transfer, and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one or more
of its addresses set forth in this Prospectus on or prior to the Expiration
Date, or compliance must be made with the guaranteed delivery procedures
described below. Delivery of documents to DTC does not constitute delivery to
the Exchange Agent. The confirmation of a book-entry transfer into the Exchange
Agent's account at DTC as described above is referred to herein as a "Book-
Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
each participant in DTC tendering the Original Series B Notes and that such
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participant has received the Letter of Transmittal and agrees to be bound by the
terms of the Letter of Transmittal and the Company may enforce such agreement
against such participant.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a recognized member of the Medallion Signature Guarantee Program
or by any other "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 promulgated under the Exchange Act (each of the foregoing, an
"Eligible Institution"), unless the Original Series B Notes tendered thereby
are tendered (i) by a registered holder of Original Series B Notes (or by a
participant in DTC whose name appears on a DTC security position listing as the
owner of such Original Series B Notes) who has not completed either the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on the Letter of Transmittal, or (ii) for the account of an Eligible
Institution. See Instruction 1 of the Letter of Transmittal. If the Original
Series B Notes are registered in the name of a person other than the signer of
the Letter of Transmittal or if Original Series B Notes not accepted for
exchange or not tendered are to be returned to a person other than the
registered holder, then the signatures on the Letter of Transmittal accompanying
the tendered Original Series B Notes must be guaranteed by an Eligible
Institution as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Original Series B Notes
pursuant to the Exchange Offer and time will not permit the Letter of
Transmittal, certificates representing such Original Series B Notes and all
other required documents to reach the Exchange Agent, or the procedures for
book-entry transfer cannot be completed, on or prior to the Expiration Date,
such Original Series B Notes may nevertheless be tendered if all the following
conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Company
herewith, or an Agent's Message with respect to guaranteed
delivery that is accepted by the Company, is received by the
Exchange Agent on or prior to the Expiration Date, as provided
below; and
(iii) the certificates for the tendered Original Series B Notes, in
proper form for transfer (or a Book-Entry Confirmation of the
transfer of such Original Series B Notes into the Exchange
Agent's account at DTC as described above), together with a
Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature
guarantees and any other documents required by the Letter of
Transmittal or a properly transmitted Agent's Message, are
received by the Exchange Agent within two business days after
the date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be sent by hand delivery, telegram,
facsimile transmission or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, delivery of Exchange Notes by
the Exchange Agent for Original Series B Notes tendered and accepted for
exchange pursuant to the Exchange Offer will, in all cases, be made only after
timely receipt by the Exchange Agent of such Original Series B Notes (or Book-
Entry Confirmation of the transfer of such Original Series B Notes into the
Exchange Agent's account at DTC as described above), and a Letter of Transmittal
(or facsimile thereof) with respect to such Original Series B Notes, properly
completed and duly executed, with any required signature guarantees and any
other documents required by the Letter of Transmittal, or a properly transmitted
Agent's Message.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Original Series B Notes will be determined by the Company in its sole
discretion, which determination will be final and binding. The Company reserves
the absolute right to reject any and all Original Series B Notes not properly
tendered or any Original Series B Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Original Series B Notes. The interpretation of the terms and
conditions of its Exchange Offer
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(including the instructions in the Letter of Transmittal) by the Company will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Original Series B Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
holders of defects or irregularities with respect to tenders of Original Series
B Notes, neither the Company, the Exchange Agent nor any other person is under
any duty to give such notice, nor shall they incur any liability for failure to
give such notification. Tenders of Original Series B Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Original Series B Notes received by the Exchange Agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived, or if Original Series B Notes are submitted in a principal amount
greater than the principal amount of Original Series B Notes being tendered by
such tendering holder, such unaccepted or non-exchanged Original Series B Notes
will be returned by the Exchange Agent to the tendering holders (or, in the case
of Original Series B 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 below, such unaccepted or non-exchanged Original
Series B Notes will be credited to an account maintained with such Book-Entry
Transfer Facility), unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
By tendering, each registered holder will represent to the Company that,
among other things, (i) the Exchange Notes to be acquired by the holder and any
beneficial owner(s) of the Original Series B Notes ("Beneficial Owner(s)") in
connection with the Exchange Offer are being acquired by the holder and any
Beneficial Owner(s) in the ordinary course of business of the holder and any
Beneficial Owner(s), (ii) the holder and each Beneficial Owner are not
participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in a distribution of the Exchange
Notes, (iii) the holder and each Beneficial Owner acknowledge and agree that (x)
any person participating in the Exchange Offer for the purpose of distributing
the Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction with respect to the Exchange Notes acquired by such person and
cannot rely on the position of the Staff of the Commission set forth in
no-action letters that are discussed herein under " -- Resale of the Exchange
Notes; Plan of Distribution," and (y) any broker-dealer that receives Exchange
Notes for its own account in exchange for Original Series B Notes pursuant to
the Exchange Offer must deliver a prospectus in connection with any resale of
such Exchange Notes, but by so acknowledging, the holder shall not be deemed to
admit that, by delivering a prospectus, it is an "underwriter" within the
meaning of the Securities Act, (iv) neither the holder nor any Beneficial Owner
is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Company except as otherwise disclosed to the Company in writing, and (v) the
holder and each Beneficial Owner understands that a secondary resale transaction
described in clause (iii) above should be covered by an effective registration
statement containing the selling securityholder information required by Item 507
of Regulation S-K of the Commission.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Series B Notes, where such Original Series B 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 Exchange Notes. See "-- Resale of the
Exchange Notes; Plan of Distribution."
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Series B Notes
pursuant to the Exchange Offer may be withdrawn, unless theretofore accepted for
exchange as provided in the Exchange Offer, at any time prior to the Expiration
Date.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior to
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Original Series B Notes to be withdrawn (the
"Depositor"), (ii) identify the Original Series B Notes to be withdrawn,
including the certificate number or numbers of the particular certificates
evidencing the Original Series B Notes (unless such Original Series B
31
<PAGE>
Notes were tendered by book-entry transfer), and aggregate principal amount of
such Original Series B Notes, and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Indenture register the transfer of the
Original Series B Notes into the name of the person withdrawing such Original
Series B Notes. If Original Series B Notes have been delivered pursuant to the
procedures for book-entry transfer set forth in "-- Procedures for Tendering
Original Series B Notes -- BOOK-ENTRY DELIVERY PROCEDURES," any notice of
withdrawal must specify the name and number of the account at the appropriate
book-entry transfer facility to be credited with such withdrawn Original Series
B Notes and must otherwise comply with such book-entry transfer facility's
procedures. If the Original Series B Notes to be withdrawn have been delivered
or otherwise identified to the Exchange Agent, a signed notice of withdrawal
meeting the requirements above is effective immediately upon written or
facsimile notice of withdrawal even if physical release is not yet effected. A
withdrawal of Original Series B Notes can only be accomplished in accordance
with the foregoing procedures.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding on all parties. No
withdrawal of Original Series B Notes will be deemed to have been properly made
until all defects or irregularities have been cured or expressly waived. Neither
the Company nor the Exchange Agent or any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or revocation, nor shall they incur any liability for failure to give any such
notification. Any Original Series B Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Original Series B Notes so
withdrawn are retendered. Properly withdrawn Original Series B Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering Original Series B Notes" at any time prior to the
Expiration Date.
Any Original Series B Notes which have been tendered but which are not
accepted for exchange due to the rejection of the tender due to uncured defects
or the prior termination of the Exchange Offer, or which have been validly
withdrawn, will be returned to the holder thereof (unless otherwise provided in
the Letter of Transmittal), as soon as practicable following the Expiration Date
or, if so requested in the notice of withdrawal, promptly after receipt by the
Company of notice of withdrawal without cost to such holder.
CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer shall not be subject to any conditions, other than that
(i) the Commission has issued an order or orders declaring the Indenture
governing the Notes qualified under the Trust Indenture Act of 1939, (ii) the
Exchange Offer, or the making of any exchange by a holder, does not violate
applicable law or any applicable interpretation of the staff of the Commission,
(iii) no action or proceeding shall have been instituted or threatened in any
court or by or before any governmental agency with respect to the Exchange
Offer, which, in the judgment of the Company, might impair the ability of the
Company to proceed with the Exchange Offer, (iv) there shall not have been
adopted or enacted any law, statute, rule or regulation which, in the Company's
judgment, would materially impair its ability to proceed with the Exchange Offer
or (v) there shall not have occurred any material change in the financial
markets in the United States or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effect of which on the financial markets
of the United States, in the Company's judgment, would materially impair its
ability to proceed with the Exchange Offer.
If the Company determines in its sole discretion that any of the conditions
to the Exchange Offer are not satisfied, it may (i) refuse to accept any
Original Series B Notes and return all tendered Original Series B Notes to the
tendering holders, (ii) extend its Exchange Offer and retain all Original Series
B Notes tendered prior to the Expiration Date, subject, however, to the rights
of holders to withdraw such Original Series B Notes (see "-- Withdrawal of
Tenders") or (iii) waiver such unsatisfied conditions with respect to the
Exchange Offer and accept all validly tendered Original Series B Notes which
have not been withdrawn. If such waiver constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered holders, and
will
32
<PAGE>
extend the Exchange Offer for a period of five to 10 business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to 10 business day period.
EXCHANGE AGENT
Fleet National Bank, the Trustee under the Indenture governing the Notes,
has been appointed as Exchange Agent for the Exchange Offer. 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 and
other documents should be directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
BY MAIL: BY FACSIMILE: BY HAND:
Fleet National Bank (860) 986-7908 Fleet National Bank
Corporate Trust Operations Corporate Trust Operations
777 Main Street, Lower Level Confirm by Telephone: 777 Main Street, Lower Level
Hartford, CT 06115 Hartford, CT 06115
Attention: Patricia Williams (860) 986-2910 Attention: Patricia Williams
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
No dealer-manager has been retained in connection with the Exchange Offer
and no payments will be made to brokers, dealers or others soliciting acceptance
of the Exchange Offer. However, reasonable and customary fees will be paid to
the Exchange Agent for its service and it will be reimbursed for its reasonable
out-of-pocket expenses in connection therewith.
The 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
$200,000. Such expenses include fees and expenses of the Exchange Agent and the
trustee under the Indenture, accounting and legal fees and printing costs, among
others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of its Original Series B Notes pursuant to the Exchange Offer. If, however, a
transfer tax is imposed for any reason other than the exchange of its Original
Series B Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
The carrying values of the Original Series B Notes are not expected to be
materially different from the fair value of the Exchange Notes at the time of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
RESALE OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Original Series B Notes where such Original Series B Notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the Expiration Date,
it will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In
33
<PAGE>
addition, until ........... ...., 1997, all dealers effecting transactions in
the Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Notes and any commission or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date 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
incident to the Exchange Offer (including the expenses approved in writing of
one counsel for the holders of the Notes) other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the Notes (including
any broker-dealers) required to use this Prospectus in connection with their
resale of Exchange Notes as described above against certain liabilities,
including liabilities under the Securities Act.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes offered
hereby. In consideration for issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive in exchange Original Series B Notes in like
principal amount, the form and terms of which are the same as the form and terms
of the Exchange Notes, except as otherwise described herein under "The Exchange
Offer -- Terms of the Exchange Offer." The Original Series B Notes surrendered
in exchange for the Exchange Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the Exchange Notes will not result in any
increase in the indebtedness of the Company.
34
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted for the issuance of the Original Series B
Notes and the application of the proceeds therefrom. The information set forth
below should be read in conjunction with the "Pro Forma Financial Information"
and the Company's Consolidated Financial Statements and related notes thereto
included elsewhere herein.
AS OF
DECEMBER 31, 1996
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
Cash and investment securities....... $ 0.2 $ 0.2
====== ===========
Long-term debt, including current
maturities:
Existing revolving line of
credit........................ 4.5 4.5
Tranche A Term Loan............. 80.0 27.5
Tranche B Term Loan............. 44.5 44.5
ESOP Term Loan.................. 9.0 9.0
Original Notes.................. 175.0 175.0
Original Series B Notes(1)...... -- 53.0
------ -----------
Total long-term debt,
including current
maturities.............. 313.0 313.5
Common stock held by ESOP............ 9.0 9.0
Less -- Note receivable
from ESOP............... (9.0) (9.0)
Total stockholders'
equity.................. 61.9 60.6
------ -----------
Total
capitalization..... $374.9 $ 374.1
====== ===========
- ------------
(1) Includes the premium related to the issuance of the Notes.
35
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Statements of Operations for the
twelve months ended May 31, 1996, and the one month ended June 30, 1996 give
effect to the Transactions and the offering of the Notes as if they had occurred
on June 1, 1995. The following unaudited Pro Forma Consolidated Statement of
Operations for the six months ended December 31, 1996 gives effect to the
offering of the Original Series B Notes as if it had occurred on July 1, 1995.
The following unaudited Pro Forma Consolidated Balance Sheet as of December 31,
1996 gives effect to the issuance of the Original Series B Notes and the
application of the proceeds therefrom as if they had occurred on December 31,
1996. The Acquisition was accounted for as a purchase under generally accepted
accounting principles.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The pro forma financial
information does not purport to represent what the results of operations or
financial condition would actually have been had the Transactions and the
Offering in fact occurred on the dates set forth above or to project the
Company's results of operations or financial condition for any future period or
as of any date, respectively. The pro forma financial information set forth
below should be read in conjunction with the historical Consolidated Financial
Statements and Notes thereto of the Company included elsewhere in this Offering
Memorandum and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
36
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
ISSUANCE ISSUANCE
OF THE OF THE
ORIGINAL ORIGINAL
TPC SERIES B SERIES B
HISTORICAL NOTES NOTES
---------- ----------- ---------
Revenues............................. $246.7 $ 246.7
Cost of goods sold................... 216.5 216.5
Depreciation and amortization........ 15.9 15.9
---------- ---------
Gross profit.................... 14.3 14.3
Selling, general and administrative
expenses........................... 4.2 4.2
---------- ---------
Income from operations..... 10.1 10.1
Interest expense, net................ 17.4 0.5(p) 17.7
(0.2)(l)
Other income, net.................... 1.5 1.5
---------- ----------- ---------
Loss before income taxes........ (5.8) 0.3 (6.1)
Benefit for income taxes............. (0.9) (0.1)(q) (1.0)
---------- ----------- ---------
Net loss................... $ (4.9) $(0.2) $ (5.1)
========== =========== =========
See accompanying Notes to Pro Forma Financial Statements.
37
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR ONE MONTH ENDED JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
ISSUANCE
OF THE
TOC, ITS ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ORIGINAL
SUBSIDIARIES FOR THE FOR THE FOR THE FOR THE SERIES B
AND CLARKSTON ACQUISITION ACQUISITION FINANCINGS TRANSACTIONS NOTES
------------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $41.4 $(0.2)(a) $ 41.2 $ 41.2
Cost of goods sold................... 36.0 (0.6)(c) 35.4 35.4
Depreciation and amortization........ 1.3 1.8(d) 3.1 3.1
------------- ----------- ------------ ----------- ------------ -----------
Gross profit.................... 4.1 (1.4) 2.7 -- 2.7 --
Selling, general and administrative
expenses........................... 1.7 (0.2)(a) 1.5 1.5
0.1(c)
(0.1)(e)
------------- ----------- ------------ ----------- ------------ -----------
Income from operations..... 2.4 (1.2) 1.2 -- 1.2 --
Interest expense, net................ .1 (0.1)(a) 0.1 2.5(j) 2.6 0.1(p)
0.1(g)
Other income (expense):
Dividend income................. -- -- --
Charitable contribution......... (0.1) 0.1(h) -- --
Loss on disposal of assets and
investment securities, net.... (0.3) (0.3) (0.3)
Impairment of investment in
land.......................... -- -- --
Other, net...................... 0.1 0.1 0.1
------------- ----------- ------------ ----------- ------------ -----------
Income (loss) before income taxes and
minority interest.................. 2.0 (1.1) 0.9 (2.5) (1.6) (0.1)
Provision for income taxes........... 0.8 (0.3)(i) 0.5 (0.9)(i) (0.4)
Minority interest in net loss of
consolidated subsidiary............ 0.0 0.0(a) -- -- --
------------- ----------- ------------ ----------- ------------ -----------
Net income (loss).......... $ 1.2 $(0.8) $ 0.4 $(1.6) $ (1.2) $(0.1)
============= =========== ============ =========== ============ ===========
</TABLE>
PRO FORMA
FOR THE
ISSUANCE
OF THE
ORIGINAL
SERIES B
NOTES
---------
Revenues............................. $41.2
Cost of goods sold................... 35.4
Depreciation and amortization........ 3.1
---------
Gross profit.................... 2.7
Selling, general and administrative
expenses........................... 1.5
---------
Income from operations..... 1.2
Interest expense, net................ 2.7
Other income (expense):
Dividend income................. --
Charitable contribution......... --
Loss on disposal of assets and
investment securities, net.... (0.3)
Impairment of investment in
land.......................... --
Other, net...................... 0.1
---------
Income (loss) before income taxes and
minority interest.................. (1.7)
Provision for income taxes........... (0.4)
Minority interest in net loss of
consolidated subsidiary............ --
---------
Net income (loss).......... $(1.3)
=========
See accompanying Notes to Pro Forma Financial Statements
38
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MAY 31, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
ISSUANCE
OF THE
TOC, ITS ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ORIGINAL
SUBSIDIARIES FOR THE FOR THE FOR THE FOR THE SERIES B
AND CLARKSTON ACQUISITION ACQUISITION FINANCINGS TRANSACTIONS NOTES
------------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 455.6 $ (1.4)(a) $ 454.2 $454.2
Cost of goods sold................... 379.5 (0.2)(a) 367.3 367.3
(12.0)(c)
Depreciation and amortization........ 15.0 (0.3)(a) 36.3 36.3
(0.1)(b)
21.7(d)
------------- ----------- ----------- ----------- ------------ ------------
Gross profit.................... 61.1 (10.5) 50.6 -- 50.6
Selling, general and administrative
expenses........................... 19.1 (1.7)(a) 12.7 12.7
(0.3)(b)
(3.2)(c)
(1.2)(e)
------------- ----------- ----------- ----------- ------------ ------------
Income from operations..... 42.0 (4.1) 37.9 37.9
Interest expense, net................ 1.6 0.1(a) 1.3 30.6(j) 31.9 1.1(p)
(1.7)(f) (0.4)(l)
1.3(g) 0.1(n)
Other income (expense):
Dividend income................. 0.3 (0.3)(f) -- --
Charitable contribution......... (0.6) 0.6(h) -- --
(Loss) on disposal of assets and
investment securities, net.... (3.1) (3.1) (3.1)
Impairment of investment in
land.......................... (12.6) (12.6) (12.6)
Other, net...................... 0.1 0.1 0.1
------------- ----------- ----------- ----------- ------------ ------------
Income (loss) before income taxes and
minority interest.................. 24.5 (3.5) 21.0 (30.6) (9.6) (0.8)
Provision (benefit) for income
taxes.............................. 7.9 2.1(i) 10.0 (11.4)(i) (1.4) (0.3)(q)
Minority interest in net loss of
consolidated subsidiary............ 0.1 (0.1)(a) -- --
------------- ----------- ----------- ----------- ------------ ------------
Net (loss) income.......... $ 16.7 $ (5.7) $ 11.0 $ (19.2) $ (8.2) $ (0.5)
============= =========== =========== =========== ============ ============
</TABLE>
PRO FORMA
FOR THE
ISSUANCE
OF THE
ORIGINAL
SERIES B
NOTES
----------
Revenues............................. $454.2
Cost of goods sold................... 367.3
Depreciation and amortization........ 36.3
----------
Gross profit.................... 50.6
Selling, general and administrative
expenses........................... 12.7
----------
Income from operations..... 37.9
Interest expense, net................ 32.7
Other income (expense):
Dividend income................. --
Charitable contribution......... --
(Loss) on disposal of assets and
investment securities, net.... (3.1)
Impairment of investment in
land.......................... (12.6)
Other, net...................... 0.1
----------
Income (loss) before income taxes and
minority interest.................. (10.4)
Provision (benefit) for income
taxes.............................. (1.7)
Minority interest in net loss of
consolidated subsidiary............
----------
Net (loss) income.......... $ (8.7)
==========
See accompanying Notes to Pro Forma Financial Statements
39
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
ISSUANCE ISSUANCE
OF THE OF THE
ORIGINAL ORIGINAL
TPC SERIES B SERIES B
HISTORICAL NOTES NOTES
---------- ------------ ----------
ASSETS
Current assets:
Cash and cash equivalents....... $ 0.2 $ 0.2
Accounts receivable -- trade.... 41.1 41.1
Inventories..................... 21.9 21.9
Other current assets............ 13.1 13.1
---------- ----------
Total current assets....... 76.3 76.3
Property, plant and equipment, net... 251.6 251.6
Investments in land held for sale.... 3.9 3.9
Investment in and advances to limited
partnership........................ 2.8 2.8
Goodwill, net........................ 223.7 223.7
Other assets, net of accumulated
amortization....................... 14.2 0.5(n) 12.6
(2.1)(o)
---------- ------------ ----------
Total assets............... $572.5 $ (1.6) $570.9
========== ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................. $ 10.5 $ 10.5
Accounts payable -- trade....... 31.3 31.3
Accrued expenses................ 20.0 20.0
Current portion of cash bonus
plan.......................... 7.9 7.9
Current portion of Senior Term
Loans & ESOP Loan............. 13.0 (4.7)(m) 8.3
---------- ------------ ----------
Total current
liabilities............. 82.7 (4.7) 78.0
Revolving line of credit............. 4.5 4.5
Senior Term Loans.................... 113.5 (52.5)(k) 65.7
4.7(m)
Senior Subordinated Notes............ 175.0 50.0(k) 228.0
3.0(l)
ESOP Term Loan....................... 7.0 7.0
Cash bonus plan...................... 21.7 21.7
Deferred income taxes and other...... 106.2 (0.8)(o) 105.4
Common Stock held by ESOP............ 9.0 9.0
Less: Note receivable from ESOP...... (9.0) (9.0)
Stockholders' equity................. 61.9 (1.3)(o) 60.6
---------- ------------ ----------
$572.5 $ (1.6) $570.9
========== ============ ==========
See accompanying Notes to Pro Forma Financial Statements
40
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1996, THE ONE MONTH
ENDED JUNE 30, 1996, AND THE TWELVE MONTHS ENDED MAY 31, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
(a) Represents the elimination of operations, assets and liabilities
associated with The Texas Falls Corporation, which was not acquired as
part of the Acquisition. Pursuant to the Stock Purchase Agreement, 80% of
the outstanding capital stock of The Texas Falls Corporation was sold at
Closing to Mr. Swalm for $5.6 million. The proceeds were used to reduce
the Company's outstanding indebtedness.
ONE MONTH TWELVE MONTHS
ENDED ENDED
JUNE 30, 1996 MAY 31, 1996
------------- -------------
Revenues............................. $0.2 $1.4
Cost of goods sold................... 0.0 0.2
Depreciation and amortization........ 0.0 0.3
Selling, general and administrative
expenses........................... 0.2 1.7
Interest income (expense), net....... (0.1 ) 0.1
Minority interest in net loss of
consolidated subsidiary............ 0.0 0.1
------------- -------------
Net loss................... $ (0.1 ) $ (0.6 )
============= =============
Cash................................. 0.5
Investments in land.................. 2.3
Other assets, net of accumulated
amortization....................... 2.8
Accrued expenses..................... (0.2 )
-------------
Net adjustment............. $ 5.4
=============
(b) Represents the elimination of operations and assets associated with the
Ranch, which was sold pursuant to the Stock Purchase Agreement at Closing
to a former shareholder for $2.2 million. The proceeds were used to reduce
the Company's outstanding indebtedness.
ONE MONTH TWELVE MONTHS
ENDED ENDED
JUNE 30, 1996 MAY 31, 1996
------------- -------------
Depreciation......................... -- $0.1
Selling, general and administrative
expenses........................... -- $0.3
Fixed assets associated with the
Ranch.............................. $2.2 --
(c) Pursuant to the Stock Purchase Agreement, the existing profit sharing plan
was replaced with a new profit sharing plan. The Pro Forma Combined
Statements of Operations reflect (i) a reduction in the cost of goods sold
and selling, general and administrative expenses resulting from the
elimination of bonuses attributable to the existing profit sharing plan,
and (ii) an increase associated with bonuses attributable to the new
profit sharing plan.
ONE MONTH TWELVE MONTHS
ENDED ENDED
JUNE 30, 1996 MAY 31, 1996
------------- -------------
Cost of goods sold:
Bonuses under the previous
profit sharing plan........... $(0.6) $ (12.0)
============= =============
Selling, general and administrative
expenses:
Bonuses under the previous
profit sharing plan........... $(0.4) $ (11.5)
Bonuses under the new profit
sharing plan.................. 0.5 8.3
------------- -------------
Net increase (decrease).... $ 0.1 $ (3.2)
============= =============
(d) Represents an increase in depreciation and amortization resulting from the
preliminary purchase price allocation in accordance with the purchase
method of accounting. Goodwill is amortized over 40 years.
41
<PAGE>
(e) As a result of the Transactions, certain shareholders are no longer
employed by the Company. The Pro Forma Combined Statements of Operations
reflect a decrease in selling, general and administrative expenses for the
elimination of related shareholder salaries and expenses.
ONE MONTH TWELVE MONTHS
ENDED ENDED
JUNE 30, 1996 MAY 31, 1996
------------- -------------
Shareholder salaries................. $ 0.1 $ 0.8
Expenses............................. 0.0 0.4
------------- -------------
$ 0.1 $ 1.2
============= =============
(f) Represents the reduction of interest expense, interest income and dividend
income for the sales of marketable equity securities, the Ranch and 80% of
the outstanding capital stock of The Texas Falls Corporation at June 1,
1995.
(g) Represents interest expense associated with the Cash Bonus Plan.
(h) Represents the elimination of charitable contributions paid to an
affiliate organization. Such contributions were not related to the
businesses acquired and will not be made after the Acquisition.
(i) Represents the tax effect of all adjustments and the net income of
Clarkston using a combined state and federal statutory income tax rate of
approximately 37%.
(j) Represents interest incurred on borrowings under the Bank Credit Agreement
and the Original Notes. Debt issuance costs are amortized over the terms
of the related debt and included as a component of interest expense.
Assumes a 7.8% average borrowing rate and average outstanding borrowings
under the Bank Credit Agreement of $120.4 million and $110.4 million for
the twelve-month period ended May 31, 1996 and the one-month period ended
June 30, 1996, respectively. The stated and effective interest rate on the
Original Notes is 11.125% and 11.58%, respectively.
ONE MONTH TWELVE MONTHS
ENDED ENDED
JUNE 30, 1996 MAY 31, 1996
------------- -------------
Bank Credit Agreement................ $ 0.8 $ 9.6
ESOP Note, net of interest income.... -- --
Original Notes....................... 1.6 19.4
Amortization of debt issuance
costs.............................. .1 1.6
------------- -------------
$ 2.5 $30.6
============= =============
A 1% change in the interest rate payable on the outstanding balance under
the Bank Credit Agreement would change annual interest expense by $1.2
million on an annual basis before the effect of income taxes.
(k) Represents the sale of the Original Series B Notes and the application of
the net proceeds as a reduction of Tranch A of the Senior Term Loans.
(l) Represents the amount of premium received on sale of the Notes over par
value. Premium will be carried as a liability and amortized over the
remaining term of the Notes, approximately 9.25 years.
(m) Represents the reclassification of a portion of the current Tranche A
Senior Term Loan to long-term as a result of the revision of the principal
payment amortization schedule.
(n) Represents the capitalization of debt issue costs associated with the
Notes offered hereby. These costs will be amortized over the remaining
term of the Notes, approximately 9.25 years.
(o) Represents the write off of a portion of the debt issue costs associated
with the Tranch A Senior Term Loan being reduced with net proceeds from
the sale of the Notes, net of the tax effect using a combined state and
federal statutory rate of approximately 37%. As the write off will be
included in historical income as an extraordinary item, such charge was
not considered in the pro forma income statement.
(p) Represents the net increase in interest expense as a result of issuing the
Notes and the reduction of a portion of the Tranche A Senior Term Loan.
The stated and effective interest rate on the Notes is 11.125% and 11.36%,
respectively.
(q) Represents the tax effect of the adjustments to taxable income using a
combined state and federal statutory rate of approximately 37%.
42
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below has been derived
from the combined financial statements of TOC, its subsidiaries and Clarkston
for periods prior to July 1, 1996 and from the consolidated financial statements
of the Company since July 1, 1996, and should be read in conjunction with, and
is qualified in its entirety by reference to, financial statements which appear
elsewhere in this Offering Memorandum and their accompanying notes. Such
combined financial information is combined to reflect the assumption by the
Company of a raw material supply contract. The combined financial information
set forth below for each of the years in the three-year period ended May 31,
1995, the twelve-month period ended May 31, 1996 and the one-month period ended
June 30, 1996 has been derived from the financial statements of TOC, its
subsidiaries and Clarkston, which were audited by Coopers & Lybrand L.L.P.,
independent auditors for such entities. The financial information set forth
below for the year ended May 31, 1992 and the six months ended December 31, 1995
and 1996 has been derived from unaudited financial statements, which, in the
opinion of management, have been prepared on a basis consistent with the audited
financial statements of such entities and contain all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
results for these periods. The unaudited combined financial information for the
year ended May 31, 1992 has been prepared from audited financial statements of
TOC and its subsidiaries and unaudited financial statements of Clarkston. The
results of the one month and interim periods are not necessarily indicative of
the results of the entire year or any other period. The information presented
below should be read in conjunction with the combined financial statements of
TOC, its subsidiaries and Clarkston, the consolidated financial statements of
the Company and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
TWELVE ONE SIX
MONTHS MONTH MONTHS
ENDED ENDED ENDED
YEAR ENDED MAY 31, MAY 31, JUNE 30, DECEMBER 31,
------------------------------------------ -------- --------- ------------
1992 1993 1994 1995 1996 1996 1995
--------- --------- --------- --------- -------- --------- ------------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 416.1 $ 410.7 $ 352.4 $ 474.7 $455.6 $ 41.4 $226.5
Cost of goods sold(1)................ 318.3 340.8 268.8 396.3 379.5 36.0 187.6
Depreciation and amortization........ 12.0 12.6 13.6 14.3 15.0 1.3 7.4
--------- --------- --------- --------- -------- --------- ------------
Gross profit......................... 85.8 57.3 70.0 64.1 61.1 4.1 31.5
Selling, general and administrative
expenses(1)........................ 15.4 14.4 16.7 16.6 19.1 1.7 5.8
--------- --------- --------- --------- -------- --------- ------------
Income from operations............... 70.4 42.9 53.3 47.5 42.0 2.4 25.7
Interest income (expense), net....... (0.6) (0.6) (0.2) 0.7 (1.6) (0.1) (1.6)
Other income (expense)(2)............ (6.3) (1.2) (0.8) 1.1 (15.9) (0.3) 0.2
--------- --------- --------- --------- -------- --------- ------------
Income (loss) before income taxes and
minority interest.................. 63.5 41.1 52.3 49.3 24.5 2.0 24.3
Provision (benefit) for income
taxes.............................. 24.3 13.0 18.4 16.9 7.9 0.8 8.1
Minority interest in net loss of
consolidated subsidiary............ -- -- 0.0 0.1 0.1 0.0 0.1
--------- --------- --------- --------- -------- --------- ------------
Net income (loss).................... 39.2 28.1 33.9 32.5 16.7 1.2 16.3
OPERATING DATA:
Revenues by product:
Butadiene(3)..................... $ 64.9 $ 81.3 $ 68.7 $ 106.2 $112.6 $ 10.2 $ 60.4
MTBE............................. 252.0 211.0 175.2 199.1 187.4 21.0 91.7
n-Butylenes...................... 29.2 21.7 28.1 42.7 48.2 3.2 25.3
Specialty Isobutylenes........... 38.2 54.8 59.9 75.5 74.5 5.5 34.0
Other(4)......................... 31.8 41.9 20.5 51.2 32.9 1.5 15.1
Sales volumes (in millions of
pounds):
Butadiene........................ 559.1 556.2 484.4 580.8 622.6 64.6 295.3
MTBE(5).......................... 254.4 225.1 194.8 211.1 219.8 26.6 111.2
n-Butylenes...................... 158.7 114.7 150.8 245.9 284.6 17.1 153.2
Specialty Isobutylenes........... 240.4 309.0 312.2 398.0 368.2 23.0 184.6
</TABLE>
SIX
MONTHS
ENDED
DECEMBER 31,
------------
1996
------------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues............................. $246.7
Cost of goods sold(1)................ 216.5
Depreciation and amortization........ 15.9
------------
Gross profit......................... 14.3
Selling, general and administrative
expenses(1)........................ 4.2
------------
Income from operations............... 10.1
Interest income (expense), net....... (17.4)
Other income (expense)(2)............ 1.5
------------
Income (loss) before income taxes and
minority interest.................. (5.8)
Provision (benefit) for income
taxes.............................. (0.9)
Minority interest in net loss of
consolidated subsidiary............ --
------------
Net income (loss).................... (4.9)
OPERATING DATA:
Revenues by product:
Butadiene(3)..................... $ 62.6
MTBE............................. 128.1
n-Butylenes...................... 21.5
Specialty Isobutylenes........... 25.9
Other(4)......................... 8.6
Sales volumes (in millions of
pounds):
Butadiene........................ 356.4
MTBE(5).......................... 150.3
n-Butylenes...................... 115.5
Specialty Isobutylenes........... 100.8
(FOOTNOTES ON FOLLOWING PAGE)
43
<PAGE>
<TABLE>
<CAPTION>
MAY 31,
------------------------------------------ JUNE 30, DECEMBER 31,
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- -------- ------------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital...................... $ 33.9 $ 38.6 $ 50.6 $ 67.3 $ 25.0 $ (6.4)
Property, plant and equipment, net... 101.8 101.6 95.9 90.1 81.8 251.6
Total assets......................... 203.2 194.1 214.6 230.7 167.9 572.5
Long-term debt (including current
portion)........................... 14.4 10.9 11.0 -- 13.0 313.0
Total stockholders' equity........... 123.7 128.2 140.4 163.3 92.5 61.9
</TABLE>
<TABLE>
<CAPTION>
TWELVE ONE SIX
MONTHS MONTH MONTHS
ENDED ENDED ENDED
YEAR ENDED MAY 31, MAY 31, JUNE 30, DECEMBER 31,
------------------------------------------ -------- --------- ------------
1992 1993 1994 1995 1996 1996 1995
--------- --------- --------- --------- -------- --------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(6)............................ $ 82.4 $ 55.5 $ 66.9 $ 61.8 $ 57.0 $ 3.7 $ 33.1
Employee profit sharing and
bonuses(1)......................... 22.5 18.6 23.6 20.9 23.5 1.0 10.2
Capital expenditures................. 7.1 12.0 12.5 8.7 5.5 2.0 2.1
Net cash provided by operating
activities......................... 53.9 44.5 30.2 50.3 44.5 13.9 29.7
Net cash provided by (used in)
investing activities............... (24.5) (7.2) (5.3) (25.9) 8.2 (1.3) (8.4)
Net cash used in financing
activities......................... (31.3) (29.9) (17.6) (23.3) (69.0) (9.4) (42.3)
Cash dividends....................... 8.7 23.7 21.4 6.2 16.5 -- 4.0
Ratio of earnings to fixed
charges(7)......................... 23.6x 16.1x 26.0x 26.3x 7.2x 9.4x 11.3x
</TABLE>
SIX
MONTHS
ENDED
DECEMBER 31,
------------
1996
------------
OTHER DATA:
EBITDA(6)............................ $ 26.0
Employee profit sharing and
bonuses(1)......................... 1.4
Capital expenditures................. 5.2
Net cash provided by operating
activities......................... (0.1)
Net cash provided by (used in)
investing activities............... (358.4)
Net cash used in financing
activities......................... 353.9
Cash dividends....................... --
Ratio of earnings to fixed
charges(7)......................... --
- ------------
(1) Historically, the Company has allocated employee profit sharing and bonuses
to cost of goods sold and selling, general and administrative expenses. For
the period subsequent to July 1, 1996 all profit sharing and bonuses have
been allocated to selling, general and administrative expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
(2) Includes dividend income, charitable contributions, gain (loss) on disposal
of assets and investment securities, net, and other, net. For the twelve
months ended May 31, 1996, other expense includes an impairment of
investment in land of $12.6 million.
(3) Approximately 95% of the Company's butadiene sales are under fixed profit
contracts with suppliers of crude butadiene.
(4) Includes Clarkston's trading revenues from third parties (for the periods
prior to July 1, 1996), utility revenues, revenues realized from the
Company's terminalling facilities and sales of chemical by-products.
(5) Volumes in millions of gallons.
(6) EBITDA represents income from operations before taking into consideration
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to incur and service
debt. EBITDA should not be construed by an investor as an alternative to
income from operations (as determined in accordance with generally accepted
accounting principles), as an indicator of the operating performance of the
Company or as an alternative to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of liquidity.
(7) For purposes of this ratio, earnings consist of income before income taxes
and minority interest. Fixed charges consist of interest expense and the
portion of rents representative of an interest factor. For the twelve months
ended May 31, 1996, income before taxes and minority interest includes a
$12.6 million non-cash provision for the impairment of certain non-strategic
properties which TPC intends to sell. For the six months ended December 31,
1996, earnings were insufficient to cover fixed charges in the amount of
$(5.8) million.
44
<PAGE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of the results of operations,
financial condition and liquidity of the Company should be read in conjunction
with the combined financial statements of TOC, its subsidiaries and Clarkston
included in this Prospectus and the notes thereto. The discussion and analysis
relating to the periods prior to July 1, 1996 pertains to TOC, its subsidiaries
and Clarkson, and the financial statements and other information set forth
herein for such periods combine the historical results of TOC, its subsidiaries
and Clarkston. As a result, the transactions between Clarkston and the Company
have been eliminated in the combined financial statements.
OVERVIEW
The Company's revenues are derived primarily from merchant market sales of
butadiene, MTBE, n-butylenes (butene-1 and butene-2) and specialty isobutylenes
(isobutylene concentrate, high purity isobutylene, and diisobutylene). The
Company's results of operations are affected by a number of factors, including
variations in market demand, production volumes, and the pricing of its products
and primary raw materials. The Company believes that the pricing for its
principal products is primarily dependent on the balance between the global
supply and North American demand for each product, the cost structure of the
various global producers (including their cost of raw materials), and, from time
to time, other external factors, such as the implementation of the CAAA, which
has significantly increased the demand for MTBE. Historically, the Company has
successfully mitigated the cyclicality of the markets for certain of its end
products by entering into contracts with pricing which allows for a fixed profit
by linking prices directly or indirectly to raw material costs. In addition, the
Company has attempted to optimize the use of isobutylene, an intermediate
feedstock produced by the Company, to produce MTBE or higher margin, specialty
products depending on prevailing market conditions.
The markets for the Company's principal products, butadiene and MTBE, are
cyclical, and market conditions may have a significant impact on the Company's
operating results. During the past five years, industry-wide pricing and
operating rates for butadiene and MTBE have fluctuated significantly and have
affected the Company's revenues and profit margins. The Company has, however,
achieved relatively stable profitability on its sales of butadiene due to the
nature of the supply contracts under which the Company purchases crude
butadiene, the raw material from which most of the Company's butadiene is
produced. The Company purchases approximately 95% of its crude butadiene
requirements at prices which are adjusted based on the Company's selling price
of butadiene as well as the energy cost of natural gas used to produce
butadiene, thereby providing the Company with a fixed profit on such sales.
Moreover, the Company sells butadiene under contracts which typically require
its customers to purchase a certain minimum volume from the Company.
Historically, MTBE was sold in the U.S. under sales contracts which allowed
suppliers to recover raw material costs and earn a fixed profit. Sales prices
under these contracts were higher than the then prevailing spot prices. Since
December 1994, the Company, as well as most other U.S. MTBE producers, has sold
all of its MTBE production at prices related to spot market prices. The Company
believes that the reduction of industry-wide volumes sold under these types of
fixed profit contracts and the large U.S. capacity additions built in the early
1990s in anticipation of demand created by the implementation of the CAAA's
oxygenated gasoline program in 1992 has acted as a deterrent to possible
capacity additions. Despite the transition in the industry away from fixed
profit contracts, the Company has consistently achieved profitability on its
sales of MTBE. One of the Company's principal raw materials used in the
production of MTBE, methanol, which the Company purchases at market prices, has
experienced considerable price fluctuations over the past several years. The
addition of significant new methanol production capacity in 1995 and early 1996
has resulted in a decline in the price of methanol from the historically high
levels reached in the winter of 1994. The Company believes that this current
imbalance between supply and demand will continue over the next
45
<PAGE>
several years, and that the price of methanol will remain relatively stable at
historically low levels, which is expected to have a positive impact on the
profitability of the Company's MTBE operations.
The markets and pricing for the Company's n-butylene and specialty
isobutylene products historically have been less cyclical than those for
butadiene and MTBE. These products are generally more specialized in nature,
typically account for a smaller proportion of the end-use product's overall cost
than commodity products, and are produced by a fewer number of producers. The
Company sells certain n-butylenes and specialty isobutylenes under contracts
which link their selling prices to the prices of products (principally gasoline
and butanes) for which prices fluctuate in a manner that correlates closely with
those of the raw materials used to manufacture n-butylenes and specialty
isobutylenes. In addition, the Company sells certain of these products under
contracts which link selling prices directly to raw material costs. The Company
has increased its focus on maximizing sales of these products. In the six months
ended December 31, 1996, the twelve months ended May 31, 1996 and the one month
ended June 30, 1996, sales of n-butylenes and specialty isobutylenes represented
20%, 27% and 21%, respectively, of the Company's revenues as compared to 19% in
fiscal 1993.
For the twelve months ended May 31, 1996 and the one month ended June 30,
1996, approximately 43% and 45% of the Company's revenues were derived from
products which were sold on a fixed profit basis or for which selling prices
were linked directly or indirectly to raw material costs. Historically, the
percentage of the Company's revenues represented by such contracts has been
relatively stable. However, there can be no assurance that such contracts will
remain in effect beyond their current terms or, if extended, that the same
provisions would continue to apply. See "Business -- Contracts." The pricing
of the Company's other products, including MTBE, is typically based on
prevailing market prices.
Other revenues include Clarkston's trading revenues from third parties (for
periods prior to July 1, 1996), utility revenues, revenues realized from the
Company's terminalling facilities and sales of chemical by-products. The
Company's utility revenues have been primarily a function of natural gas costs
since demand has been relatively stable. The Company's terminalling revenues are
primarily a function of the volume of services provided. Sales of chemical
by-products are primarily a function of plant production levels. Clarkston,
which was owned by certain of the same shareholders as TOC, historically engaged
in the purchase of isobutane, one of the Company's principal raw materials,
primarily on behalf of the Company, and also on behalf of certain third parties.
As part of the Transactions, the Company (for periods prior to July 1, 1996)
assumed from Clarkston a contract between Clarkston and a certain supplier for
the purchase of isobutane. Clarkston's historical revenues derived from third
parties have been included in other revenues, and the raw material costs
relating to such revenues have been included in cost of goods sold.
Historically, trading costs have substantially offset Clarkston's third party
trading revenues. Historical transactions between the Company and Clarkston have
been eliminated.
The Company believes its relationships with its largest customers are good.
Certain of its largest customers account for a significant percentage of the
Company's sales of particular products. As a result, the loss of significant
volumes or a significant customer could affect revenues from year to year.
Historically the Company has successfully replaced lost volumes or customers
with new customers or open market sales.
46
<PAGE>
REVENUES
The Company's revenues are primarily a function of the volume of products
sold by the Company and the prices for such products. The following tables set
forth the Company's: (i) historical revenues and the percentages of historical
revenues by product; (ii) volume of products sold; and (iii) average selling
prices for such products, exclusive of tolling fees, in each case for the years
ended May 31, 1994 and 1995, the twelve-month period ended May 31, 1996, the
one-month period ended June 30, 1996 and the six months ended December 31, 1995
and 1996.
REVENUES
<TABLE>
<CAPTION>
SIX
TWELVE MONTHS MONTHS
ONE MONTH ENDED
ENDED ENDED DECEMBER
YEAR ENDED MAY 31, MAY 31, JUNE 30, 31,
------------------------------------------ -------------------- -------------------- ---------
1994 1995 1996 1996 1995
-------------------- -------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Butadiene............... $ 68.7 19% $ 106.2 22% $ 112.6 25% $ 10.2 25% $ 60.4
MTBE.................... 175.2 50 199.1 42 187.4 41 21.0 50 91.7
n-Butylenes............. 28.1 8 42.7 9 48.2 11 3.2 8 25.3
Specialty
Isobutylenes.......... 59.9 17 75.5 16 74.5 16 5.5 13 34.0
Other(1)................ 20.5 6 51.2 11 32.9 7 1.5 4 15.1
--------- --- --------- --- --------- --- --------- --- ---------
Total............... $ 352.4 100% $ 474.7 100% $ 455.6 100% $ 41.4 100% $ 226.5
========= === ========= === ========= === ========= === =========
</TABLE>
SIX MONTHS
ENDED
DECEMBER 31,
--------------------
1996
--------------------
Butadiene............... 27% $ 62.6 25%
MTBE.................... 40 128.1 52
n-Butylenes............. 11 21.5 9
Specialty
Isobutylenes.......... 15 25.9 11
Other(1)................ 7 8.6 3
--- --------- ---
Total............... 100% $ 246.7 100%
=== ========= ===
- ------------
(1) Includes Clarkston's trading revenues from third parties, utility revenues,
revenues realized from the Company's terminalling facilities and sales of
chemical by-products to third parties.
SALES VOLUMES
<TABLE>
<CAPTION>
TWELVE MONTHS ONE MONTH SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
MAY 31, MAY 31, JUNE 30, DECEMBER 31, DECEMBER 31,
-------------------- ------------- ---------- ------------ ------------
1994 1995 1996 1996 1995 1996
--------- --------- ------------- ---------- ------------ ------------
(MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
<S> <C> <C> <C> <C> <C> <C>
Butadiene............... 484.4 580.8 622.6 64.6 295.3 356.4
MTBE(1)................. 194.8 211.1 219.8 26.6 111.2 150.3
n-Butylenes............. 150.8 245.9 284.6 17.1 153.2 115.5
Specialty
Isobutylenes.......... 312.2 398.0 368.2 23.0 184.6 100.8
</TABLE>
- ------------
(1) Volumes in millions of gallons.
AVERAGE SELLING PRICES
<TABLE>
<CAPTION>
TWELVE MONTHS ONE MONTH SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
MAY 31, MAY 31, JUNE 30, DECEMBER 31, DECEMBER 31,
-------------------- ------------- ---------- ------------ ------------
1994 1995 1996 1996 1995 1996
--------- --------- ------------- ---------- ------------ ------------
(DOLLARS PER POUND, EXCEPT WHERE NOTED)
<S> <C> <C> <C> <C> <C> <C>
Butadiene............................ $ 0.16 $ 0.21 $0.20 $ 0.18 $ 0.23 $ 0.20
MTBE(1).............................. 0.90 0.94 0.85 0.80 0.83 0.85
n-Butylenes(2)....................... 0.19 0.17 0.17 0.19 0.17 0.19
Specialty Isobutylenes(2)............ 0.19 0.19 0.20 0.24 0.24 0.26
</TABLE>
- ------------
(1) Prices in dollars per gallon.
(2) Weighted average of the products under these categories.
RAW MATERIALS
The Company's principal purchased raw materials are crude butadiene,
methanol and isobutane. The Company purchases approximately 95% of its crude
butadiene requirements at prices which are adjusted based on the Company's
selling price of butadiene as well as the cost of natural gas used to produce
butadiene, thereby providing the Company with a fixed profit on such sales.
Methanol and isobutane are purchased at prices linked to prevailing market
prices. The following table sets forth the Company's
47
<PAGE>
average raw material prices for crude butadiene, methanol and isobutane for the
years ended May 31, 1994 and 1995, the twelve-month period ended May 31, 1996,
the one-month period ended June 30, 1996 and the six month period ended December
31, 1995 and 1996.
<TABLE>
<CAPTION>
TWELVE MONTHS ONE MONTH SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
MAY 31, MAY 31, JUNE 30, DECEMBER 31, DECEMBER 31,
-------------------- -------------- --------------- ------------ ------------
1994 1995 1996 1996 1995 1996
--------- --------- -------------- --------------- ------------ ------------
(DOLLARS PER GALLON, EXCEPT WHERE NOTED)
<S> <C> <C> <C> <C> <C> <C>
Crude Butadiene(1)................... $ 0.09 $ 0.15 $ 0.14 $0.12 $ 0.12 $ 0.11
Methanol............................. 0.44 0.80 0.40 0.41 0.41 0.45
Isobutane............................ 0.39 0.41 0.43 0.46 0.42 0.55
</TABLE>
- ------------
(1) Prices in dollars per pound.
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations .
<TABLE>
<CAPTION>
SIX
MONTHS
TWELVE MONTHS ONE MONTH ENDED
ENDED ENDED DECEMBER
YEAR ENDED MAY 31, MAY 31, JUNE 30, 31,
------------------------------------------ -------------------- -------------------- ---------
1994 1995 1996 1996 1995
-------------------- -------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Revenues................ $ 352.4 100% $ 474.7 100% $ 455.6 100% $ 41.4 100% $ 226.5
Cost of goods sold(1)... 268.8 76 396.3 84 379.5 84 36.0 87 187.6
Depreciation and
amortization.......... 13.6 4 14.3 3 15.0 3 1.3 3 7.4
--------- --- --------- --- --------- --- --------- --- ---------
Gross profit............ 70.0 20 64.1 13 61.1 13 4.1 10 31.5
Selling, general and
administrative
expenses(1)........... 16.7 5 16.6 3 19.1 4 1.7 4 5.8
--------- --- --------- --- --------- --- --------- --- ---------
Income from operations.. $ 53.3 15% $ 47.5 10% $ 42.0 9% 2.4 6% $ 25.7
========= === ========= === ========= === ========= === =========
</TABLE>
SIX MONTHS
ENDED
DECEMBER 31,
--------------------
1996
--------------------
Revenues................ 100% $ 246.7 100%
Cost of goods sold(1)... 83 216.5 88
Depreciation and
amortization.......... 3 15.9 6
--- --------- ---
Gross profit............ 14 14.3 6
Selling, general and
administrative
expenses(1)........... 3 4.2 2
--- --------- ---
Income from operations.. 11% $ 10.1 4%
=== ========= ===
- ------------
(1) Employee profit sharing and bonuses were historically included in cost of
goods sold and selling, general and administrative expenses in the following
amounts:
<TABLE>
<CAPTION>
TWELVE MONTHS ONE MONTH SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
MAY 31, MAY 31, JUNE 30, DECEMBER 31, DECEMBER 31,
-------------------- -------------- --------------- ------------ ------------
1994 1995 1996 1996 1995 1996
--------- --------- -------------- --------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Cost of goods sold................... $ 13.4 $ 12.5 $ 12.0 -$- $ 6.0 $--
Selling, general and administrative
expenses........................... 10.2 8.4 11.5 1.0 4.2 1.4
--------- --------- -------------- --------------- ------------ ------------
Total............................ $ 23.6 $ 20.9 $ 23.5 $ 1.0 $ 10.2 $ 1.4
========= ========= ============== =============== ============ ============
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
1995
REVENUES
The Company's revenues increased by approximately 9%, or $20.2 million, to
$246.7 million for the six months ended December 31, 1996 from $226.5 million
for the six months ended December 31, 1995. The increase was primarily
attributable to increased selling prices and volumes for MTBE and increased
volumes of butadiene sold, partially offset by decreases in sales volumes of
n-butylenes and specialty isobutylenes. The Company's revenues by product for
the six months ended December 31, 1995 and December 31, 1996 were as follows:
48
<PAGE>
<TABLE>
<CAPTION>
INCREASE (DECREASE)
SIX MONTHS ENDED IN REVENUES SIX MONTHS ENDED
DECEMBER 31, DUE TO CHANGES IN DECEMBER 31,
---------------- ------------------- ----------------
1995 PRICE VOLUME 1996
---------------- --------- ------ ----------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Butadiene............................ $ 60.4 $ (10.7) $ 12.9 $ 62.6
MTBE................................. 91.7 4.2 32.2 128.1
n-Butylenes.......................... 25.3 2.5 (6.3) 21.5
Specialty Isobutylenes............... 34.0 2.0 (10.1) 25.9
Other(1)............................. 15.1 8.6
-------- --------
$226.5 $246.7
======== ========
</TABLE>
- ------------
(1) The component mix of other revenues does not make it meaningful to show
increases or decreases due to price or volume.
Butadiene revenues increased by approximately 4%, or $2.2 million, to $62.6
million for the six months ended December 31, 1996 from $60.4 million for the
six months ended December 31, 1995. The increase was attributable to an increase
in sales volumes of approximately 21%, or 61.1 million pounds, as a result of
increased production levels due to the availability of crude butadiene feedstock
and strong customer demand. The volume increase was offset by a decline in
butadiene prices. Butadiene prices in the prior period remained high due to the
build up of U.S. tire inventory to record levels by the end of the calendar
year. A sharp drop in butadiene prices began in 1996 and resulted in a lower
average selling price in the current period.
MTBE revenues increased by approximately 40%, or $36.4 million, to $128.1
million for the six months ended December 31, 1996 from $91.7 million for the
six months ended December 31, 1995. With the decrease in demand for isobutylene
concentrate the Company shifted its isobutylene production, an intermediate
feedstock, to the production of MTBE. Demand for MTBE in the market remained
strong, thus the Company was able to supply increased volumes at higher sales
prices to its customers.
n-Butylenes revenues decreased by approximately 15%, or $3.8 million, to
$21.5 million for the six months ended December 31, 1996 from $25.3 million for
the six months ended December 31, 1995. This decrease was attributable to lower
sales volumes of butene-2 during the current period. Current market conditions
allowed the Company's major butene-2 customer to find alternative feedstocks.
Butene-1 sales revenues were unchanged.
Specialty isobutylene revenues decreased by approximately 24%, or $8.1
million, to $25.9 million for the six months ended December 31, 1996 from $34.0
million for the six months ended December 31, 1995. The decrease in revenues was
primarily attributable to lower sales volumes of isobutylene concentrate. The
Company supplies all of its isobutylene concentrate to two customers, both of
which were adversely affected by high isobutane prices during the current
period. High purity isobutylene revenues decreased slightly during the period as
a result of lower sales volumes caused by the timing of product shipments.
Other revenues decreased by approximately 43%, or $6.5 million, to $8.6
million for the six months ended December 31, 1996 from $15.1 million for the
six months ended December 31, 1995. The decrease in revenues is due to the
elimination of Clarkston's trading revenues from third parties. Clarkston was
dissolved in June 1996 as part of the Acquisition.
GROSS PROFIT
Gross profit decreased by approximately 55%, or $17.2 million, to $14.3
million for the six months ended December 31, 1996 from $31.5 million for the
six months ended December 31, 1995. Gross margin during the period decreased to
5.8% from 13.9%. The decrease was primarily attributable to higher isobutane
costs which resulted in lower margins on MTBE and specialty isobutylene sales.
In December 1996, as a result of the decline in MTBE margins, the Company shut
down its Dehydro-1 unit for 27 days which has a production capacity of
approximately 9,000 barrels per day of isobutylene. Additionally, during October
1996, the Company temporarily shut down Dehydro-1 for 21 days as a result of a
scheduled turnaround in order to install a new waste heat boiler. Higher natural
gas prices also contributed to a lower
49
<PAGE>
gross profit during the current period. Increased gross profits from the sale of
higher volumes of butadiene were sufficient to offset the decrease in gross
profit from lower sales volumes of isobutylene concentrate and high purity
isobutylene. Gross profit was also negatively impacted by increased depreciation
and amortization expense during the current period as a result of the increased
basis in fixed assets and goodwill from the Acquisition.
INCOME FROM OPERATIONS
Income from operations decreased by approximately 61%, or $15.6 million, to
$10.1 million for the six months ended December 31, 1996 from $25.7 million for
the six months ended December 31, 1995. Operating margin during the period
decreased to 4.1% from 11.3%. This decrease in income from operations and
operating margin was primarily due to the same factors contributing to the
decrease in gross profit and gross margin described above. The decrease was
partially offset by a decrease in selling, general and administrative costs as a
result of cost savings subsequent to the Acquisition.
ONE MONTH ENDED JUNE 30, 1996 COMPARED TO ONE MONTH ENDED JUNE 30, 1995
REVENUES
The Company's revenues increased by approximately 14%, or $5.2 million, to
$41.4 million for the one month ended June 30, 1996 from $36.2 million for the
one month ended June 30, 1995. This increase was attributable to increased
volumes for butadiene and MTBE. Volumes for n-butylenes and specialty
isobutylenes were down compared to the prior period. Prices for butadiene were
up slightly and MTBE prices were down. Other product prices remained constant
with the prior period.
GROSS PROFIT
Gross profit decreased by approximately 27%, or $1.5 million, to $4.1
million for the one month ended June 30, 1996 from $5.6 million for the one
month ended June 30, 1995. Gross margin during this period decreased slightly to
9.9% from 15.4%. The decline in gross profit was primarily attributable to the
decreased sales price of MTBE.
INCOME FROM OPERATIONS
Income from operations decreased by approximately 27%, or $0.9 million, to
$2.4 million for the one month ended June 30, 1996 from $3.3 million for the one
month ended June 30, 1995. Operating margin during this period declined to 5.9%
from 9.2%. This decrease in income from operations and operating margin was
primarily due to the same factors contributing to the decrease in gross profit
and gross margin described above.
50
<PAGE>
TWELVE MONTHS ENDED MAY 31, 1996 COMPARED TO YEAR ENDED MAY 31, 1995
REVENUES
The Company's revenues decreased by approximately 4%, or $19.1 million, to
$455.6 million for the twelve months ended May 31, 1996 from $474.7 million for
the year ended May 31, 1995. This decrease was primarily attributable to
decreased selling prices for butadiene, MTBE and n-butylenes, as well as
decreased sales volumes for specialty isobutylenes and a decrease in other
revenues, partially offset by increased selling prices of specialty isobutylenes
as well as increased sales volumes of butadiene, MTBE and n-butylenes. The
Company's revenues by product for the year ended May 31, 1995 and the twelve-
month period ended May 31, 1996 were as follows:
<TABLE>
<CAPTION>
TWELEVE
INCREASE (DECREASE) MONTHS
YEAR ENDED IN REVENUES ENDED
MAY 31, DUE TO CHANGES IN MAY 31,
----------- --------------------- -----------
1995 PRICE VOLUME 1996
----------- ------ ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Butadiene............................ $ 106.2 $ (1.2) $ 7.6 $ 112.6
MTBE................................. 199.1 (19.9) 8.2 187.4
n-Butylenes.......................... 42.7 (1.2) 6.7 48.2
Specialty Isobutylenes............... 75.5 4.7 (5.7 ) 74.5
Other(1)............................. 51.2 32.9
----------- -----------
Total............................ $ 474.7 $ 455.6
=========== ===========
</TABLE>
- ------------
(1) The component mix of other revenues does not make it meaningful to show
increases or decreases due to price or volume.
Butadiene revenues increased by approximately 6%, or $6.4 million, to
$112.6 million for the twelve months ended May 31, 1996 from $106.2 million for
the year ended May 31, 1995. This increase was primarily attributable to an
increase in sales volumes of approximately 7%, or 41.8 million pounds, as a
result of increased contractual volumes sold at then current prices to a major
customer as the Company gained a larger share of this customer's business and as
this customer increased its requirements. In addition, sales prices decreased
slightly due to customers drawing down inventory thereby decreasing overall
product demand.
MTBE revenues decreased by approximately 6%, or $11.7 million, to $187.4
million for the twelve months ended May 31, 1996 from $199.1 million for the
year ended May 31, 1995. This decrease was primarily attributable to a decrease
in selling prices due to the expiration of significant sales contracts in which
pricing was based on a fixed profit above cost, in accordance with industry
trends. In addition, sales volumes increased by approximately 4%, or 8.7 million
gallons, due to the full year implementation of mandated oxygenate requirements.
n-Butylenes revenues increased by approximately 13%, or $5.5 million, to
$48.2 million for the twelve months ended May 31, 1996 from $42.7 million for
the year ended May 31, 1995. This increase was attributable to increased sales
volumes of approximately 16%, or 38.7 million pounds, as the Company expanded
its customer base and increased its contractual volumes to a significant
existing customer. A decrease in average selling prices resulted from the
Company matching competitors' pricing for certain products, which partially
offset the increase in sales volumes.
Specialty isobutylenes revenues decreased by approximately 1%, or $1.0
million, to $74.5 million for the twelve months ended May 31, 1996 from $75.5
million for the year ended May 31, 1995. This decrease was the result of a major
specialty isobutylene customer increasing purchases of a low price specialty
isobutylene product from a competing supplier offering an alternate, lower
purity product during this period. The Company offset a portion of these lower
volumes by sales of higher priced specialty isobutylene products to other
customers at prices which were lower than prevailing contract prices.
Other revenues decreased by approximately 36%, or $18.3 million, to $32.9
million for the twelve months ended May 31, 1996, from $51.2 million for the
year ended May 31, 1995. This decrease was
51
<PAGE>
primarily due to a $17.5 million decrease in sales from Clarkston to third
parties due to reduced n-butane and isobutane trading activity.
GROSS PROFIT
Gross profit decreased by approximately 5%, or $3 million, to $61.1 million
for the twelve months ended May 31, 1996 from $64.1 million for the year ended
May 31, 1995. Gross margin during this period decreased slightly to 13.4% from
13.5%. The decline in gross profit was primarily attributable to a one-time 10%
salary increase for employees included in cost of goods sold, and to an
additional $3 million increase in cost of goods sold resulting from a scheduled
maintenance shutdown on one of the Company's dehydrogenation units and the
write-off of capitalized dehydrogenation catalyst costs, which resulted from an
unscheduled shutdown. In addition, depreciation and amortization increased
slightly related to new capital investments. These cost increases were partially
offset by a decrease in raw material methanol costs and a decrease in costs
associated with Clarkston's third party trading activities during this period.
INCOME FROM OPERATIONS
Income from operations decreased by approximately 12%, or $5.5 million, to
$42.0 million for the twelve months ended May 31, 1996 from $47.5 million for
the year ended May 31, 1995. Operating margin during this period declined to
9.2% from 10.0%. This decrease in income from operations and operating margin
was primarily due to the same factors contributing to the declines in gross
profit and gross margin described above, as well as a $1.3 million increase in
selling, general and administrative expenses primarily attributable to legal and
other expenses related to the repurchase of the Company's stock. See
"-- Liquidity and Capital Resources."
YEAR ENDED MAY 31, 1995 COMPARED TO YEAR ENDED MAY 31, 1994
REVENUES
The Company's revenues increased by 35%, or $122.3 million, to $474.7
million for the year ended May 31, 1995 from $352.4 million for the year ended
May 31, 1994. This increase was primarily attributable to increased sales prices
and volumes for butadiene and MTBE, to increased sales volumes for n-butylenes
and specialty isobutylenes, and to an increase in other revenues. The Company's
revenues by product for the fiscal years 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
YEAR ENDED IN REVENUES YEAR ENDED
MAY 31, DUE TO CHANGES IN MAY 31,
---------- ---------------------- ----------
1994 PRICE VOLUME 1995
---------- ------ ------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Butadiene............................ $ 68.7 $23.8 $13.7 $106.2
MTBE................................. 175.2 9.6 14.3 199.1
n-Butylenes.......................... 28.1 (3.2 ) 17.8 42.7
Specialty Isobutylenes............... 59.9 (0.9 ) 16.5 75.5
Other(1)............................. 20.5 51.2
---------- ----------
Total............................ $352.4 $474.7
========== ==========
</TABLE>
- ------------
(1) The component mix of other revenues does not make it meaningful to show
increases or decreases due to price or volume.
Butadiene revenues increased by 55%, or $37.5 million, to $106.2 million
for the year ended May 31, 1995 from $68.7 million for the year ended May 31,
1994. This increase was primarily attributable to an increase in selling prices
due to higher U.S. demand relative to supply. U.S. demand for butadiene
increased primarily as a result of rubber end-users substituting synthetic
rubber for higher priced natural rubber. Supply of butadiene decreased in fiscal
1995 as imports of butadiene and crude butadiene declined due to reduced foreign
ethylene production and higher ocean freight costs. Butadiene sales volumes also
increased by approximately 20%, or 96.4 million pounds, as a result of an
increase in sales under contract to two major customers, one of which expanded
its production capacity.
MTBE revenues increased by 14%, or $23.9 million, to $199.1 million for the
year ended May 31, 1995 from $175.2 million for the year ended May 31, 1994.
This increase was primarily attributable to an increase in sales volumes of 8%,
or 16.3 million gallons. This volume increase was the result of MTBE
52
<PAGE>
users building inventories in anticipation of greater demand for MTBE due to
further implementation of the CAAA in early 1995. In addition, MTBE selling
prices increased as a result of higher methanol raw material prices. Methanol
prices on the U.S. Gulf Coast increased from $0.40 per gallon in June 1994 to
$1.45 per gallon in December 1994, before falling to $0.75 per gallon in May
1995.
n-Butylenes revenues increased by 52%, or $14.6 million, to $42.7 million
for the year ended May 31, 1995 from $28.1 million for the year ended May 31,
1994. This increase was primarily the result of increased sales volumes of
butene-1 to new customers and increased sales volumes of butene-2 in response to
periodic customer demand. Overall n-butylenes sales volumes increased by 63%, or
95.1 million pounds, during this period. This increase was partially offset by a
decline in n-butylenes average selling prices as a result of butene-1 price
reductions by the Company in response to market competition.
Specialty isobutylenes revenues increased by 26%, or $15.6 million, to
$75.5 million for the year ended May 31, 1995 from $59.9 million for the year
ended May 31, 1994. This increase was due to an increase in specialty
isobutylenes sales volumes of 27%, or 85.8 million pounds. This volume increase
was the result of the Company actively seeking alternate uses for its
isobutylene as a result of the lower margin realized for MTBE in this period due
to higher methanol prices. This led to higher sales volumes for diisobutylene
and high purity isobutylene attributable to increased sales to a major customer,
as well as increased sales volumes of isobutylene concentrate during the first
half of the fiscal year as the Company gained a greater share of a major
customer's business.
Other revenues increased by 149%, or $30.7 million, to $51.2 million for
the year ended May 31, 1995 from $20.5 million for the year ended May 31, 1994.
This increase was primarily due to an increase of $28.9 million in revenues from
Clarkston's third party trading activities, partially offset by a decrease in
utility revenues.
GROSS PROFIT
Gross profit decreased by 8%, or $5.9 million, to $64.1 million for the
year ended May 31, 1995 from $70.0 million for the year ended May 31, 1994.
Gross margin during this period declined to 13.5% from 19.9%. The decline in
gross profit and gross margin was primarily attributable to a significant
increase in the price of methanol, a primary raw material used to produce MTBE,
partially offset by increased sales volumes of specialty isobutylenes produced
from isobutylene, which would otherwise have been used to produce lower margin
MTBE. The average price of methanol increased to $0.80 per gallon for the year
ended May 31, 1995 from $0.44 per gallon for the prior period. In addition,
crude butadiene prices increased to $0.15 per pound from $0.09 per pound in the
prior period directly attributable to the increase in the Company's selling
price of butadiene. Costs associated with Clarkston's third party trading
activities increased, offsetting increases in revenues.
INCOME FROM OPERATIONS
Income from operations decreased by approximately 11%, or $5.8 million, to
$47.5 million for the year ended May 31, 1995 from $53.3 million for the year
ended May 31, 1994. Operating margin during this period declined to 10.0% from
15.1%. The decrease in income from operations and operating margin was
attributable to the same factors contributing to the decline in gross profit and
gross margin. Selling, general and administrative expenses were generally
unchanged from the prior period.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
1995
Net cash provided by (used in) operating activities was $(0.1) million for
the six months ended December 31, 1996 compared to $29.7 million for the six
months ended December 31, 1995. The decrease of $29.8 million was primarily
attributable to the decrease in overall profitability and to a lesser extent,
changes in working capital as a result of timing differences in receipts and
disbursements of cash. Net cash used in investing activities was $358.4 million
for the six months ended December 31, 1996 compared to $8.4 million for the six
months ended December 31, 1995. The increase of $350.0 million was primarily
attributable to the Acquisition of the Company on July 1, 1996, partially offset
by proceeds from the sale of non-plant assets, investment securities, the Ranch
and common stock in The Texas Falls Corporation. Net
53
<PAGE>
cash provided by (used in) financing activities was $353.9 million for the six
months ended December 31, 1996 compared to $(42.3) million for the six months
ended December 31, 1995. The change of $396.2 million was primarily attributable
to the issuance of long-term debt and an investment from the Parent, in order to
finance the Acquisition of the Predecessor.
ONE MONTH ENDED JUNE 30, 1996 COMPARED TO ONE MONTH ENDED JUNE 30, 1995
Net cash provided by operating activities was $13.9 million for the one
month ended June 30, 1996 compared to $1.9 million for the one month ended June
30, 1995. This increase of $12.0 million was primarily attributable to changes
in working capital, partially offset by a decrease in net income. Net cash used
in investing activities was $1.3 million for the one month ended June 30, 1996
compared to net cash provided by investing activities of $5.9 million for the
one month ended June 30, 1995. This change of $7.2 million was due to an
increase in capital expenditures and a decrease in proceeds from sales of
investment securities. Net cash used in financing activities was $9.4 million
for the one month ended June 30, 1996 compared to $4.5 million for the one month
ended June 30, 1995. This increase of $4.9 million was primarily due to a
decrease in bank overdrafts partially offset by an increase in borrowings under
revolving credit lines, a decrease in payments of notes payable and a decrease
in dividends paid.
TWELVE MONTHS ENDED MAY 31, 1996 COMPARED TO YEAR ENDED MAY 31, 1995
Net cash provided by operating activities was $44.5 million for the twelve
months ended May 31, 1996 compared to $50.3 million for the year ended May 31,
1995. This decrease of $5.8 million was primarily attributable to a decrease in
net income adjusted for non-cash items and a decrease in changes in working
capital. Net cash provided by investing activities was $8.2 million for the
twelve months ended May 31, 1996 compared to net cash used in investing
activities of $25.9 million for the year ended May 31, 1995. This change of
$34.1 million was due to decreases in capital expenditures, an increase in
proceeds from the sales of investment securities and a decrease in purchases of
investment securities. Net cash used in financing activities was $69.0 million
for the twelve months ended May 31, 1996 compared to $23.3 million for the year
ended May 31, 1995. This increase of $45.7 million was primarily due to the
purchase by the Company of common stock for a total consideration of $95.4
million in August 1995 and an increase in dividends and distributions paid,
partially offset by the sale by the Company of common stock to certain officers
of the Company for $22.6 million and decreased repayments under revolving credit
lines.
YEAR ENDED MAY 31, 1995 COMPARED TO YEAR ENDED MAY 31, 1994
Net cash provided by operating activities was $50.3 million for the year
ended May 31, 1995 compared to $30.2 million for the year ended May 31, 1994.
This increase of $20.1 million was primarily attributable to increases in
changes in working capital and an increase in losses realized on the disposal of
assets and investment securities, partially offset by a decrease in net income.
Net cash used in investing activities was $25.9 million for the year ended May
31, 1995 compared to $5.3 million for the year ended May 31, 1994. This increase
of $20.6 million was primarily attributable to a reduction in proceeds from the
sale of investment securities and a decrease in purchases of investment
securities, partially offset by a decrease in capital expenditures. Net cash
used in financing activities was $23.3 million for the year ended May 31, 1995
compared to $17.6 million for the year ended May 31, 1994. This increase of $5.7
million was primarily due to decreased borrowings under revolving credit lines
and also to increased repayments of notes payable, partially offset by decreased
repayments under revolving credit lines and decreased dividends paid.
LIQUIDITY
The Company's liquidity needs arise primarily from principal and interest
payments under the $140 million Bank Credit Agreement and $175 million principal
amount of Original Notes incurred in connection with the Acquisition, as well as
the $50 million principal amount of Notes, the net proceeds of which will be
used to reduce indebtedness under the Bank Credit Agreement. The Company's
primary source of funds to meet debt service requirements is net cash flow
provided by operating activities. Operating cash flow is significantly impacted
by raw materials cost as well as the selling price and volume variances of
finished goods. The Company enters into supply contracts for certain of its
products in order to mitigate the impact of changing prices. Additionally, the
Company has a $40 million Revolving Credit Facility of which only $4.5 million
was in use at December 31, 1996, to provide adequate funds for ongoing
operations, planned
54
<PAGE>
capital expenditures and debt service during the terms of such Revolving Credit
Facility. The Company believes that the availability of funds under the
Revolving Credit Facility are sufficient to cover any current liquidity needs
which could arise as a result of negative working capital. The Company's ability
to borrow is limited by the terms of the Bank Credit Agreement and the
Indentures pursuant to which the Original Notes and the Notes were issued. The
Bank Credit Agreement, the Original Notes and the Notes include certain
restrictive covenants which include, but are not limited to, limitations on
capital expenditures, indebtedness, investments and sales of assets and
subsidiary stock. Additionally, the Bank Credit Agreement requires the Company
to maintain certain financial ratios. For the six months ended December 31, 1996
the Company obtained waivers under the Bank Credit Agreement for compliance with
certain financial ratios relating to fixed charge coverage, debt to equity, and
net worth and an amendment to the Bank Credit Agreement on March 28, 1997 to
update these financial ratios. See "Risk Factors -- "Restrictive Financing
Covenants," "Description of the Bank Credit Agreement" and "Description of
the Notes."
CASH BONUS PLAN
In connection with the Acquisition, the Company established a $35 million
Cash Bonus Plan for certain employees of the Company and certain employees of
its independent contractors. In August 1996, 10% of this amount was paid to
eligible participants and the remaining payments will be made in sixteen
quarterly installments.
CAPITAL EXPENDITURES
The Company's historical capital expenditures since 1993 have in
substantial part resulted from implementing its strategic plan of improving
operating efficiency, and complying with environmental and safety standards. The
Company's capital expenditures were $12.5 million, $8.7 million and $5.5 million
for the years ended May 31, 1994 and 1995 and the twelve-month period ended May
31, 1996, respectively, of which $1.0 million, $2.2 million and $2.1 million,
respectively, related to environmental compliance. See
"Business -- Environmental Regulation."
Capital expenditures for fiscal 1997 will relate principally to improving
operating efficiencies and environmental expenditures.
The Company expenses approximately $20 million annually for plant
maintenance and expects to incur cash expenditures of a similar amount in fiscal
1997 for such purposes. These maintenance costs are not treated as capital
expenditures.
The Company's operations are subject to federal, state, and local laws and
regulations administered by the EPA, the U.S. Coast Guard, the Army Corps of
Engineers, the Texas Natural Resource Conservation Commission ("TNRCC"), the
Texas General Land Office, the Texas Department of Health and various local
regulatory agencies. The Company holds all required permits and registrations
necessary to comply substantially with all applicable environmental laws and
regulations, including permits and registrations for wastewater discharges,
solid and hazardous waste disposal and air emissions, and management believes
that the Company is in substantial compliance with all such laws and
regulations. While management does not expect that compliance with existing
environmental laws will have a material adverse effect on the Company's
financial condition or results of operations, there can be no assurance that
future legislation, regulation or judicial or administrative decisions will not
have such an effect.
The Company routinely incurs expenses associated with managing hazardous
substances and pollution in its ongoing operations. The amounts of these
operating expenses were approximately $3.1 million, $3.1 million and $2.8
million for the years ended May 31, 1994 and 1995 and the twelve-month period
ended May 31, 1996, respectively.
OTHER
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121 -- "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (the "Standard"). The Standard requires, among
other things, that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. During 1996, the Company evaluated the carrying value of its
investments in land in light of the possible sale of these assets in the
foreseeable
55
<PAGE>
future and considering the criteria in the Standard, determined that an
impairment write-down was necessary. Prior to 1996, the Company did not consider
the decline in the fair value of those assets, which was below the Company's
cost, to be a permanent decline. During the twelve months ended May 31, 1996 the
Company adopted the Standard and as a result recorded a provision of
$12,592,112, with an associated tax benefit of $4,660,000, to write down certain
properties to estimated fair market value.
RECENTLY ISSUED PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123, which is effective for fiscal years beginning
after December 31, 1995, encourages but does not require companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on new fair value accounting rules. The Company
has not yet determined if it will adopt this new fair value-based method of
accounting for its stock-based incentive plans or elect the disclosure
provisions of SFAS No. 123.
56
<PAGE>
BUSINESS
GENERAL
The Company is the largest producer of butadiene and butene-1, and the
second largest producer of MTBE, in North America, in terms of production
capacity. In addition, the Company is the sole producer of diisobutylene and
isobutylene concentrate in the United States and the largest domestic merchant
supplier of high purity isobutylene to the chemical market. The Company's
products include: (i) butadiene, primarily used to produce synthetic rubber;
(ii) MTBE, used as an oxygenate and octane enhancer in gasoline; (iii) n-
butylenes (butene-1 and butene-2), used in the manufacture of plastic resins,
fuel additives and synthetic alcohols; and (iv) specialty isobutylenes,
primarily used in the production of specialty rubbers, lubricant additives,
detergents and coatings. For the six months ended December 31, 1996, and the
twelve months ended May 31, 1996, butadiene represented 25% and 25% of the
Company's total revenues, respectively, MTBE represented 52% and 41%,
n-butylenes 9% and 11%, respectively, specialty isobutylenes 11% and 16%,
respectively and other revenues the remaining 3% and 7%, respectively. On a pro
forma basis after giving effect to the Transactions, the Company's revenues for
the six months ended December 31, 1996, the twelve months ended May 31, 1996 and
the one month ended June 30, 1996 would have been $246.7 million, $454.2 million
and $41.2 million, respectively, and EBITDA (as defined) for the six months
ended December 31, 1996, the twelve months ended May 31, 1996 and the one month
ended June 30, 1996 would have been $26.0 million, $74.2 million and $4.3
million, respectively.
The Company seeks to reduce its exposure to the cyclical nature of the
petrochemical industry through long-term, fixed profit contracts and to increase
its profitability by maximizing its production flexibility and increasing sales
of high margin n-butylenes and specialty isobutylenes. For the twelve months
ended May 31, 1996 and the one month ended June 30, 1996, approximately 43% and
45% of the Company's total revenues were derived from products sold on a fixed
profit basis or whose selling prices were linked, directly or indirectly, to raw
material costs. The Company believes that the combination of its fixed profit
contracts, competitive cost position and specialty product sales provides
stability to its cash flows and helps to offset the effects of cyclical
downturns.
Butadiene is the most widely used feedstock for synthetic rubber products
and is also used in the manufacture of engineered plastics, nylon fibers and
other products. The Company sells butadiene to a stable customer base ,
including The Goodyear Tire & Rubber Company, The Dow Chemical Company, American
Synthetic Rubber Inc. and Bridgestone/Firestone, Inc. As the largest producer of
butadiene in North America, the Company believes that many of its customers
place significant value on its ability to provide a reliable domestic supply of
butadiene and as a result have entered into long-term sales contracts with the
Company, which, in aggregate, accounted for 92% and 88% of its butadiene sales
in the twelve months ended May 31, 1996, and the one month ended June 30, 1996,
respectively.
The Company extracts butadiene from crude butadiene, which is generated
from the production of ethylene and is comprised of a number of valuable
components, including butadiene, isobutylene, n-butylenes, isobutane and
n-butane. Many U.S. ethylene producers rely on third parties such as the Company
to process their crude butadiene streams, as the crude butadiene volumes they
produce are not sufficient to justify the construction of on-site butadiene
recovery facilities. The Company estimates that producers accounting for 65% of
U.S. and Canadian ethylene production capacity do not internally process crude
butadiene by-product streams. The Company is the largest non-integrated crude
butadiene processor in North America and as a result of its strategic importance
to ethylene producers, the Company has been able to secure long-term supply
contracts covering the majority of its crude butadiene requirements. Such
contracts provide for a fixed profit based on the Company's selling prices for
butadiene, and account for the relatively stable profitability of the Company's
butadiene operations. For the twelve months ended May 31, 1996 and the one month
ended June 30, 1996, fixed profit supply contracts for crude butadiene accounted
for approximately 92% and 72%, respectively, of the Company's butadiene sales
volume.
MTBE is a blending stock which reduces carbon monoxide and volatile organic
compound emissions and enhances the octane content of gasoline, and has been one
of the fastest growing petrochemicals, in terms of volume, over the past fifteen
years. Today, MTBE is the preferred oxygenate for, and a major
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<PAGE>
component of, RFG and is used in over 25% of the U.S. gasoline pool. MTBE is
produced by reacting methanol and isobutylene, and the Company's ability to
produce isobutylene by three alternative methods enables it to produce MTBE by
the most economical processes available to the Company. In addition, the Company
has the ability to add incremental capacity to capitalize on expected future
growth, at a significantly lower cost than the cost of adding new capacity. The
Company believes that this incremental capacity gives it a competitive advantage
over other producers who would have to incur greater cost to increase capacity.
The Company sells MTBE to oil refiners and gasoline producers, including Mobil
Oil Corporation, Lyondell Petrochemical Company and CITGO Petroleum Corporation
on both a contract and spot basis at prices linked to prevailing market prices.
The Company is the leading producer of high margin n-butylenes and
specialty isobutylenes in North America. In recent years, the Company has
increased its sales of these products by increasing its market share in
polyolefin applications and the development of new end-use applications. The
Company's principal customers for n-butylenes include Union Carbide Corporation,
The Dow Chemical Company, NOVA Chemicals Ltd., Shell Chemical Company and
Lyondell Petrochemical Company. The Company's principal customers for specialty
isobutylenes include Bayer Inc., Mobil Chemical Company Inc., Rhone-Poulenc
Inc., The Lubrizol Corporation and Schenectady International, Inc. Historically,
the profitability of the Company's n-butylenes sales has been relatively stable
as the majority of the sales of these products are made under contracts which
link their selling prices to the prices of products (principally gasoline and
butanes) whose prices fluctuate closely with those of the raw materials used to
manufacture n-butylenes and specialty isobutylenes. In the six months ended
December 31, 1996, the twelve months ended May 31, 1996 and the one month ended
June 30, 1996, sales of n-butylenes and specialty isobutylenes represented 20%,
27% and 21%, respectively, of the Company's revenues as compared to 19% in
fiscal 1993.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. One of the Company's intermediate feedstocks, isobutylene, is used in
the manufacture of MTBE and specialty isobutylenes. As part of its production
strategy, the Company uses its manufactured isobutylene first to maximize the
production of high margin specialty isobutylenes, second, to satisfy its
contractual MTBE requirements, and finally, to produce MTBE for sale in the spot
market. In the twelve months ended May 31, 1996 and the one month ended June 30,
1996, approximately 18% and 11%, respectively, of the Company's isobutylene was
used in the production of specialty isobutylenes with the remainder being used
for MTBE production. In addition, the Company maintains the production
flexibility to upgrade n-butylenes contained in crude butadiene streams to
either isobutylene or butene-1 using its patented SKIP process. This flexibility
allows the Company to meet its customers' needs through the most economical
process, to produce additional products and to capitalize on favorable market
conditions.
The Company's manufacturing facility, located approximately one mile from
the Houston Ship Channel, provides convenient access to other Gulf Coast
petrochemical producers and is connected to several of its customers and raw
materials suppliers through an extensive pipeline network. In addition, the
Company's facility is serviced by rail, tank truck and barge.
The Company was founded in 1968, at which time the Company was principally
engaged in the installation of crude butadiene processing facilities. In 1984,
the Company acquired from Tenneco, Inc. the assets (principally comprised of the
Houston facility) of Petro-TexChemical Corporation ("Petro-Tex"), the prior
owner of the Company's manufacturing facility.
COMPANY STRATEGY
The Company believes that it has become the industry leader in the
production of the majority of its products by capitalizing on its production
flexibility, its ability to add significant incremental capacity across its
product lines, the marketing experience of its management team, its competitive
cost position and its customer focus. The Company's strategy is to strengthen
its established presence in its selected markets by focusing on the following
factors:
REDUCE EXPOSURE TO CYCLICAL END-MARKETS -- The markets in which the Company
competes are cyclical. The Company intends to mitigate the effects of this
cyclicality while benefiting from potential
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<PAGE>
upturns in industry profitability by optimizing the proportion of its sales made
under contracts allowing for a fixed profit or at prices linked directly or
indirectly to raw material prices. In the twelve months ended May 31, 1996 and
the one month ended June 30, 1996, approximately 43% and 45%, respectively, of
the Company's total revenues were derived from products sold on a fixed profit
basis or whose selling prices were linked, directly or indirectly, to raw
material costs. In addition, the Company intends to increase its sales of less
cyclical n-butylene and specialty isobutylene products. In the six months ended
December 31, 1996, the twelve months ended May 31, 1996 and the one month ended
June 30, 1996, sales of n-butylenes and specialty isobutylenes represented 20%,
27% and 21%, respectively, of the Company's revenues as compared to 19% in
fiscal 1993.
CAPITALIZE ON PRODUCTION FLEXIBILITY -- The Company has the ability to
produce a number of its intermediate and finished products (I.E. crude
butadiene, isobutylene and butene-1) by a variety of processes. The Company
intends to capitalize on this ability by shifting production to the most
economical process and production level based upon market conditions, thus
ensuring a reliable source of supply for its customers.
UTILIZE INCREMENTAL CAPACITY -- The Company can increase its capacity to
produce butadiene, isobutylene and MTBE at significantly lower cost than that of
new construction. While the Company currently has no plans to increase its
production capacity, it continuously evaluates these strategic options in light
of prevailing market conditions. In addition, the Company believes that its
ability to add low-cost incremental capacity acts as a deterrent to other
producers and new entrants considering capacity expansions.
The Company's ability to add incremental butadiene capacity and its
relationships with several North American ethylene producers are expected to
enable it to capture the benefit of increased U.S. crude butadiene supply. In
addition, announced butadiene capacity expansions by other U.S. producers are
minimal. The Company believes that growth in global demand for butadiene will be
consistent with gross domestic product growth based on increased tire production
and potential substitution of synthetic rubber for natural rubber.
RESPOND TO FAVORABLE INDUSTRY DYNAMICS -- The Company's production
flexibility and its ability to add low-cost capacity are crucial to its
capitalizing on the attractive demand/supply outlook for a number of its
products.
o BUTADIENE. The U.S. supply of crude butadiene is increasing in line
with domestic ethylene production, although it is currently
insufficient to meet U.S. demand. Industry operating rates are
expected to remain at current high levels as the increase in domestic
crude butadiene production is expected to replace imports since U.S.
producers have limited alternative uses for their crude butadiene
by-product streams.
o MTBE. While the Company expects U.S. demand for MTBE to grow less
quickly than it has over the past fifteen years, it believes that
future growth in foreign demand may be considerable. In addition,
recently announced U.S. MTBE capacity additions are minimal.
o BUTENE-1. Demand for butene-1 is closely linked to polyethylene
production growth. The Company expects global production of
polyethylene to increase at higher than historical rates in the next
four years. In addition, the Company expects demand for butene-1 used
in other applications (I.E. use in butylene oxide, a gasoline
additive) to be strong.
SUSTAIN CUSTOMER FOCUS -- The Company believes that producing quality
products and providing quality service with dependable supply are key factors in
its ability to compete in the market place for its products. Management believes
that its focus on customer service has resulted in strong customer relationships
and a high degree of customer loyalty. This is evidenced by the fact that
approximately 60% of the Company's current customers have purchased products
from the Company for more than ten years.
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The following table summarizes the Company's products.
<TABLE>
<CAPTION>
REVENUES REVENUES
FOR TWELVE FOR ONE
MONTHS ENDED MONTH ENDED INTERMEDIATE
COMPANY PRODUCT MAY 31, 1996 JUNE 30, 1996 CHEMICAL PRODUCTS PRINCIPAL APPLICATIONS
- ------------------------------------ -------------- ---------------------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BUTADIENE $ 112.6 10.2 Styrene-Butadiene Rubber Tires, gaskets, pipes and hoses
Styrene-Butadiene Latex Paints, adhesives and paper coatings
Acrylonitrile Butadiene High-performance plastics
Styrene
Polybutadiene Rubber Tires
Hexamethylenediamine Nylon
MTBE $ 187.4 21.0 Reduces automotive emissions and
improves engine performance
N-BUTYLENES $ 48.2 3.2
Butene-1 High Density and Linear Trash bags, film wrap, pipe and
Low Density Polyethylene plastic containers
Butylene Oxide Detergent packages used in new
gasoline formulations to improve
engine performance
Butene-2 SEC-Butyl and other Used in the production of coatings,
Alcohols adhesives and plasticizers
SPECIALTY
ISOBUTYLENES $ 74.5 5.5
Isobutylene
Concentrate Butyl Rubber High-performance synthetic rubbers
used in tires
Polybutenes Lubricant additives
High Purity
Isobutylene Butyl Rubber High-performance synthetic rubbers
used in tires
Alkylphenols Resins and antioxidants
Agricultural Intermediates Herbicides and insecticides
Hydrocarbon Resins Sealants, paints, coatings and rubber
chemicals
Sulfurized Isobutylene Synthetic lubricant oils
Diisobutylene Alkylphenols Phenolic resins, tackifier and ink
resins, surfactants
Rubber Chemicals Specialty additives
Dispersants Lubricant oil additives
Polycarboxylate Polymers Water treatment, detergent and
mineral processing chemicals
</TABLE>
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<PAGE>
INDUSTRY OVERVIEW
BUTADIENE. Butadiene is an important raw material used in the production
of a number of products, including styrene-butadiene rubber ("SBR"),
polybutadiene rubber, styrene-butadiene ("SB") latex, acrylonitrile butadiene
styrene ("ABS") and hexamethylenediamine ("HMDA"). These products are
utilized in the manufacture of tires and other rubber products, engineered
plastics, nylon fibers and other uses.
Demand for butadiene depends to a large extent on trends in the housing and
automotive sectors, principally the replacement tire market. The tire
replacement market has historically been less cyclical than the market for
original equipment tires and accounts for approximately 75% of all U.S. car and
commercial vehicle tire production. The Company expects continued growth in
butadiene end-use demand over the next several years consistent with global
gross domestic product growth. The Company believes that U.S. tire production
could increase as a result of higher volumes of domestic automobile production
due to foreign "transplant" production.
1995 NORTH AMERICAN BUTADIENE DEMAND
[Pie chart depicting data below]
SB Latex 11.8%
ABS 4.5%
Nylon Intermediates 12.2%
Polychloroprene 3.4%
Nitrile Rubber 2.9%
Polybutadiene 25.1%
SBR 30.5%
Other 9.6%
TOTAL DEMAND = 4.78 BILLION POUNDS
The most important butadiene derivative is SBR, which is primarily used in
the manufacture of tires, gaskets and hoses. Since 1990, the demand for SBR has
increased at a compound annual growth rate of approximately 3%. Although SBR
markets are mature, the Company expects that demand for higher performance tires
and truck tires may contribute to growth in demand for SBR at higher than
historical levels.
Polybutadiene rubber provides higher abrasion resistance than other rubbers
which makes it preferential for high performance tires, plastics applications
and other heavy duty uses. Other types of synthetic rubber produced from
butadiene include polychloroprene rubber, used in wire and cable applications,
and nitrile rubber, which, due to its high tensile strength and abrasion
resistance, is used in specialty applications, such as hoses, tubes and belts.
Butadiene derivatives which are not used to produce synthetic rubber
primarily consist of HMDA, SB latex and ABS. Historically, demand for these
products has generally reflected global gross domestic product growth. HMDA is
an intermediate in the production of nylon fiber. SB latex demand is driven by
its use in paints, adhesives and paper coatings. ABS resins are used in the
production of high-performance plastics with a wide range of applications in the
automotive, appliance and electronics industries.
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<PAGE>
Butadiene producers are currently operating at historically high rates and
the Company believes that no new capacity is expected to come on-line in the
U.S. in the next five years. Management believes that the Company's existing
capacity and low-cost expansion alternatives act as an effective deterrent to
the construction of new facilities by others in the United States.
The major source of supply for butadiene is extraction from crude
butadiene, a by-product of ethylene production. In the U.S., volumes of crude
butadiene from ethylene facilities are inadequate to meet domestic demand. The
U.S. imports a large portion of its requirements of butadiene and crude
butadiene, especially from Western Europe, where most ethylene facilities use
feedstocks which result in the production of proportionately more crude
butadiene than in the U.S. Historically, the price of butadiene has been
determined by supply, which is influenced by the amount of ethylene produced and
the availability of crude butadiene, and butadiene demand, which is determined
by demand for end-use products, such as tires, engineered plastics and nylon
fibers.
U.S. BUTADIENE PRICES(1) AND OPERATING RATES, 1985-1995
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Butadiene
Contract Price, Operating
U.S. Gulf Coast Rate
--------------- ----------
1985 29.4 62.7%
1986 15.8 68.2%
1987 23.3 79.2%
1988 22.3 86.2%
1989 20.5 84.9%
1990 26.7 82.1%
1991 15.5 73.6%
1992 16.6 80.2%
1993 16.7 78.9%
1994 18.4 84.2%
1995 24.0 89.4%
- ------------
(1) Refers to butadiene spot market prices. Butadiene is typically sold at a
discount to such prices.
MTBE. MTBE has been one of the fastest growing petrochemicals, in terms of
volume, during the past fifteen years, with global production rising from
approximately 15,000 barrels per day in 1980 to approximately 382,000 barrels
per day in 1995. MTBE's dramatic growth has been a result of two significant
factors. First, MTBE has a high octane rating, which makes it a valuable
gasoline blendstock for adding octane to gasoline. Second, MTBE contains a high
percentage weight (approximately 18%) of oxygen. Its high oxygen level, which
results in improved combustion and reduces the level of carbon monoxide and
ozone-depleting emissions from automobile engines, contributes to MTBE's use as
a blending agent in oxygenated and reformulated gasolines. These properties and
its large scale global production capacity have made it the preferred oxygenate
and a major component of RFG in the U.S.
The use of lead additives in gasoline declined dramatically during the
1980s as a result of environmental legislation. Following such legislation,
octane needs increased, which increased world MTBE use considerably. The passage
of the CAAA in 1990 in the U.S. has caused another round of MTBE production
capacity additions and blending use increases during the past four years.
The two programs mandated by the CAAA which have the most significant
effect on the MTBE market are the oxygenated gasoline and the RFG programs. The
oxygenated gasoline program was initiated in 1992, with the goal of reducing
winter carbon monoxide emissions. With the implementation of the RFG program in
1995, the use of RFG was required in the nine major urban areas with the most
severe ozone pollution. High RFG prices and public health concerns, particularly
in cold weather climates, kept MTBE use below the levels that had been
anticipated in the industry at the time of the passage of the CAAA. Despite the
problems with the implementation of the CAAA, the Company expects continued
growth in the use of MTBE, although at slower rates than in the 1980s as the
regulations requiring "cleaner" gasoline
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<PAGE>
have, in large measure, gone into effect in the U.S. The Company anticipates
that higher rates of growth in MTBE use will continue to prevail in certain
regions of the U.S. and internationally, due to consumer preference or where RFG
use is now optional but may be required by state or local governments. For
example, California has mandated greater usage of oxygenates in a gasoline
reformulated for use in that state, and the use of lead in gasoline continues to
decline in certain European, South American and Far Eastern countries. The
Company also expects new capacity expansions to be minimal over the next several
years due to current industry overcapacity as a result of large increases in
U.S. production capacity in the early 1990s in anticipation of the
implementation of the CAAA programs.
MTBE pricing is primarily determined by the price of RFG due to its value
as an octane enhancer and as an oxygenate. The price difference between regular
unleaded and higher octane, premium unleaded gasoline provides a valuation for
octane from which the value of MTBE as an octane enhancer can be derived. At
various times, depending on the supply and demand for MTBE, MTBE pricing enjoys
a premium over this octane value, reflecting its value as an oxygenate. As
indicated by the following table, MTBE pricing is relatively volatile. The MTBE
market has experienced alternating periods of tight supply and rising prices and
profit margins, followed by periods of capacity additions resulting in
oversupply and declining prices and margins. Historically, MTBE was sold in the
U.S. under sales contracts which allowed suppliers to recover raw material costs
and earn a fixed profit. Sales prices under these contracts were higher than the
then prevailing spot prices. Prices decreased substantially from 1985 to 1986
based on low gasoline prices. As gasoline prices recovered in 1988 and 1989,
MTBE prices followed. Prices increased substantially prior to and during the
Persian Gulf war beginning in late 1990, although prices fell back sharply from
1991 to 1993 as supply outpaced demand. MTBE prices increased in 1994 due to
high methanol prices (that were passed on to users) until methanol prices
decreased significantly in the first quarter of 1995. More recently, MTBE prices
have rebounded from their 1995 lows as a result of much higher demands from the
RFG program.
U.S. MTBE PRICES AND OPERATING RATES RELATIVE TO UNLEADED GASOLINE PRICES,
1985-1995
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
MTBE
Unleaded Global
MTBE Spot Regular Operating
Price, USGC Gasoline Rate
----------- -------- ---------
1985 101 80.0 77.0%
1986 65 43.7 82.0%
1987 69 51.3 78.0%
1988 82 49.5 79.0%
1989 86 58.1 78.0%
1990 113 73.6 75.0%
1991 92 66.1 73.0%
1992 89 59.0 75.0%
1993 71 51.5 72.0%
1994 81 50.0 67.0%
1995 83 55.1 71.0%
There are a number of competing oxygenate products to MTBE, including
ethanol, ethyl TERTIARY-butyl ether (ETBE) and TERTIARY-amyl methyl ether
(TAME). However, management believes that MTBE will continue to be the U.S.
gasoline industry's oxygenate of choice due to a number of factors, including
price, available capacity, chemical properties and the EPA's CAAA rules
regarding minimum oxygen content in fuels.
BUTENE-1. Butene-1 is used as a comonomer in the production of high
density polyethylene ("HDPE") and linear low density polyethylene ("LLDPE").
Both HDPE and LLDPE are raw materials for the production of trash bags, film
wrap, pipe and plastic containers. Comonomers are added to polyethylene to
improve characteristics such as tear and crack resistance. The Company expects
global HDPE and LLDPE demand to increase at an annual compound growth rate of 6%
and 14%, between 1994 and 1999, respectively. In the U.S., butene-1 is facing
increased competition from other comonomers such as hexene-1
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<PAGE>
which, although more expensive than butene-1, improves certain properties of
polyethylene resins. The Company believes that butene-1 demand for use in
polyethylene will continue to grow in line with demand for polyethylene.
Historically, pricing of butene-1 has been determined by demand based on its use
as a polyethylene comonomer, and its competitive position with other comonomers
such as hexene-1.
Butene-1 is also used to produce butylene oxide, a key component of
detergent additive packages used in many gasoline formulations. The Company
believes that this use represents one of the fastest growing end-uses for
butene-1.
BUTENE-2. Butene-2 is recovered as part of the crude butadiene stream that
remains after extraction of butadiene, isobutylene and butene-1. The Company
sells purified butene-2 primarily for use in the production of coatings and
plasticizers. Due to the high quality of the butene-2 produced by the Company,
it has historically received a higher than market price.
ISOBUTYLENE CONCENTRATE. Isobutylene concentrate is similar to high purity
isobutylene in composition, although its purity is 88% isobutylene compared to
99.9% in high purity isobutylene. The Company markets isobutylene concentrate
for use in the growing lubricant additives business as well as for use in the
production of butyl rubber. The Company is the sole U.S. producer of isobutylene
concentrate.
HIGH PURITY ISOBUTYLENE. High purity isobutylene is used in the production
of butyl rubber, which is used to produce tires and in specialty chemical
applications such as in the production of resins, antioxidants, paints and
coatings, synthetic lubricant oils and rubber chemicals. The Company is
currently the largest domestic merchant supplier of high purity isobutylene to
the chemical market and competes with ARCO Chemical Company and Exxon Chemical
Company.
DIISOBUTYLENE. Diisobutylene is used primarily as an intermediate in the
manufacturing of alkylphenols for the surfactant and phenolic resins markets.
Other uses include the production of tackifier and ink resins, dispersants for
lubricant oil additives, and rubber and processing chemicals. The Company is the
sole U.S. producer of diisobutylene.
PRODUCTION PROCESS
The Company's production operations are based on a number of key factors:
(i) UPGRADING BY-PRODUCT STREAMS: The Company has contracted to purchase
certain volumes of crude butadiene from its suppliers. This volume
determines the Company's ability to produce butadiene and n-butylenes
and also provides some isobutylene (typically 10% of total
isobutylene production) for the production of MTBE and specialty
isobutylenes.
(ii) MAXIMIZING USE OF ISOBUTYLENE: Under normal operating conditions,
the Company maximizes isobutylene production from its
dehydrogenation units. The isobutylene processed is first processed
into specialty isobutylenes to satisfy customer demand, secondly
used to produce MTBE to satisfy contractual demand and thirdly, used
to produce MTBE for sale in the spot market.
(iii) INCREMENTAL PRODUCTION CAPABILITY: The Company has the ability to
augment its isobutylene and butene-1 production by the processing of
butene-2 in its SKIP unit, depending on the relative profitability
from additional isobutylene production (for use in either MTBE or
specialty isobutylenes) or butene-1 sales. In addition, "on
purpose" crude butadiene can be produced from butene-2 using the
OXO-D process, as well as from n-butane using dehydrogenation.
BUTADIENE PRODUCTION PROCESS
The Company has the largest butadiene production and finishing facilities
in North America and has an annual production capacity of 840 million pounds of
butadiene, representing approximately 18% of U.S. and Canadian production
capacity. In the twelve months ended May 31, 1996 and the one month ended June
30, 1996, the Company sold and toll-processed 623 million pounds and 65 million
pounds, respectively, of butadiene.
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<PAGE>
[CHART DESCRIBING BUTADIENE PRODUCTION PROCESS, CARRYING N-BUTYLENES AND
N-BUTANE THROUGH THE OXODEHYDROGENATION PROCESS AND THROUGH THE DEHYDROGENATION
PROCESS, RESPECTIVELY, TO PRODUCE CRUDE BUTADIENE WHICH IS THEN CARRIED THROUGH
THE EXTRACTION PROCESS TO PRODUCE BUTADIENE.]
The Company obtains crude butadiene from three different sources: (i)
purchasing crude butadiene from suppliers; (ii) Oxo-dehydrogenation of
n-butylenes using the Company's patented OXO-D process; and (iii)
dehydrogenation of n-butane.
The Company primarily produces butadiene from purchased crude butadiene,
which is generally the lowest cost method of production. Such crude butadiene is
a by-product of ethylene production.
"On-purpose" crude butadiene production involves the synthesis of crude
butadiene from n-butane and n-butylenes using the Company's OXO-D process and
the Houdry dehydrogenation process. The OXO-D process was developed by the
Company using a proprietary catalyst. The OXO-D unit has an annual capacity to
produce up to 400 million pounds of crude butadiene, which can be processed to
extract butadiene. The Company's dehydrogenation units can produce n-butylenes
(instead of isobutylenes under normal configuration) using the Houdry process,
by switching feedstock from isobutane to n-butane. Such n-butylenes can be used
to produce crude butadiene using the OXO-D process. As this method of production
is relatively expensive and reduces the volume of isobutylene available for MTBE
production, it is used only when butadiene pricing makes it economically
attractive.
The OXO-D unit and its dehydrogenation capabilities give the Company the
only on-purpose butadiene production capability in the U.S. and reinforce the
Company's image with its customers as a reliable source of butadiene under a
wide variety of market conditions.
The Company's manufacturing flexibility is advantageous for two reasons.
First, the Company is not dependent on any particular feedstock to produce
butadiene and it can therefore provide a reliable source of supply under a
variety of market conditions for its customers. Secondly, it permits the Company
to increase butadiene production in favorable market conditions, subject to the
capacity limitations of the Company's finishing facilities.
The Company believes that it is currently the only butadiene producer in
North America with the ability to add significant incremental capacity with
minimal capital expenditures. The Company believes that this acts as a deterrent
to new entrants and other producers considering capacity expansions and will
enable the Company to process increased volumes of crude butadiene from new
ethylene facilities which are currently being built in North America.
The Company also toll processes crude butadiene under contract on behalf of
third parties for a fee which allows the Company to recover its energy
production costs plus a fixed dollar amount. Typically, the Company delivers
finished butadiene to the customer and purchases the other butylenes contained
in the stream, which can be upgraded to higher value uses, such as specialty
isobutylenes, butadiene and n-butylenes.
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MTBE PRODUCTION PROCESS
The Company owns two MTBE units with a combined capacity to produce 25,000
barrels per day, which represents approximately 9% of North American production
capacity. The Company sold an average of 14,335 barrels per day and 21,115
barrels per day, respectively, in the twelve months ended May 31, 1996 and the
one month ended June 30, 1996.
[CHART DESCRIBING MTBE PRODUCTION PROCESS, SHOWING RAFFINATE-1, ISOBUTANE AND
N-BUTYLENES RUNNING THROUGH THE EXTRACTION, DEHYDROGENATION AND SKIP PROCESS,
RESPECTIVELY, LEADING TO ISOBUTYLENE LEADING TO MTBE, WHILE METHANOL LEADS
SEPARATELY TO MTBE.]
- ------------
(1) Raffinate-1 is produced after butadiene has been extracted from purchased
crude butadiene.
MTBE is produced by reacting isobutylene and methanol. The Company produces
isobutylene, the principal raw material for MTBE, using any one of three
processes: (i) extraction from raffinate-1, which is produced after butadiene
has been extracted from crude butadiene; (ii) dehydrogenation of purchased
isobutane; and (iii) production from n-butylenes (predominantly butene-2) using
the Company's patented SKIP process. The other primary raw material, methanol,
is purchased from third parties in the spot market and under contract and is
transported to the Company's facility by barge.
Isobutylene is removed from the raffinate-1 stream by processing
raffinate-1 through the Company's MTBE unit. The MTBE reaction is highly
selective and efficiently removes isobutylene from the stream. The stream
remaining is called raffinate-2.
The Company has three dehydrogenation units, two of which have been
completely refurbished and are fully operational. Using these two units, the
Company has the ability to produce a total of 18,000 barrels per day of
isobutylene. The Company estimates that the third dehydrogenation unit, with an
additional capacity of 8,000 barrels per day, could be refurbished at a cost of
approximately $100 million, substantially less than the cost of a new
dehydrogenation unit. This refurbishment would increase the Company's capacity
to produce isobutylene for use either in MTBE or specialty isobutylenes by
approximately one third. The Company currently does not have any plans to
undertake this refurbishment, although this could change depending on market
conditions. The Company has fully paid-up rights to the technology used in its
dehydrogenation units and no royalty or other licensing payments are required.
Isobutane is purchased under long-term contract and supplemented with spot
purchases.
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The Company currently has sufficient additional MTBE capacity to enable it
to take advantage of future expected growth. The Company believes that this
additional capacity gives it a competitive advantage over other producers which
would have to incur greater cost to increase capacity.
The Company's SKIP unit upgrades butene-2 to either butene-1 or isobutylene
depending on requirements. Isobutylene production is normally operated so that a
portion of the isobutylene produced by dehydrogenation is used in the production
of isobutylene concentrate and diisobutylene and the remainder is used to
produce MTBE. In addition, a small amount of MTBE production is used in the
production of high purity isobutylene. The configuration of the plant provides
the flexibility to vary the relative quantities of MTBE and isobutylene products
produced.
N-BUTYLENE PRODUCTION PROCESS
The Company has the largest butene-1 processing capacity in North America
and has an annual production capacity of 275 million pounds of butene-1,
representing approximately 40% of North American production capacity. In the
twelve months ended May 31, 1996 and the one month ended June 30, 1996, the
Company sold 229 million pounds and 17 million pounds, respectively, of
butene-1, and in the twelve months ended May 31, 1996 and the one month ended
June 30, 1996, the Company sold 55 million pounds and .2 million pounds,
respectively, of butene-2.
[CHART DESCRIBING N-BUTYLENE PRODUCTION PROCESS, SHOWING RAFFINATE-1 LEADING TO
THE PRODUCTION OF RAFFINATE-2, FOLLOWED BY FRACTIONATION PROCESSES PRODUCING
BUTANES, BUTENE-2 AND BUTENE-1 AS WELL AS N-BUTYLENES RUNNING THROUGH THE SKIP
PROCESS DIRECTLY TO PRODUCE BUTENE-1. SEPARATELY N-BUTYLENES EMPLOY THE SKIP
PROCESS TO PRODUCE ISOBUTYLENE.]
- ------------
(1) Raffinate-1 is produced after butadiene has been extracted from purchased
crude butadiene.
The Company has the ability to produce butene-1 using two different
processes: (i) fractionation from raffinate-2, which is produced after
isobutylene has been extracted from raffinate-1; and (ii) production from
n-butylenes (predominantly butene-2) using the Company's patented SKIP process.
After the removal of butene-1, the remaining n-butylenes stream (containing
principally butene-2 and n-butane) is either: (i) further purified to butene-2
which the Company sells intermittently based on customer demand; (ii) used as a
feedstock in the Company's SKIP process to produce butene-1 or isobutylene; or
(iii) used as a feedstock in the OXO-D process to produce crude butadiene. The
remaining product stream, containing principally n-butane, is sold to third
parties as a chemical by-product.
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SPECIALTY ISOBUTYLENE PRODUCTION PROCESSES
[CHART DESCRIBING SPECIAL ISOBUTYLENE PRODUCTION PROCESSES, SHOWING METHANOL
BEING PROCESSED INTO MTBE WHICH IS BACK-CRACKED TO PRODUCE HIGH-PURITY
ISOBUTYLENE. SEPARATELY, ISOBUTYLENE IS FRACTIONATIONED AND DIMERIZATIONED TO
PRODUCE ISOBUTYLENE CONCENTRATE AND DIISOBUTYLENE, RESPECTIVELY.]
The Company takes advantage of its isobutylene production and extraction
capabilities to produce high purity isobutylene, isobutylene concentrate and
diisobutylene. The Company is currently the only U.S. producer of isobutylene
concentrate and diisobutylene and it is the largest of three U.S. producers of
high purity isobutylene.
High purity isobutylene is manufactured by "back-cracking" a small
portion of the MTBE product stream into its components, isobutylene and
methanol. The isobutylene produced by this method is of extremely high purity
and the methanol is recycled and used in subsequent MTBE production. The Company
has an annual capacity to convert MTBE into 100 million pounds of high purity
isobutylene, and in the twelve months ended May 31, 1996, it sold 74 million
pounds.
The Company uses its patented dimerization process to produce diisobutylene
and has an annual production capacity of 50 million pounds. In the twelve months
ended May 31, 1996 and the one month ended June 30, 1996, the Company sold 38
million pounds and 3.0 million pounds, respectively, of diisobutylene
principally on a contractual basis.
Some of the isobutylene produced by the Company is sold as concentrate. The
Company has an annual production capacity of 380 million pounds of isobutylene
concentrate and, in the twelve months ended May 31, 1996 and the one month ended
June 30, 1996, it sold 256 million pounds and 15 million pounds, respectively,
of isobutylene concentrate. The Company has been successful in working with
customers to demonstrate the viability of concentrate as an alternative to high
purity isobutylene or lower purity raffinate-1 feedstock. The Company sells
isobutylene concentrate under contracts at prices linked to the cost of
isobutane feedstock and including energy costs and other components of
isobutylene concentrate, plus a fixed profit, as well as on the spot market.
While produced in smaller volumes than the Company's more commodity-type
products, specialty isobutylenes have historically had high margins due to the
niche sales markets for their end-use products.
OTHER OPERATIONS
The Company operates a large scale cogeneration power plant that supplies
electricity and process steam to the facility's chemical processing operations.
Excess capacity of this power plant, as well as steam and boiler feed water are
currently sold to neighboring facilities under contracts at a price equal to the
cost of fuel plus a fixed profit. In addition, the Company generates revenues
from its terminals in Baytown, Texas and Lake Charles, Louisiana and from
chemical by-product sales to third parties.
CONTRACTS
The Company enters into three general types of contracts in connection with
its production processes: feedstock supply contracts, product sales contracts
and, to a lesser extent, toll manufacturing agreements.
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The majority of these contracts have terms of two to three years and provide for
successive one-year renewals unless either party objects to such renewal in a
timely manner. There can be no assurance that these agreements will remain in
effect beyond their current terms or, if extended, that the same provisions
would continue to apply.
FEEDSTOCK SUPPLY. The Company typically purchases its principal feedstock,
crude butadiene, under contracts which require suppliers to deliver a percentage
(varying from 50% to 100%) of their total crude butadiene production. The price
of crude butadiene to the Company is typically based on the price of its
principal components: butadiene, n-butylenes, isobutylene and n-butane. The
price for the butadiene component of crude butadiene is generally set at the
Company's average selling price for butadiene less a fixed dollar amount, which
includes a variable component for energy costs. The prices for the n-butylene
and isobutylene components of crude butadiene are linked to spot gasoline prices
and the n-butane and isobutane components are linked to spot n-butane prices.
The Company typically purchases methanol under contracts which require the
supplier to deliver minimum volumes of methanol. Methanol is generally purchased
at a discount to the prevailing market price, subject to specified minimum and
maximum price ranges.
The majority of the Company's isobutane is purchased under contract from
EPC Venture, Inc. which provides 450,000 barrels per month. This supplier also
provides storage and pipeline transportation. Isobutane is purchased at the
prevailing average market price for each month.
PRODUCT SALES. The Company's sales contracts typically require customers
to purchase minimum volumes expressed either in absolute terms or as a
percentage of the customer's product needs. Pricing for butadiene is generally
set at a small discount to the recognized U.S. Gulf Coast contract market price,
while MTBE pricing is typically based on the average U.S. Gulf Coast spot market
price. Butene-1 is sold under contracts at prices based on formulae which links
the butene-1 selling price to the price of gasoline. Butene-1 is also sold on
the spot market at prevailing prices. Butene-2 is sold at negotiated market
prices. Pricing for isobutylene concentrate is generally linked to the cost of
its principal raw material, isobutane, and fuel plus a transportation fee and
other components, which are linked to relevant average spot market prices.
Pricing for high purity isobutylene and diisobutylene is typically based on
market prices.
TOLL MANUFACTURING AGREEMENTS. The Company toll processes crude butadiene
under contracts on behalf of third parties, including The Dow Chemical Company,
The Goodyear Tire & Rubber Company and Phillips 66 Company. Typically, the
Company returns butadiene to the customer and purchases the other butylenes and
butanes contained in the crude butadiene stream. The toll process fees allow the
Company to recover its energy production costs plus a fixed dollar amount. In
addition, the Company returns purified butene-1 to certain of its crude
butadiene suppliers under similar arrangements.
OTHER. The Company also provides storage and terminalling services under
contract to certain of its customers at its Baytown and Lake Charles facilities.
COMPETITION
The petrochemical businesses in which the Company operates are highly
competitive. Many of the Company's competitors, particularly in the
petrochemical industry, are larger and have greater financial resources than the
Company. Among the Company's competitors are some of the world's largest
chemical companies and major integrated petroleum companies that have their own
raw material resources. In addition, a significant portion of the Company's
business is based upon widely available technology. Accordingly, barriers to
entry, apart from capital availability, may be low in the commodity product
section of the Company's business, and the entrance of new competitors into the
industry may reduce the Company's ability to capture improving profit margins in
circumstances where overcapacity in the industry is diminishing. Further,
petroleum-rich countries have recently become more significant participants in
the petrochemical industry and may expand such role significantly in the future.
Any of these developments would have a negative impact on the Company's
financial position, results of operations and cash flows.
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Given the nature of the markets in which it competes, the Company believes
it has two primary competitive advantages over its competitors. First, the
Company's position as the most significant merchant crude butadiene processor in
the U.S. has allowed it to secure supply arrangements for crude butadiene, which
provide for a fixed profit based on the Company's selling prices for the
finished product. The Company believes that this partially limits its exposure
to fluctuations in raw materials prices. Secondly, the Company's flexible
production processes enable it to take advantage of increases in demand for its
products at a lower cost than its competitors, thereby enabling the Company to
produce additional products on an economically opportunistic basis, and to meet
its customers' needs through the most economic processes.
The Company's primary competitors in the sales of butadiene in the U.S. are
Exxon Chemical Company, Shell Chemical Company, Lyondell Petrochemical Company
and the Huntsman Group. With respect to MTBE, the Company competes primarily
with ARCO Chemical Company, Exxon Chemical Company, Valero Energy Corporation,
Texaco Inc. and Enron Corp. For sales of butene-1 the Company competes primarily
with Exxon Chemical Company, Chevron Chemical Company, Amoco Chemical Company,
Shell Chemical Company and Huls AG. For high purity isobutylene, the Company
competes in the U.S. with ARCO Chemical Company and Exxon Chemical Company.
Although the Company is the only North American producer of isobutylene
concentrate and diisobutylene, diisobutylene is also imported from Japan and
Europe.
SALES AND MARKETING
The majority of the Company's sales are made pursuant to long-term sales
contracts with initial terms ranging from one to five years. The Company enjoys
long-standing relationships with its customers and approximately 85% of its
total sales over each of the last three years were made to the same customers.
The Company believes that its ability to maintain long-term customer contracts
has been facilitated by the extensive market knowledge and experience in the
petrochemical industry of its sales executives as well as the Company's emphasis
on customer relationships. The Company's strategy is to continue to increase
sales to existing customers and to attract new customers by providing
reliability of supply, competitive prices and superior customer service.
CUSTOMERS
The Company's products are generally sold to major refining, chemical and
end-user corporations primarily located in the United States and Canada. The
Company believes that its butadiene customers place significant value on its
ability to provide a reliable domestic supply of butadiene due to its raw
material purchase contracts and its ability to produce butadiene through two
alternative methods. As a result, some of the largest and most established users
of butadiene in the industry have contracted to purchase butadiene from the
Company. Typically, the Company's butadiene sales contracts require these
customers to purchase a percentage of their total requirements from the Company
subject to a minimum volume. Pricing is based on prevailing market prices.
The Company's principal butadiene customers include American Synthetic
Rubber Inc., The Dow Chemical Company, The Goodyear Tire & Rubber Company,
Enichem Elastomers Inc., E.I. du Pont de Nemours and Company and
Bridgestone/Firestone, Inc. In the twelve months ended May 31, 1996 and the one
month ended June 30, 1996, The Goodyear Tire & Rubber Company accounted for
approximately 16.1% and 14.1%, respectively, of the Company's total revenues.
The Company's principal MTBE customers include Lyondell Petrochemical
Company, CITGO Petroleum Corporation and Mobil Oil Corporation.
The Company's principal butene-1 customers include Union Carbide
Corporation, Shell Chemical Company, Lyondell Petrochemical Company, NOVA
Chemicals Ltd. and The Dow Chemical Company. The Company's principal butene-2
customers include Shell Chemical Company.
The Company's principal specialty isobutylene customers include Bayer Inc.,
The Lubrizol Corporation, Schenectady International, Inc., Rhone-Poulenc Inc.
and Mobil Chemical Company Inc.
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PATENTS AND LICENSES
The Company presently owns, controls or holds rights to approximately 21
patents. The Company believes that its patents, particularly its patents
relating to the SKIP, OXO-D and diisobutylene production processes, are
important to its business and provide the Company with certain competitive
advantages. Accordingly, the Company actively protects existing production
process technologies.
The Company has available for license certain of its patented technologies,
including the SKIP and OXO-D processes, to third parties. In addition, the
Company licenses certain technologies, including the process by which it
extracts butadiene from crude butadiene, from third parties.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state, and local laws and
regulations administered by the EPA, the U.S. Coast Guard, the Army Corps of
Engineers, the TNRCC, the Texas General Land Office, the Texas Department of
Health and various local regulatory agencies. The Company holds all required
permits and registrations necessary to comply substantially with all applicable
environmental laws and regulations, including permits and registrations for
wastewater discharges, solid and hazardous waste disposal and air emissions, and
management believes that the Company is in substantial compliance with all such
laws and regulations. While management does not expect that compliance with
existing environmental laws will have a material adverse effect on the Company's
financial condition or results of operations, there can be no assurance that
future legislation, regulation or judicial or administrative decisions will not
have such an effect.
Under federal and state environmental laws, companies may be liable for
remediation of contamination at on-site and off-site waste management and
disposal areas. Management believes that the Company is not likely to be
required to incur remediation costs related to its management, transportation
and disposal of solid and hazardous materials and wastes, or to its pipeline
operations. If the Company were to be required to incur such costs, however,
management believes that such costs would not have a material adverse effect on
the Company's results of operations. In addition, under the terms of the 1984
purchase agreement, the prior owner of the Houston facility, Petro-Tex, has
indemnified the Company for liability arising from off-site disposal of any
materials prior to June 1984. Notwithstanding the terms of the indemnity, in
July 1994 Petro-Tex filed a claim for indemnity against the Company for any
costs that may be attributable to Petro-Tex for the cleanup of the Malone
Service Company ("Malone") site in Texas City, Texas. Petro-Tex and many other
companies along the Gulf Coast allegedly sent wastes to the Malone site for
disposal in the 1970s and possibly the early 1980s. Malone has been subject to
several state enforcement actions regarding its waste disposal practices. It is
not known whether the site will require remediation or at what cost. The Company
believes that it has meritorious defenses to Petro-Tex's claim and intends to
contest the claim vigorously. Although no on-site contamination has been
identified as requiring remediation, management believes that certain areas of
the Houston facility were historically used for waste disposal. Based on
limited, currently available information about these waste disposal areas and
their contents, the Company believes that, if such remediation becomes
necessary, any remediation costs would not have a material adverse effect on the
Company's financial condition or results of operations. The Petro-Tex indemnity
does not extend to these on-site waste disposal areas or their contents.
The day-to-day operations of the Company are subject to extensive
regulation under the Resource Conservation and Recovery Act, the Federal Clean
Water Act, the CAAA and similar requirements of state law. In particular, under
the CAAA, the EPA and TNRCC have promulgated, or are required to promulgate,
numerous regulations which affect or will affect the operations of the Company.
The most significant of these are the so-called Hazardous Organics National
Emission Standard for Hazardous Air Pollutants or HON Rule, the requirements of
Title V of the CAAA and rules relating to the controls of oxides of nitrogen,
which are known as the Nitrogen Oxides Reasonably Available Control Technology
rules ("NOx RACT Rules").
The HON Rule requires additional controls on emissions of certain listed
hazardous air pollutants ("HAPs"). Butadiene, methanol, dimethyl formamide and
MTBE, which are manufactured, used and/or
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processed by the Company, have been identified as HAPs for purposes of
regulation under the CAAA. Areas of concern in the Company's operations for HAPs
emissions include equipment leaks, process vents, product storage, transfer
operations and emissions from wastewater streams. The Company has examined each
of these areas and believes that it will be able to achieve substantial
compliance with the HON Rule after incorporating additional monitoring and
record-keeping systems into its operations at a cost that management believes
will not be material.
The NOx RACT Rules require compliance by May 1999. The Company has examined
the rules and believes that the main expenditure required to achieve compliance
will involve purchase and installation of monitoring equipment for NOx
emissions, which can be either continuous emission monitors, predictive emission
monitors or other approved monitoring methods. Based on its preliminary study,
management estimates that the cost to comply with the NOx RACT Rules will be $2
million over the next three years.
The Company's Houston facility is located in Harris County, Texas, which
has been designated as a non-attainment area for ozone under the CAAA.
Accordingly, the State of Texas has developed a State Implementation Plan
("SIP") which requires reductions in emissions of ozone precursors, including
volatile organic compounds and carbon monoxide in Harris County. To comply with
the SIP, the Company installed new controls at a cost of approximately $7.8
million. The Company anticipates that, at some time in the future, the State of
Texas may promulgate rules which will require the Company to modify existing
controls or to install additional controls for fugitive air emissions. The
Company estimates that, if these rules are promulgated, it will incur costs of
between $1 million and $2 million in order to modify or install such controls
over a five- or six-year period.
Title III of the CAAA requires prevention of accidental releases of certain
listed extremely hazardous substances. The EPA's rules implementing portions of
Title III, which were signed by the EPA Administrator on May 24, 1996, will
require the Company to conduct a hazards assessment and develop a risk
management plan by June 1999 for each extremely hazardous substance that the
facility manufactures, uses, generates or processes.
The regulations under Title V of the CAAA, which will require a
facility-wide inventory of emissions sources at the Houston facility and a
single operating permit for the facility's air emissions, have not been
promulgated. Based on a preliminary review of the draft requirements, however,
the Company believes that it will have to undertake substantial efforts to
conduct an emissions source inventory. It may also be required to upgrade its
on-going monitoring program once it has received its operating permit; however,
the Company does not expect any costs associated therewith to be significant. It
is also possible that the Company may be required to make modifications to some
of its equipment in order to comply with the terms of the facility-wide permit.
The Company has an active program to manage asbestos-containing material at
its Houston facility in accordance with federal and state environmental, health
and safety regulations. The Company does not believe that these materials pose a
hazard to the health of its employees. There is no requirement to remove these
materials, provided they are properly managed. As the plant is reconfigured or
additions are made, asbestos-containing materials are removed or encapsulated by
a certified contractor. The costs of this program are included in the Company's
operating budget at approximately $500,000 per year for the next five years.
The wastewater treatment system for the Houston facility is 75% owned by
the Company and 25% owned by Bayer Corporation ("Bayer"), the owner of an
adjacent facility. Bayer operates the treatment system, but the federal and
state discharge permits are held jointly by the Company and Bayer. The Company
believes that the system has sufficient capacity for the Company's projected
needs. The Company has budgeted to expend approximately $750,000 by 1998 to
upgrade the sludge-handling equipment of the wastewater treatment system. Under
the joint wastewater treatment agreement, Bayer will pay the remaining cost of
the upgrade, which is expected to be approximately $250,000. The Company has
budgeted approximately $120,000 for fiscal 1997 for maintenance work on the
wastewater treatment facility.
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In February 1996, the EPA issued an order to the Company and Bayer
requiring the companies to resolve the exceedances of their discharge permit
limits for copper and total suspended solids that had occurred since 1992. The
Company believes that these issues have been resolved by raising the limits in
the new discharge permit and by other corrective actions. No penalties were
assessed.
To meet rules expected to be promulgated concerning stormwater runoff, the
Company has budgeted to spend approximately $500,000 by 2000 for additional
stormwater control and collection. The Company has also budgeted $600,000
through fiscal 1999 to purchase noise barriers for certain equipment.
The terminals in Baytown and Lake Charles are in substantial compliance
with applicable environmental laws and regulations, and management believes that
no significant expenditures will be required at these facilities to allow them
to continue to comply with such laws and regulations.
MTBE and butadiene are the subject of continuing health effects studies.
Some recent studies have suggested that MTBE may cause cancer or other adverse
health effects, and the EPA considers MTBE to be a possible human carcinogen.
However, in February 1996, a study by the Health Effects Institute, commissioned
by the EPA and the Centers for Disease Control and Prevention, reported that
adding oxygenates, including MTBE, to gasoline reduces emissions of carbon
monoxide and benzene and is unlikely to increase substantially the health risks
associated with fuel used in motor vehicles. Nevertheless, EPA, California and
other states reportedly are expected to adopt limits for MTBE levels in drinking
water. The EPA has also determined that butadiene is a probable human
carcinogen. Effective February 1997, the Occupational Safety and Health
Administration lowered the employee permissible exposure limit ("PEL") over an
8-hour time-weighted average for butadiene from 1000 parts per million ("ppm")
to 1 ppm. The Company has conducted employee exposure monitoring and believes
that it already meets the PEL at most of its operations. For some operations,
the Company anticipates that affected employees will need to use respirators and
that additional emissions controls may be necessary. The Company has budgeted
$600,000 for fiscal 1997 to control butadiene emissions in its laboratory. The
Company does not expect that the current health concerns regarding MTBE or
butadiene will have a material adverse effect on the Company's financial
condition or results of operations, although no assurances can be given that
future studies will not result in more stringent regulation of MTBE and
butadiene.
EMPLOYEES
As of June 30, 1996, the Company had approximately 350 full-time employees,
all of whom were salaried employees. In addition, the Company contracts with a
third party to provide approximately 155 contract employees to perform routine
maintenance on and around its Houston facility. The Company believes its
relationship with its employees is satisfactory.
SAFETY RECORD
The Company maintains one of the best workman's compensation records in
Texas, equivalent to most clerical operations. Over the last six years, the
Company has experienced only three lost time injuries. The Company believes this
record is accomplished through extensive classroom and on-the-job training as
well as the efforts of its highly trained, 67-member volunteer emergency
response team.
PROPERTIES
The Company's plant is located on a 257-acre tract approximately one mile
from the Houston Ship Channel and near one of the chemical industry's largest
domestic processing facilities. Approximately 230 acres is owned by the Company,
and 25% of the remaining 27 acres is owned by Bayer. The Company leases from the
Port of Houston two ship docks which accommodate barge and ocean-going vessels,
and has the facilities to be served by rail and by truck. In addition, the
facility is connected by pipeline to customers and suppliers of raw materials,
directly and through other major pipelines in the immediate area as well as in
Texas City, and with salt dome storage facilities of other companies located at
both Mont Belvieu and Pierce Junction, Texas. The Company's facility also has a
laboratory for sampling and testing. The Company owns and operates a storage and
terminal facility at Baytown, Texas, leases a storage and terminal facility in
Lake Charles, Louisiana and leases tank storage capacity in Bayonne, New Jersey.
In
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addition, the Company owns its headquarters building and an adjacent building on
the Katy Freeway in Houston, Texas. The Company believes that is has adequate
facilities for the conduct of its current and planned operations.
LEGAL PROCEEDINGS
In addition to the matters disclosed under "-- Environmental Regulation,"
the Company is a party to various claims and litigation arising in the ordinary
course of its business. Management recognizes the uncertainties of litigation
and the possibility that one or more adverse rulings could materially impact
operating results. However, although no assurances can be given, management
believes that other than as disclosed, based on the nature of and its
understanding of the facts and circumstances which give rise to such claims and
litigation, and after considering appropriate reserves that have been
established, that the ultimate resolution of such issues, individually and in
the aggregate, will not have a material adverse effect on the Company's
financial position or results of operation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company, TPC Holding and Holdings. Each director
is elected for a one year term or until such person's successor is duly elected
and qualified.
<TABLE>
<CAPTION>
YEARS OF
SERVICE WITH THE
COMPANY
NAME AGE POSITION OR ITS PREDECESSORS
- ------------------------------------- --- ------------------------------------------ -------------------
<S> <C> <C> <C>
Gordon A. Cain....................... 84 Director 13
James J. Collis...................... 34 Director --
William R. Huff...................... 47 Director --
William A. McMinn.................... 66 Director and Chairman 9
Susan O. Rheney...................... 37 Director --
John T. Shelton...................... 66 Director 13
B. W. Waycaster...................... 58 Director, President and Chief 4
Executive Officer
Claude E. Manning.................... 50 Chief Financial Officer 24
Ronald W. Woliver.................... 56 Vice President, Marketing 28
Stephen R. Wright.................... 49 Vice President and General Counsel --
Bill R. McNeese...................... 62 Vice President, Operations 9
</TABLE>
Mr. Cain is President of Beta Consulting, Inc. ("Beta Consulting"), a
consulting and investment company. From August 1982 until his retirement in
December 31, 1992, he was Chairman of the Board of Sterling. Mr. Cain was the
Chairman of the Board of Sterling Chemicals, Inc. from 1986 until it was sold in
August 1996 and was on the Board of Directors of Arcadian Corporation from May
1989 until it was sold in April 1997. He has been on the Board of Directors of
Atlantic Coast Airlines, Inc. since November 1991. Mr. Cain also serves as a
director of Agennix, Incorporated, a biotechnology company, and Martinaire,
Inc., an air freight company. Prior to organizing The Sterling Group, Inc.
("Sterling"), Mr. Cain was involved in the purchase of a variety of businesses
and provided consulting services to these and other companies. Mr. Cain was also
Chairman of the Board of UltraAir, Inc. from 1991 to 1994, Chairman of the Board
of Cain Chemical Inc. from its organization in March 1987 until its acquisition
by Occidental Petroleum Corporation in May 1988 and the Chairman of the Board of
Vista Chemical Company from 1984 until 1986.
Mr. Collis has been a partner with CEA Capital Partners since March 1,
1997. From April 1996 until March of 1997, he served as a Vice President of
Chase Capital Partners. From May 1995 to April 1996, he was a Vice President,
and from mid 1991 to May 1995 he was an associate, in the Merchant Banking Group
of The Chase Manhattan Bank. Chase Capital Partners and The Chase Manhattan Bank
are affiliates of Chase Securities Inc., the Initial Purchaser of the Notes in
this offering. Mr. Collis serves on the Board of Directors as the designee of
Chase Venture Capital Associates, L.P. ("Chase Venture"), an affiliate of
Chase Securities Inc. See "Related Transactions."
Mr. Huff is President of the General Manager of WRH Partners, L.L.C., the
General Partner of The Huff Alternative Income Fund, L.P. (the "Huff Fund").
He also has been President of one of the general managers of W.R. Huff Asset
Management Co., L.L.C., an investment management firm, since 1984. Mr. Huff is
also a director of Arcadian Corporation, a fertilizer manufacturer. Mr. Huff
serves on the Board of Directors as the designee of the Huff Fund. See "Related
Transactions."
Mr. McMinn was Corporate Vice President and Manager of the Industrial
Chemical Group of FMC Corporation, a manufacturer of machinery and chemical
products, from 1973 through 1985. He became President and Chief Executive
Officer of Cain Chemical Inc., a producer of petrochemicals, in 1987 and served
in that capacity until its acquisition by Occidental Petroleum in May 1988. He
became Chairman of the Board of Directors of Arcadian Corporation in August 1990
and served in that capacity until it was sold in April 1997. He has been a
director of PM Holdings
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Corporation and its principal operating subsidiary, Purina Mills, Inc., a
leading manufacturer of animal nutrition products, since October 1993.
Ms. Rheney has been a principal of Sterling since February 1992. She worked
as an independent financial consultant from December 1990 to January 1992. Prior
to that time, from June 1987 to November 1990, she was an associate at Sterling.
Ms. Rheney is also a director of Mail-Well, Inc.
Mr. Shelton has been Vice Chairman of the Board, Executive Vice President
and Chief Operations Officer of the Company since 1983. Prior thereto, Mr.
Shelton held various positions in the chemicals industry including Vice
President -- Manufacturing of Oxirane Corporation and
Manager -- Manufacturing/Engineering of Atlantic Richfield Company.
Mr. Waycaster has been President and Chief Executive Officer of the Company
since 1992. Prior thereto, Mr. Waycaster spent 27 years with The Dow Chemical
Company and was serving as Vice President of the Hydro-Carbon and Resources
division when he left to join the Company.
Mr. Manning has been Chief Financial Officer of the Company since 1991. In
1972, he joined Petro-Tex Chemical Corporation (which was the prior owner of the
Company's Houston facility), where he served as Vice President -- Finance, and
Director of Finance and Accounting.
Mr. Woliver has been Vice President -- Marketing of the Company since 1976.
He joined Petro-Tex Chemical Corporation in 1968 and has held various marketing
positions in the United States and in Brussels.
Mr. Wright joined the Company in August 1996 as Vice President and General
Counsel. From January 1996 until he joined the Company, Mr. Wright was engaged
in the private practice of law, either as a sole practitioner or of counsel to
Andrews & Kurth, L.L.P. For over five years prior thereto, Mr. Wright was the
Vice President and General Counsel or the Senior Vice President and General
Counsel of Destec Energy, Inc.
Mr. McNeese has been Vice President -- Operations of the Company since
1992. He joined the Company in 1986 and has held positions in manufacturing,
production and utilities. From 1984 to 1986, Mr. McNeese served as General
Manager -- Operations of Engineering for Paktank Corporation. Prior thereto, Mr.
McNeese held various positions in a number of Atlantic Richfield Company
businesses. Mr. McNeese has over 30 years of experience in the chemicals
industry.
THE BOARD AND CERTAIN BOARD COMMITTEES
Prior to the consummation of the Transactions, the Board of Directors held
five regularly scheduled meetings during the fiscal year ended June 30, 1996.
Each director attended all such meetings.
Following the consummation of the Acquisition, the Company's Board
established the following committees:
o The Executive Committee, which possesses all the powers and authority
of the Company's Board with respect to the management and direction of
the business and affairs of the Company, except as limited by law. The
Executive Committee is composed of Messrs. McMinn (Chair), Shelton and
Waycaster.
o The Audit Committee, which recommends independent public accountants
to the Company's Board, reviews the annual audit reports of the
Company and reviews the fees paid to the Company's independent public
accountants. The Audit Committee reports its findings and
recommendations to the Board for ratification. The Audit Committee is
composed of Mr. Collis (Chair) and Ms. Rheney.
o The Compensation Committee, which is charged with the responsibility
for supervising the Company's executive compensation policies,
administering the employee incentive plans, reviewing officers'
salaries, approving significant changes in executive employee benefits
and recommending to the Board such other forms of remuneration as it
deems appropriate. The Compensation Committee is composed of Messrs.
Cain (Chair), McMinn and Shelton.
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o The Finance Committee, which researches, evaluates, and recommends
corporate growth opportunities and review and makes recommendations
regarding debt and equity financing. The Finance Committee is composed
of Ms. Rheney (Chair) and Messrs. Huff, Cain and Waycaster.
COMPENSATION OF DIRECTORS
Directors of Holdings and the Company who are not employees of the Company
receive an annual retainer of $15,000 and a fee of $500 for each meeting of the
Board or any committee thereof that they attend. Directors who are also
employees of the Company do not receive Director compensation. No compensation
is paid to any directors of TPC Holding for attendance at TPC Holding's board
meetings.
EXECUTIVE COMPENSATION
The following table sets forth the total value of compensation received by
the Chief Executive Officer and the five most highly compensated executive
officers, other than the Chief Executive Officer, who served as executive
officers of the Company as of May 31, 1996 (the "Named Executive Officers")
for services rendered in all capacities to the Company for the twelve months
ended May 31, 1996 and the fiscal years ended May 31, 1995 and 1994.
SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS(2)
- ------------------------------------- -------- ---------- ------------
David C. Swalm, Chief Corporate
Officer and Chairman............... 1996 $ 480,000 $ 5,210,440
1995 480,000 5,652,400
1994 480,000 6,355,700
B. W. Waycaster, President and Chief
Executive Officer.................. 1996 $ 300,000 $ 2,899,100
1995 300,000 565,300
1994 300,000 636,500
John T. Shelton, Executive Vice
President.......................... 1996 $ 180,000 $ 1,012,300
1995 180,000 1,084,900
1994 180,000 1,216,700
Ronald W. Woliver, Vice President,
Marketing.......................... 1996 $ 180,000 $ 1,012,300
1995 180,000 1,084,900
1994 180,000 1,216,700
Claude E. Manning, Chief Financial
Officer............................ 1996 $ 132,000 $ 72,966
1995 121,000 100,811
1994 116,000 103,683
Bill R. McNeese, Vice President,
Operations......................... 1996 $ 132,000 $ 72,293
1995 121,000 100,133
1994 116,000 103,346
- ------------
(1) None of the executive officers has received perquisites, the value of which
exceeded the lesser of $50,000 or 10% of the salary and bonus of such
executive officer except Mr. Swalm, who received approximately $54,000 in
1995.
(2) Includes 401(k) contributions in 1996, 1995 and 1994 of $21,035, $24,618 and
$20,309, respectively, for Mr. Manning and $21,149, $24,440 and $19,972,
respectively, for Mr. McNeese.
EMPLOYMENT AND OTHER AGREEMENTS
In 1992, Mr. Waycaster entered into an employment agreement with TOC and
TPC which provides for an annual base salary of $300,000 and a minimum annual
cash bonus of $300,000. The agreement expires on April 1, 1997. In the event of
Mr. Waycaster's retirement, death or disability, salary payments will continue
for the term of the agreement. In the event of the involuntary termination of
his employment, Mr. Waycaster would receive amounts prescribed in the agreement.
In addition, Mr. Waycaster has entered
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into a non-competition agreement with TOC and TPC covering the three-year period
following the last date he receives compensation from the Company.
In connection with his employment, Mr. Waycaster also received a grant of
options to purchase up to 50,000 shares of TPC common stock at a purchase price
of $40 per share. The options were cancelled in connection with the
Transactions.
In 1994, TPC entered into agreements with each of Messrs. Swalm, Shelton
and Woliver which provide a benefit in the event of death while an employee of
TPC. Provided the individual is survived by his wife, the death benefit
continues monthly for the shorter of the life of the wife (or in the case of Mr.
Woliver, so long as he also has minor children) or 60 months, and is $25,000 per
month with respect to Mr. Swalm, $10,000 per month with respect to Mr. Shelton
and $10,000 per month with respect to Mr. Woliver. Each agreement terminates on
termination of employment for any reason other than death or disability of the
individual.
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Transactions, Finance Co.established an Employee
Stock Ownership Plan (the "ESOP"), covering substantially all full-time
employees, including executive officers, of the Company who satisfy the
requirements described below. The ESOP, which invests primarily in shares of
Common Stock, borrowed $10.0 million from Finance Co. pursuant to a loan (the
"Company ESOP Loan") to purchase 100,000 shares of Common Stock at the
Closing. Finance Co. funded the Company ESOP Loan from the ESOP Term Loan. The
Company ESOP Loan matures on June 30, 2001, and bears interest at interest rates
based on the Alternative Base Rate (as defined) or the LIBOR Rate (as defined).
The outstanding principal of the Company ESOP Loan is payable in twenty equal
quarterly installments of $500,000 during the period beginning September 30,
1996 and ending June 30, 2001. The shares of Common Stock purchased by the ESOP
were pledged (the "ESOP Pledge") as security for the Company ESOP Loan, and
such shares will be released and allocated to ESOP participants' accounts as the
Company ESOP Loan is discharged. The Company may make contributions to the ESOP
as determined by the Board of Directors in an amount anticipated to be equal to
a certain percentage of the total annual earnings of all ESOP participants (the
"Discretionary Contributions"). The Company intends to make Discretionary
Contributions in amounts sufficient to enable the ESOP to discharge its
indebtedness under the Company ESOP Loan; however, the Company has no legal
obligation to make Discretionary Contributions. Shares released under the ESOP
Pledge are allocated to each participant based on such participant's base
compensation relative to total base compensation for all ESOP participants.
Until the Company ESOP Loan is paid in full, Discretionary Contributions will be
used to pay the outstanding principal and interest on the Company ESOP Loan. For
employees whose employment commenced prior to October 1, 1996 and who have
attained the age of 21 years, participation begins as of the later to occur of
the Closing Date or the date of commencement of the participant's employment. A
participant's ESOP account vests at the rate of 20% per year. Distributions from
the ESOP are made in cash or Common Stock upon a participant's retirement,
death, disability or termination of employment. In the event of retirement,
death or disability, the entire balance of a participant's ESOP account will
become distributable without regard to the ordinary vesting schedule. In the
event of termination of employment for any other reason, the vested portion of a
participant's ESOP account will become distributable and the remaining portion,
if any, will be forfeited. If Common Stock is distributed to a participant, the
participant may, within two 60-day periods, require the Company to purchase all
or a portion of such Common Stock at the fair market value of the Common Stock
as determined under the ESOP (the "Put Options"). The first 60-day period
commences on the date the participant receives a distribution of Common Stock
and the second 60-day period commences a year from such date. If a participant
fails to exercise either of the two Put Options, the participant may transfer
the shares of Common Stock only upon receipt of a bona fide third party offer
and only after first offering the shares to the ESOP and then to the Company.
Employees of the Company own approximately 20% of the outstanding Common Stock
through the ESOP after the Acquisition.
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PROFIT SHARING PLAN
Prior to the date of the Acquisition, TPC maintained a Profit Sharing Plan
(the "Profit Sharing Plan") covering substantially all of its employees,
including executive officers. The Profit Sharing Plan is designed to qualify
under Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"). Each participant has the option to defer taxation of
a portion of such participant's earnings by directing TPC to contribute a
percentage of such earnings to the Profit Sharing Plan. A participant may direct
a minimum of 1% and a maximum of 10% of eligible earnings to the Profit Sharing
Plan, subject to certain limitations set forth in the Internal Revenue Code. TPC
currently makes a matching contribution monthly equal to 25% of the amount of
compensation deferred by each participant in such month, up to 6% of the
participant's base compensation for such month. TPC may also make a
discretionary contribution to the Profit Sharing Plan. Participants' Profit
Sharing Plan accounts become distributable at retirement, upon disability, death
or termination of employment, or under certain circumstances, upon attainment of
age 59. Participants are fully vested at all times in all amounts deferred by
them to the Profit Sharing Plan, and they become vested in the Company's
matching and discretionary contributions under a five-year graded vesting
schedule.
The Company is continuing the Profit Sharing Plan in substantially the same
form as TPC maintained such plan prior to the Acquisition, provided that the
discretionary contribution will be made only if certain levels of earnings
before interest, taxes, depreciation and amortization are satisfied by the
Company in accordance with the Nonqualified Profit Sharing Incentive Plan (as
described below).
CASH BONUS PLAN
Prior to the date of the Acquisition, TPC established the Cash Bonus Plan
covering substantially all employees of TPC (or certain affiliates of TPC) and
covering the employees of certain third-party contractors who have contributed
to the success of TPC (or certain affiliates thereof). Upon the occurrence of a
Change of Control (as defined below), an employee participant as of July 2, 1996
will be distributed a portion of $3,200,000 within forty-five days of the date
of the Change of Control and will be distributed a portion of $1,800,000 plus
interest in each of sixteen quarterly installments following the date of the
Change of Control so long as the employee is an employee of TPC (or certain
successors or affiliates of TPC) on the corresponding quarterly installment
date. Upon the occurrence of a Change of Control, an eligible employee of a
third-party contractor who is providing services to TPC (or certain successors
or affiliates thereof) on July 2, 1996 will be distributed a portion of $300,000
within forty-five days of the date of the Change of Control, and will be
distributed a portion of $168,750 plus interest in each of sixteen quarterly
installments following the date of the Change of Control so long as the employee
of the third-party contractor is providing services to TPC on the corresponding
quarterly installment date. Each participant's allocable share of the bonus
payments to be made under the Cash Bonus Plan is based on a formula which
considers a participant's compensation and length of service with TPC. If a
participant retires, dies, becomes disabled, or whose employment is terminated
without cause after July 2, 1996, such participant's beneficiary or
representative will continue to receive a portion of the bonus payments through
the sixteenth installment payment even though such participant is no longer
employed by TPC or the third-party contractor which is providing services to
TPC. Under the Cash Bonus Plan, a "Change of Control" is deemed to occur when
the outstanding stock of TOC is acquired, or more than 50% of the shares of
TPC's common stock is sold, in a cash tender offer, exchange offer, merger,
third-party private purchase or other means of acquisition, or when
substantially all of the assets of TPC are sold to an unrelated third party. The
Transactions effected a Change of Control and distributions from the Cash Bonus
Plan have commenced.
STOCK OPTION PLAN
Holdings established a stock option plan (the "Option Plan") immediately
prior to the consummation of the Transactions. The Option Plan is administered
by a committee (the "Committee") of the Board of Directors of Holdings. Option
grants under the Option Plan will be permitted to be made to directors and key
employees of Holdings and its subsidiaries, including the Company, selected by
the Committee. The Committee may grant "incentive stock options" within the
meaning of Section 422 of the Internal Revenue
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Code and also will be permitted to grant "nonstatutory options," which are not
intended to conform to Section 422 of the Internal Revenue Code. The Option Plan
will provide for the discretionary grant of options to purchase shares of Common
Stock. The exercise price of incentive stock options shall not be less than the
fair market value of a share of Common Stock on the date of grant, and the
exercise price of nonstatutory options shall not be less than 85% of the fair
market value of a share of Common Stock on the date of grant. The Committee will
be permitted to provide that the options will vest immediately or in increments.
No option will be transferable by a grantee other than upon death. On the
termination of employment or disability of any grantee, any unvested options
will either expire or continue to be exercisable as determined by the Committee,
in its sole discretion. The Option Plan will terminate no later than 10 years
after its adoption; however, any options outstanding upon termination of the
Option Plan will remain in effect until exercised or terminated pursuant to the
terms of the agreement under which they were granted. A participant in the
Option Plan may, upon receiving approval from the Committee, relinquish all or a
portion of such participant's options for an amount in cash equal to the
difference between the fair market value of the Common Stock corresponding to
the options being relinquished on the day of relinquishment, less the total
option price for such corresponding shares.
NONQUALIFIED PROFIT SHARING INCENTIVE PLAN
The Company has established two separate Nonqualified Profit Sharing
Incentive Plans, both of which will be administered by the Committee. Amounts
paid to employees in cash under the Nonqualified Profit Sharing Incentive Plans
will constitute taxable income in the year received and will be based on the
Company's financial performance for the period commencing on the first day of
the Company's fiscal year and ending on the last day of each fiscal quarter
during such year. One of the Nonqualified Profit Sharing Incentive Plans is only
for officers of the Company who are selected by the Committee (the "Officers'
Plan"). If the Company's EBITDA exceeds certain prescribed levels, the officers
participating in the Officers' Plan will receive distributions in cash from the
Company equal to a certain percentage of EBITDA recommended by the Chief
Executive Officer of the Company and approved by the Committee. Under the other
Nonqualified Profit Sharing Incentive Plan which is for all employees not
participating in the Officers' Plan, if EBITDA exceeds certain prescribed
levels, a percentage of EBITDA will be used: first, to satisfy any required
contributions to the ESOP; second, to satisfy any required matching
contributions to the Profit Sharing Plan; third, to contribute annually to the
Profit Sharing Plan for the benefit of its participants up to the maximum amount
allowable under the Internal Revenue Code for qualification and deduction
purposes; fourth, to distribute cash to employees in an amount equal to $1.00
multiplied by the number of base hours an employee worked during a fiscal
quarter (up to a maximum of 520 hours); and fifth, to distribute any remaining
excess in cash to employees based on their base compensation for such period.
The Nonqualified Profit Sharing Incentive Plans will not be qualified under
Section 401(a) of the Internal Revenue Code.
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RELATED TRANSACTIONS
TPC historically engaged in certain raw material purchase transactions with
Clarkston, which prior to the consummation of the Transactions was owned by
several of the same individuals (including Mr. Swalm) who were stockholders of
TOC and/or TPC. In the twelve months ended May 31, 1996, the Company made
purchases of raw materials from Clarkston of approximately $113.4 million. As
part of the Transactions, the Company assumed from Clarkston a contract between
Clarkston and a certain supplier for the purchase of isobutane. In connection
with the Transactions, Clarkston was dissolved. 80% of the outstanding capital
stock owned by TOC of The Texas Falls Corporation was sold to Mr. Swalm. Messrs.
Swalm, Shelton, Woliver and Waycaster collectively own the remaining 20% of the
outstanding capital stock of The Texas Falls Corporation.
Sterling entered into an agreement with Holdings and TPC Holding pursuant
to which Sterling provided consulting and advisory services with respect to the
organization of Holdings, TPC Holding and Finance Co., the structuring of the
Transactions, employee benefit and compensation arrangements and other matters.
The agreement also provides that Holdings and TPC Holding, jointly and
severally, indemnify Sterling against liabilities relating to its services. At
the Closing, the Company paid Sterling a one-time transaction fee of
approximately $4.0 million for these services, and reimbursed Sterling for its
expenses. In addition, each of Holdings, TPC Holding and the Company has agreed
that if it or any of its subsidiaries determines within two years of the date of
the agreement to dispose of or acquire any assets or business, to offer its
securities for sale or to raise any debt or equity, either Holdings, TPC
Holding, the Company or the relevant subsidiary will retain Sterling as a
consultant with respect to the transaction, provided that Sterling's fees are on
terms no less favorable to Holdings, TPC Holding, the Company or the relevant
subsidiary than would be available from unaffiliated third parties.
Holdings, TPC Holding and Finance Co. were organized by Sterling for the
purpose of effecting the Acquisition. Ms. Susan Rheney, a principal of Sterling,
and Mr. Gordon A. Cain, are directors of Holdings, TPC Holding and the Company.
See "Management." Mr. Cain and Ms. Rheney purchased 76,150 and 5,000 shares of
Common Stock, respectively, in connection with the Transactions at a price of
$100 per share, the same price at which all shares were sold in connection with
the Transactions.
As a matter of policy, the agreement between the Company and Sterling is,
and all future transactions between the Company and its respective directors,
officers and affiliates will be, on terms no less favorable to the Company than
those available from unaffiliated third parties.
Certain stockholders of Holdings, representing a majority of the
outstanding capital stock of Holdings entitled to vote for the election of
directors of Holdings, have entered into a Voting Agreement with Holdings
pursuant to which they have agreed to vote for a designee nominated by the Huff
Fund and a designee nominated by Chase Venture for election to the Board of
Directors of Holdings. As a result of the Voting Agreement, each of the Huff
Fund and Chase Venture have the right to control one seat on the Board of
Directors of the Company.
See "-- Employment and Other Agreements" for a description of Mr.
Waycaster's employment agreement.
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BENEFICIAL OWNERSHIP OF HOLDINGS' COMMON STOCK
The following table sets forth as of March 3, 1997, the number and
percentage of the outstanding shares of Common Stock beneficially owned by (a)
each person known by the Company to beneficially own more than 5% of such stock,
(b) each director of the Company, (c) each of the Named Executive Officers of
the Company, and (d) all directors and executive officers of the Company as a
group.
AMOUNT AND NATURE % OF
OF BENEFICIAL OWNERSHIP OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK COMMON STOCK
- ------------------------------------- ----------------------- ------------
Gordon A. Cain....................... 69,000 13.1%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
James J. Collis...................... -- --
380 Madison Avenue
New York, New York 10017
William R. Huff(1)................... -- --
67 Park Place
Morristown, New Jersey 07960
Claude E. Manning.................... 4,000 0.8%
8707 Katy Freeway, Suite 300
Houston, Texas 77024
William A. McMinn.................... 10,000 1.9%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
Bill R. McNeese...................... 2,000 0.4%
8707 Katy Freeway, Suite 300
Houston, Texas 77024
Susan O. Rheney...................... 5,000 0.9%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
John T. Shelton...................... 10,000 1.9%
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
B. W. Waycaster...................... 40,000 7.6%
8707 Katy Freeway, Suite 300
Houston, Texas 77024
Ronald W. Woliver.................... 10,000 1.9%
8707 Katy Freeway, Suite 300
Houston, Texas 77024
Stephen R. Wright.................... 1,150 0.2%
15723 Windy Glen
Houston, TX 77095
All directors and Named Executive
Officers as a group (11 persons)... 151,150 28.6%
Texas Petrochemicals Corporation
Employee Stock Ownership Plan(2)... 100,000 18.9%
Capital Southwest Corporation........ 30,000 5.7%
12900 Preston Road, Suite 700
Dallas, Texas 75230
Chase Venture Capital Associates,
L.P.(3)(4)......................... 60,000 11.4%
380 Madison Avenue
New York, New York 10017
The Huff Alternative Income Fund,
L.P.(4)............................ 57,778 10.9%
67 Park Place
Morristown, New Jersey 07960
- ------------
(1) Excludes indirect beneficial ownership of 57,778 shares of Common Stock held
by the Huff Fund and reflected elsewhere in the table. Mr. Huff is President
and sole director of the general manager of WRH Partners, L.L.C., the
general partner of the Huff Fund.
(2) The trustee of the ESOP (the "ESOP Trustee") will vote all shares of
Common Stock held by the ESOP pursuant to the direction of the Board of
Directors or by a committee to be designated by the Board of Directors,
except that participants are entitled to direct the ESOP Trustee to vote the
shares of Common Stock allocated to their accounts with respect to the
approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business or such similar transaction
as may be prescribed in regulations under the Internal Revenue Code. No
shares of Common Stock held by the ESOP have yet been allocated to
participant's accounts.
(3) Chase Venture is an affiliate of the Initial Purchaser of the Original
Series B Notes.
(4) Certain stockholders of Holdings have entered into the Voting Agreement with
Holdings which results in each of the Huff Fund and Chase Venture
controlling one seat on the Company's Board of Directors. See "Related
Transactions."
All the capital stock of the Company is owned by TPC Holding.
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DESCRIPTION OF THE BANK CREDIT AGREEMENT
GENERAL
Finance Co. and TPC entered into the Bank Credit Agreement with a syndicate
of lenders (the "Lenders"), and Texas Commerce Bank National Association, as
Agent for such Lenders (the "Agent") and effected the initial borrowings
described below on the Closing Date. The following description summarizes
certain provisions of the Bank Credit Agreement, but such description does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the provisions of the Bank Credit Agreement, a copy of which is
filed as an exhibit to the Registration Statement. All capitalized terms in this
"Description of the Bank Credit Agreement" section not defined in this
Offering Memorandum have the meanings assigned thereto in the Bank Credit
Agreement.
The Bank Credit Agreement provides for secured facilities consisting of (i)
a six and one-half year revolving credit facility providing for up to $40.0
million in revolving loans, a specified portion of which was used for letters of
credit (the "Revolving Credit Facility") and (ii) a term loan facility
providing for $140.0 million in term loans consisting of (x) a six and one-half
year term loan of $85.0 million (the "Tranche A Term Loan"), (y) an eight-year
term loan of $45.0 million (the "Tranche B Term Loan," and, together with the
Tranche A Term Loan, the "Senior Term Loans") and (z) a five-year term loan of
$10.0 million (the "ESOP Term Loan," and, together with the Senior Term Loans,
the "Term Loans").
The Revolving Credit Facility permits, at the option of the Company, the
issuance of letters of credit in principal amounts to be determined thereunder.
Loans and letters of credit under the Revolving Credit Facility are subject to a
borrowing base consisting of 85% of Eligible Accounts and 65% of Eligible
Inventory (collectively, the "Borrowing Base"), provided that at no time shall
more than 50% of the Borrowing Base be comprised of 65% of Eligible Inventory.
At the closing of the Transactions, Finance Co. borrowed the entire amount of
the Senior Term Loans and $0.5 million under the Revolving Credit Facility and
lent the proceeds of such borrowings to TPC Holding to finance a portion of the
purchase price of the Acquisition and pay a portion of the fees and expenses
related to the Transactions. At the closing of the Transactions, Finance Co.
also borrowed the full amount of the ESOP Term Loan and lent such amount to the
ESOP. The ESOP used those funds to purchase Common Stock at the closing of the
Transactions.
AMORTIZATION; PREPAYMENTS
The Bank Credit Agreement requires the principal amount of the Senior Term
Loans to be reduced in twelve quarterly principal installments of $2.75 million
beginning on September 30, 1996, four quarterly principal installments of $3.25
million beginning on September 30, 1999, four quarterly principal installments
of $4.0 million beginning on September 30, 2000, four quarterly principal
installments of $4.75 million beginning on September 30, 2001, four quarterly
principal installments of $6.0 million beginning on September 30, 2002, and four
quarterly principal installments of $6.25 million beginning on September 30,
2003. The ESOP Term Loan will be amortized in 20 equal quarterly installment
amounts of $0.5 million during its five-year term.
The Senior Term Loans are subject to mandatory prepayment prior to
September 30 of each fiscal year (commencing in fiscal 1997) in which more than
$75.0 million is outstanding on the Senior Term Loans on or before June 30 of
any year, of an amount equal to 75% of the difference between EBITDA (as
defined) for the prior fiscal year and the sum of certain capital expenditures,
taxes, dividends, interest expense, and principal payments made on the Senior
Term Loans during such prior year, and certain distributions made to TPC Holding
for certain expenses (such difference being the "Excess Cash Flow"), and prior
to September 30 of each year after the Senior Term Loans are reduced to $75.0
million or less, a payment in the amount of 50% of the Excess Cash Flow
generated during the prior fiscal year. All mandatory prepayments are required
to be applied pro rata to each Senior Term Loan based on the outstanding
principal amount of the Senior Terms Loans and pro rata to future scheduled
principal installments. In addition, the Senior Term Loans are further subject
to mandatory prepayment in the amount of any cash proceeds received by the
Company from an offering of its Capital Stock.
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The Senior Term Loans may be prepaid on notice at any time without premium
or penalty in a minimum amount of $1.0 million. All optional prepayments of the
Term Loans will be applied pro rata to each Senior Term Loan based on the
outstanding principal amount of the Senior Term Loans unless, at the Company's
option, lenders of the Tranche B Term Loan decline to accept such prepayment, in
which case the amount of prepayment declined shall be applied pro rata to the
Tranche A Term Loan and will be applied pro rata to future scheduled principal
installments.
The amount available under the Revolving Credit Facility is payable in full
on its maturity date. Additionally, if the aggregate amount of borrowings
outstanding under the Revolving Credit Facility, plus the undrawn face amount of
letters of credit plus unreimbursed drawings on letters of credit, exceeds the
Borrowing Base, an immediate prepayment in an amount to eliminate such excess
will be payable.
Prepayments of Eurodollar borrowings on any day other than the last day of
an interest period will be required to be accompanied by a payment to the
Lenders of all costs, expenses or losses, if any, incurred as a result of such
prepayment.
SECURITY; GUARANTEES
Borrowings under the Revolving Credit Facility and the Term Loans are
guaranteed by Holdings and TPC Holding. The obligations of the Company under the
Revolving Credit Facility and the Term Loans and the obligations under the
guarantees are secured by a first priority lien on the capital stock of TPC
Holding and the Company and on substantially all of the assets of the Company.
INTEREST RATES; LETTER OF CREDIT FEES
The Term Loans and the Revolving Credit Facility bear interest at a rate
per annum, at the Company's option, within the range of either (i) the Alternate
Base Rate to the Alternate Base Rate plus 1.5% or (ii) the LIBOR Rate plus .625%
to the LIBOR Rate plus 2.5%, in each case based upon the ratio of Total Debt (as
defined) to EBITDA for the most recent four-quarter period.
Under the Revolving Credit Facility, fees will be charged for letters of
credit as follows: (i) a fronting fee of 1/8% per annum on the undrawn face
amount of the letters of credit plus (ii) the greater of (x) for each letter of
credit outstanding, the applicable margin for LIBOR Rate Loans, and (y) $500.
FEES, EXPENSES AND COSTS; REVOLVING CREDIT FACILITIES
The terms of the Bank Credit Agreement require the Company to pay the
following fees in connection with the maintenance of borrowings under the
Revolving Credit Facility: (i) commitment fees to be paid to the Lenders in
amounts equal to 1/2% per annum, if the Company's ratio of Total Debt to EBITDA
for the most recent four-quarter period is greater than or equal to 3.0 to 1.0,
and 3/8% if the Company's ratio of Total Debt to EBITDA for the most recent
four-quarter period is less than 3.0 to 1.0, in each case with respect to the
unused commitment under the Revolving Credit Facility payable quarterly in
arrears until such time as it is terminated; and (ii) administration fees
payable annually to the Agent. In addition, the Company paid various
underwriting and arrangement fees and closing costs on the Closing Date in
connection with the origination and syndication of the Term Loans and the
Revolving Credit Facility.
The Company also is required to reimburse the Agent for all reasonable
out-of-pocket costs and expenses incurred in the preparation, documentation,
syndication and administration of the Bank Credit Agreement and to reimburse the
Lenders for all reasonable costs and expenses incurred in connection with the
enforcement of their rights in connection with a default or the enforcement of
the Bank Credit Agreement. The Company agreed to indemnify the Agent and the
Lenders and their respective officers, directors, shareholders, employees,
agents and attorneys against certain costs, expenses (including fees and
disbursements of counsel) and liabilities arising out of or relating to the Bank
Credit Agreement, the Stock Purchase Agreement and the transactions contemplated
thereby. Furthermore, the Lenders are entitled to be reimbursed for increases in
reserve requirements, changes in law and circumstances, possible future
illegality of interest options, taxes (other than on gross receipts or income),
possible inability to determine market rate, capital adequacy, and consequential
costs.
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COVENANTS
The Bank Credit Agreement contains substantial restrictive covenants
limiting the ability of the Company to, among other things: (i) incur
contractual contingent obligations; (ii) pay subordinated debt or amend
subordinated debt documents without the prior consent of the Lenders; (iii)
create or allow to exist liens or other encumbrances; (iv) transfer assets
outside the Company except for sales and other transfers of inventory or
surplus, immaterial or obsolete assets in the ordinary course of business of the
Company; (v) enter into mergers, consolidations and asset dispositions of all or
substantially all of its properties; (vi) make investments; (vii) extend credit
to any entity; (viii) sell, transfer or otherwise dispose of any class of stock
or the voting rights of any subsidiary of TPC; (ix) enter into transactions with
related parties other than in the ordinary course of business on an arm's-length
basis on terms no less favorable to the Company than those available from third
parties; (x) amend certain agreements, without the prior consent of the Majority
Lenders; (xi) make any material change in the nature of the business conducted
by the Company; (xii) pay cash dividends or redeem shares of capital stock;
(xiii) make capital expenditures; and (xiv) pay dividends or repurchase stock.
In addition, the Bank Credit Agreement contains covenants that, among other
things and with certain exceptions, require the Company to: (i) maintain the
existence, qualification and good standing of the Company; (ii) comply in all
material respects with all material applicable laws; (iii) maintain material
rights, franchise agreements, business contracts, patents, trademarks, licenses
and Material Contracts; (iv) deliver certain financial and other information;
(v) maintain specified insurance; and (vi) notify the Lenders of any default
under the Loan Documents and of certain other material events.
Under the Bank Credit Agreement, as amended on March 28, 1997, the Company
is required to satisfy the following financial covenants: (1) a ratio of (a)
EBITDA minus cash taxes for the prior four quarter period to (b) the sum of
scheduled principal payments on the Term Loans for such period, cash interest
expense for such period, the lesser of Scheduled Capital Expenditures for such
period and actual capital expenditures for such period, actual Employee Bonuses
paid during such period and certain distributions to Holdings of at least (i)
1.00 to 1.00 through September 30, 1997; (ii) 1.05 to 1.00 from October 1, 1997
through June 30, 1999, and (iii) 1.15 to 1.00 thereafter; (2) a ratio of (a)
Total Debt to (b) EBITDA for the prior four quarter period of no greater than
(a) 5.80 to 1.00 through September 29, 1997, (b) 5.60 to 1.00 from September 30,
1997 through December 30, 1997, (c) 5.0 to 1.00 from December 31, 1997 through
March 30, 1998, (d) 4.75 to 1.00 from March 31, 1998 through June 30, 1998, (e)
3.75 to 1.00 from July 1, 1998 through June 30, 2000; and (f) 3.00 to 1.00
thereafter; (3) a minimum Net Worth of $52,000,000.00 plus 75% of cumulative
positive net income from the closing date and 100% of the proceeds of any equity
offering; and (4) a minimum ratio of Current Assets to Current Liabilities of
1.25 to 1.00. The Company received from the Lenders a waiver of compliance with
certain of these ratios as they existed as of December 31, 1996 and an amendment
to the Bank Credit Agreement on March 28, 1997 which updated these financial
ratios to those set forth above.
EVENTS OF DEFAULT
Events of Default under the Bank Credit Agreement include, subject to
applicable notice, grace and cure periods, the following: (i) a default in the
payment when due of any principal, interest or fees under the Bank Credit
Agreement; (ii) a default by the Company under any debt instruments in excess of
$5.0 million, or the occurrence of any event or condition that enables the
holder of such debt to accelerate the maturity thereof; (iii) any material
breach of any representation, warranty or statement in, or failure to perform
any duty or covenant under the Bank Credit Agreement or any of the other Loan
Documents; (iv) commencement of voluntary or involuntary bankruptcy, insolvency
or similar proceedings by or against Holdings, TPC Holding, TPC or any
subsidiary thereof; (v) the Term Loans and the Revolving Credit Facility cease
to be secured by substantially all of the assets of the Company; (vi) material
defaults related to employee benefits plans subject to Title I or IV of the
Employee Retirement Income Security Act of 1974, as amended; (vii) any uninsured
judgment or order in excess of $2.0 million remaining undischarged or unstayed
for longer than certain periods; (viii) a default by the Company in the payment
when due of principal of, interest or premium, if any, on the Original Notes or
the Notes, or the failure to observe,
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perform or comply with any agreement beyond any grace period with respect
thereto that enables the holder of such debt to accelerate the maturity thereof
or the Company becoming obligated to redeem, repurchase, or repay all or any
portion of any principal, interest or premium on the Original Notes or the Notes
prior to its scheduled payment; (ix) a default by Holdings in the payment when
due of principal of, interest or premium, if any, on the Discount Notes, or the
failure to observe, perform or comply with any agreement beyond any grace period
with respect thereto that enables the holder of such debt to accelerate the
maturity thereof; and (x) the occurrence of any change of control.
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DESCRIPTION OF THE NOTES
GENERAL
The Notes are to be issued under an Indenture, dated as of March 1, 1997
(the "Indenture"), between the Company and Fleet National Bank, as Trustee
(the "Trustee").
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of the form of which Indenture and the form of Notes is filed as
an exhibit to the Registration Statement. Upon the effectiveness of the
Registration Statement, the Indenture became subject to the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). The following summary of
certain provisions of the Indenture and the Notes (i) is a description of such
provisions after giving effect to the consummation of the Transactions, and (ii)
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture and the Notes,
including the definitions of certain terms therein and those terms made a part
thereof by the Trust Indenture Act.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York or the State of
Connecticut (which initially shall be the offices of the Trustee, at Shawmut
Trust Company of New York, c/o First Chicago Trust Co. of N.Y., 14 Wall Street,
8th Floor / Window #2, New York, New York 10005 or at 777 Main Street, Hartford,
Connecticut 06115, respectively), except that, at the option of the Company,
payment of interest may be made by check mailed to the address of the Holders as
such address appears in the Note register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. See
"-- Book-Entry, Delivery and Form." No service charge shall be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
The form and terms of the Notes offered hereby are the same as the form and
terms of the Original Notes except that (i) the Original Notes have been
registered under the Securities Act and, therefore, do not bear legends
restricting their transfer pursuant to the Securities Act and (ii) holders of
the Original Notes will not be entitled to the rights of holders of the Notes
offered hereby under the Registration Rights Agreement.
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $50 million aggregate principal amount, and will mature on July 1,
2006. The Notes will bear interest at the rate per annum shown on the cover page
hereof from March 13, 1997, or from the most recent date to which interest has
been paid or provided for, payable semiannually to Holders of record at the
close of business on the December 15 or June 15 immediately preceding the
interest payment date on January 1 and July 1 of each year, commencing July 1,
1997. The Company will pay interest on overdue principal at 1% per annum in
excess of such rate, and it will pay interest on overdue installments of
interest at such higher rate to the extent lawful. Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to July 1, 2001. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
July 1 of the years set forth below:
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REDEMPTION
PERIOD PRICE
------ ----------
2001................................. 105.562%
2002................................. 103.708
2003................................. 101.854
2004 and thereafter.................. 100.000
In addition, at any time and from time to time prior to July 1, 1999, the
Company may redeem in the aggregate up to 35% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a percentage
of principal amount) of 110% plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Notes must
remain outstanding after each such redemption.
Notwithstanding the preceding two paragraphs, the Company will not be
permitted to redeem the Original Notes unless, substantially concurrently with
such redemption, the Company redeems an aggregate principal amount of Notes
(rounded to the nearest integral multiple of $1000) equal to the product of: (1)
a fraction, the numerator of which is the aggregate principal amount of Original
Notes to be so redeemed and the denominator of which is the aggregate principal
amount of Original Notes outstanding immediately prior to such proposed
redemption, and (2) the aggregate principal amount of Notes outstanding
immediately prior to such proposed redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall 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.
RANKING
The indebtedness evidenced by the Notes represents senior subordinated,
unsecured obligations of the Company. The payment of the principal of, premium
(if any) and interest on the Notes is subordinate in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Indebtedness
of the Company, whether outstanding on the Issue Date or thereafter incurred,
including the obligations of the Company under the Bank Credit Agreement. The
Notes are also effectively subordinated to all Secured Indebtedness of the
Company to the extent of the value of the assets securing such indebtedness.
As of December 31, 1996, after giving pro forma effect to the Offering as
if it had occurred on such date, the Company's Senior Indebtedness would have
been approximately $85.5 million, all of which is Secured Indebtedness. Although
the Indenture contains limitations on the amount of additional Indebtedness that
the Company may incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness. See "-- Certain Covenants -- Limitation on Indebtedness"
and "-- Limitation on Indebtedness and Preferred Stock of Subsidiaries."
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank PARI PASSU with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in right of payment to its Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is
not deemed to be subordinated or junior to secured indebtedness merely because
it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes") if (i) any Designated Senior
Indebtedness is not
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paid when due or (ii) any other default on Designated Senior Indebtedness occurs
and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived and any such acceleration has been rescinded or such Designated Senior
Indebtedness has been paid in full. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative
of the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness of
the Company will be entitled to receive payment in full of such Senior
Indebtedness before the Noteholders are entitled to receive any payment, and
until the Senior Indebtedness of the Company is paid in full, any payment or
distribution to which Noteholders would be entitled but for the subordination
provisions of the Indenture will be made to holders of such Senior Indebtedness
as their interests may appear. If a distribution is made to Noteholders that,
due to the subordination provisions, should not have been made to them, such
Noteholders are required to hold it in trust for the holders of Senior
Indebtedness of the Company and pay it over to them as their interests may
appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness of the Company may recover more, ratably, than the Noteholders, and
creditors of the Company who are not holders of Senior Indebtedness may recover
less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "-- Defeasance."
BOOK-ENTRY, DELIVERY AND FORM
The Original Series B Notes were initially issued in the form of two
registered Notes in global form without coupons (each a "Global Note"). Each
Global Note was deposited on the date of the closing of the sale of the Notes
(the "Closing Date") with, or on behalf of, DTC and registered in the name of
Cede & Co., as nominee of DTC, or will remain in the custody of the Trustee
pursuant to the FAST Balance Certificate Agreement between DTC and the Trustee.
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DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve System, (iii) a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and (iv) a "Clearing Agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participation (collectively, the "Participants") and facilitates the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and 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 (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of the Depository only through
Participants or Indirect Participants.
The Company believes that pursuant to procedures established by DTC (i)
upon deposit of the Global Notes, DTC credited the accounts of Participants
designated by the Initial Purchaser with an interest in the Global Note and (ii)
ownership of the Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to the
interest of Participants), the Participants and the Indirect Participants. The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own and that security interests in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer Notes or to
pledge the Notes as collateral will be impaired.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities (the "Certificated Securities"), and will
not be considered the owners or Holders thereof under the Indenture for any
purpose, including with respect to giving of any directions, instruction, or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Note to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system or to otherwise take action with respect to such interest, may be
impaired by the lack of a physical certificate evidencing such interest. The
Company understands that if there is an Event of Default under the Notes, DTC
will exchange the Global Notes for Certificated Notes, which it will distribute
to its Participants in accordance with its customary procedures.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
Notes or a holder that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participant would authorize holders owning through such Participants to take
such action or would otherwise act upon the instruction of such holders. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
Notes, or to assure that any notices are forwarded by DTC to any Participant or
by any Participant to holders of beneficial interests.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such Notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the
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owners thereof for the purpose of receiving such payment and for any and all
other purposes whatsoever. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of interest in the Global Note (including principal, premium,
if any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of interests in the Global Note will be
governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, Certificated
Securities will be issued to each person that DTC identifies as the beneficial
owner of the Notes represented by the Global Notes. Upon any such issuance, the
Trustee is required to register such Certificated Securities in the name of such
person or persons (or the nominee of any thereof), and cause the same to be
delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i) such person shall
be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 35% of the total voting power of the then outstanding Voting
Stock of the Company; PROVIDED, HOWEVER, that the Permitted Holders
beneficially own (for purposes of this clause (i), the Permitted Holders
shall be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of the parent corporation), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the then outstanding Voting Stock of the Company than such other person
and do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of Directors
(for the purposes of this clause (i), such other person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person is the beneficial owner (as
defined in this clause (i)), directly or indirectly, of more than 35% of
the voting power of the Voting Stock of such parent corporation and the
Permitted Holders beneficially own (as defined above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent corporation and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent corporation);
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(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iii) the merger or consolidation of Holdings, TPC Holding or the
Company with or into another Person or the merger of another Person with or
into Holdings, TPC Holding or the Company, or the sale of all or
substantially all the assets of Holdings, TPC Holding or the Company to
another Person (in each case other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation,
the securities of Holdings, TPC Holding or the Company, as applicable, that
are outstanding immediately prior to such transaction and which represent
100% of the aggregate voting power of the Voting Stock of Holdings, TPC
Holding or the Company, as applicable, are changed into or exchanged for
cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation or a parent
corporation that owns all of the capital stock of such corporation that
represent immediately after such transaction, at least 35% of the aggregate
voting power of the Voting Stock of the surviving corporation or such
parent corporation, as the case may be.
Within 30 days following any Change of Control, the Company shall mail a
notice to the Trustee and to each Holder stating: (1) that a Change of Control
has occurred and that such Holder has the right to require the Company to
purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes purchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The use of the terms "all or substantially all" and "substantially as an
entirety" in Indenture provisions such as clause (iii) of the definition of
"Change in Control" and under "-- Merger and Consolidation" has no clearly
established meaning under New York law (which governs the Indenture) and has
been the subject of limited judicial interpretation in few jurisdictions.
Accordingly, there may be a degree of uncertainty in ascertaining whether a
particular transaction would involve a disposition of "all or substantially
all" of the assets of a person, or a disposition of such assets "substantially
as an entirety," which uncertainty should be considered by prospective
investors in the Notes.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company, TPC Holding or Holdings would decide to do so in the future.
Subject to the limitations discussed below, the Company, TPC Holding or Holdings
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect the Company's, TPC Holding's or
Holdings' capital structure or credit ratings. Restrictions on the ability of
the Company to incur additional Indebtedness are contained
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in the covenants described under "-- Certain Covenants -- Limitation on
Indebtedness" and "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries." Such restrictions can only be waived with the consent
of the holders of a majority in principal amount of the Notes then outstanding.
Except for the limitations contained in such covenants, however, the Indenture
will not contain any covenants or provisions that may afford holders of the
Notes protection in the event of a highly leveraged transaction. The Indenture
will not contain any covenants that restrict the ability of Holdings or TPC
Holding to incur Indebtedness.
If a Change of Control offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be delivered by holders of the Notes seeking to accept
the Change of Control offer. The failure of the Company to make or consummate
the Change of Control offer or pay the purchase price when due will give the
Trustee and the holders of the Notes the rights described under "-- Events of
Default."
The existence of a holder's right to require the Company to offer to
repurchase such holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
The Bank Credit Agreement, under certain circumstances, prohibits the
Company from purchasing any Notes prior to June 30, 2004, and also provides that
the occurrence of certain change of control events with respect to the Company,
TPC Holding and Holdings constitutes a default thereunder. 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 refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay 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 the Indenture which would, in turn, constitute a default under
the Bank Credit Agreement. In such circumstances, the subordination provisions
in the Indenture would likely restrict payment to the Holders of Notes.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repaid or repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under such indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
holders of Notes following the occurrence of a Change of Control may be limited
by the Company's then existing financial resources. There can be no assurance
that sufficient funds will be available when necessary to make any required
repurchases. The provisions under the Indenture relating to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the holders of a
majority in principal amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) The Company shall not Incur, directly or
indirectly, any Indebtedness unless, on the date of such Incurrence, the
Consolidated Coverage Ratio exceeds 2.0 to 1.0 if such Indebtedness is Incurred
from the Original Issue Date through June 30, 1999, and 2.25 to 1.0 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur any
or all of the following Indebtedness: (1) Indebtedness Incurred pursuant to the
Term Loan Provisions of the Bank Credit Agreement or any indenture or term loan
provisions of any other credit or loan agreement in an aggregate principal
amount which, when taken together with the principal amount of all other
Indebtedness Incurred pursuant to this clause (1) and then outstanding, does not
exceed (A) $140.0 million LESS (B) the aggregate amount of all principal
repayments of any such Indebtedness made after the Original Issue Date (other
than
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any such principal repayments made as a result of the Refinancing of any such
Indebtedness); (2) Indebtedness Incurred pursuant to the Revolving Credit
Provisions of the Bank Credit Agreement or any other revolving credit facility
in a principal amount which, when taken together with all letters of credit and
the principal amount of all other Indebtedness Incurred pursuant to this clause
(2) and then outstanding does not exceed the greater of $40.0 million and the
sum of (A) 65% of the book value of the inventory of the Company and its
Restricted Subsidiaries and (B) 85% of the book value of the accounts
receivables of the Company and its Restricted Subsidiaries; (3) Indebtedness
owed to and held by a Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any
subsequent issuance or transfer of any Capital Stock which results in any such
Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to another Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the Company; (4) the Original Notes, the Notes or any
Indebtedness, the proceeds of which are used to Refinance the Original Notes or
the Notes in full; (5) Indebtedness outstanding on the Original Issue Date
(other than Indebtedness described in clause (1), (2), (3) or (4) of this
paragraph (b)) and Indebtedness Incurred under Section 4.03(a) of the Original
Indenture prior to the Issue Date (other than Indebtedness described in clause
(4) of this paragraph (b)); (6) Refinancing Indebtedness in respect of
Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (4) or (5)
or this clause (6) or pursuant to the covenant described under "-- Limitation
on Indebtedness and Preferred Stock of Restricted Subsidiaries" below; (7)
Hedging Obligations consisting of Interest Rate Agreements directly related to
Indebtedness permitted to be Incurred by the Company pursuant to the Indenture;
(8) Indebtedness of the Company consisting of obligations in respect of purchase
price adjustments in connection with the acquisition or disposition of assets by
the Company or any Restricted Subsidiary permitted under the Indenture; (9)
Capital Lease Obligations in an aggregate principal amount not exceeding $5
million at any one time outstanding; and (10) Indebtedness in an aggregate
principal amount which, together with all other Indebtedness of the Company
outstanding on the date of such Incurrence (other than Indebtedness permitted by
clauses (1) through (9) above or paragraph (a)) does not exceed $10 million at
any one time outstanding. For purposes of this clause (b), Indebtedness Incurred
pursuant to Section 4.03(b)(i) and (b)(ii) of the Original Indenture prior to
the Issue Date shall be deemed to have been Incurred pursuant to clause (1) and
(2) of this paragraph (b), respectively.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall constitute Refinancing Indebtedness and shall be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with the covenant entitled
"-- Limitation on Indebtedness," (i) in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described
above, the Company, in its sole discretion, will classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be
divided and classified in more than one of the types of Indebtedness described
above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not
Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness
that is not Senior Indebtedness unless contemporaneously therewith effective
provision is made to secure the Notes equally and ratably with such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK OF RESTRICTED
SUBSIDIARIES. The Company shall not permit any Restricted Subsidiary to Incur,
directly or indirectly, any Indebtedness or Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by the Company
or a Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any subsequent
issuance or transfer of any Capital Stock which results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness or Preferred Stock (other than to the Company
or a Wholly
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Owned Subsidiary) shall be deemed, in each case, to constitute the issuance
of such Indebtedness or Preferred Stock by the issuer thereof;
(b) Indebtedness or Preferred Stock of a Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary was acquired
by the Company (other than Indebtedness or Preferred Stock Incurred in
connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Company); provided, however, that on the date of such
acquisition and after giving effect thereto, the Company would have been
able to Incur at least $1.00 of additional Indebtedness pursuant to clause
(a) of the covenant described under "-- Limitation on Indebtedness;"
(c) Indebtedness or Preferred Stock outstanding on the Original Issue
Date (other than Indebtedness described in clause (a) or (b) of this
paragraph);
(d) Indebtedness of any Restricted Subsidiary consisting of
obligations in respect of purchase price adjustments in connection with the
acquisition or disposition of assets by the Company or any Restricted
Subsidiary permitted under the Indenture;
(e) Preferred Stock which is not Disqualified Stock; PROVIDED,
HOWEVER, that such Restricted Subsidiary shall not pay cash dividends on
such Preferred Stock; and
(f) Refinancing Indebtedness Incurred in respect of Indebtedness or
Preferred Stock referred to in clause (b) or (c) of this paragraph or this
clause (f); PROVIDED, HOWEVER, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness or Preferred
Stock of a Subsidiary described in clause (b), such Refinancing
Indebtedness shall be Incurred only by such Subsidiary.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, make a
Restricted Payment if at the time the Company or such Restricted Subsidiary
makes, and after giving effect to, the proposed Restricted Payment: (i) a
Default shall have occurred and be continuing (or would result therefrom); (ii)
the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under "-- Limitation on Indebtedness;"
or (iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Original Issue Date would exceed the sum of: (A)
50% of the Consolidated Net Income accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter immediately
following the fiscal quarter during which the Original Notes were originally
issued to the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit); PROVIDED, HOWEVER, that
if the Notes achieve an Investment Grade Rating during any fiscal quarter, the
percentage for such fiscal quarter (and for any other fiscal quarter where, on
the first day of such fiscal quarter, the Notes shall have an Investment Grade
Rating) will be 100% of Consolidated Net Income during such fiscal quarter;
PROVIDED FURTHER, HOWEVER, that if such Restricted Payment is to be made in
reliance upon an additional amount permitted pursuant to the immediately
preceding proviso, the Notes must have an Investment Grade Rating at the time
such Restricted Payment is declared or, if not declared, made; (B) the aggregate
Net Cash Proceeds received by the Company from the issuance or sale of its
Capital Stock (other than Disqualified Stock) subsequent to the Original Issue
Date (other than an issuance or sale to a Subsidiary of the Company and other
than an issuance or sale to an employee stock ownership plan or to a trust
established by Holdings or any of its Subsidiaries for the benefit of their
employees); (C) the aggregate Net Cash Proceeds received by the Company
subsequent to the Original Issue Date from the issue or sale of its Capital
Stock (other than Disqualified Stock) to an employee stock ownership plan or a
trust established by Holdings or any of its Subsidiaries for the benefit of
their employees; PROVIDED, HOWEVER, that with respect to any such Net Cash
Proceeds received from such an employee stock ownership plan or trust through
the Incurrence of Indebtedness in connection with such issue or sale of Capital
Stock, which Indebtedness also constitutes Indebtedness of the Company, such
aggregate Net Cash Proceeds shall be limited to an amount equal to any increase
in the Consolidated Net Worth of the Company resulting from principal repayments
made by such
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employee stock ownership plan with respect to such Indebtedness; (D) the amount
by which Indebtedness of the Company is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Original Issue Date, of any Indebtedness of the Company for
Capital Stock (other than Disqualified Stock) of the Company (less the amount of
any cash, or the fair value of any other property, distributed by the Company
upon such conversion or exchange), whether pursuant to the terms of such
Indebtedness or pursuant to an agreement with a creditor to engage in an equity
for debt exchange; (E) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends, repayments of
loans or advances or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED,
HOWEVER, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary; and (F) to the extent not covered in clauses (A)
through (E) above, the aggregate net cash proceeds received after the Original
Issue Date by the Company as capital contributions (other than from any of its
Restricted Subsidiaries) plus $5 million.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than (A) Disqualified
Stock, (B) Capital Stock issued or sold to a Subsidiary of the Company or (C)
Capital Stock issued or sold to an employee stock ownership plan or to a trust
established by Holdings or any of its Subsidiaries for the benefit of their
employees to the extent that such employee stock ownership plan or trust has
Incurred Indebtedness to finance the purchase of such Capital Stock, which
Indebtedness also constitutes Indebtedness of the Company); PROVIDED, HOWEVER,
that (A) such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under clause (3)(B) of paragraph (a)
above; (ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to the
covenant described under "-- Limitation on Indebtedness;" PROVIDED, HOWEVER,
that such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments; (iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this covenant; PROVIDED, HOWEVER, that such dividend shall be
included in the calculation of the amount of Restricted Payments; (iv) a payment
by the Company to TPC Holding, Holdings or the ESOP, or directly by the Company,
to be used to repurchase, redeem, acquire or retire for value any Capital Stock
of Holdings pursuant to any stockholders' agreement, management equity
subscription plan or agreement, stock option plan or agreement, or other
employee plan or agreement or employee benefit plan in effect as of the Original
Issue Date or such similar employee plan or agreement or employee benefit plan
as may be adopted by the Company from time to time; PROVIDED, HOWEVER, that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Capital Stock shall not exceed $2,000,000 in any fiscal year; PROVIDED FURTHER,
HOWEVER, that such amount shall be excluded in the calculation of Restricted
Payments; (v) a payment by the Company to Holdings, TPC Holding or the ESOP to
be used to repurchase Capital Stock of Holdings pursuant to the requirements of
the ESOP in an aggregate amount in any fiscal year not to exceed the minimum
amount required to be paid in cash under the ESOP as in effect on the Original
Issue Date; PROVIDED, HOWEVER, that such amount shall be excluded in the
calculation of Restricted Payments; (vi) a payment by the Company to TPC Holding
or Holdings pursuant to the Tax Sharing Agreement; PROVIDED, HOWEVER, that the
amount of any such payment shall not exceed the sum of (A) the amount of taxes
which the Company would have been liable for on a stand-alone basis plus (B) the
amount of any state net worth tax applicable to Holdings and TPC Holding;
PROVIDED FURTHER, HOWEVER, such amount shall be excluded in the calculation of
Restricted Payments; and (vii) a payment by the Company to TPC Holding or
Holdings to pay their operating and administrative expenses,
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including, without limitation, directors' fees, legal and audit expenses,
SECcompliance expenses and corporate franchise and other taxes, in an amount not
to exceed the greater of $1,000,000 per fiscal year and 0.125% of the
consolidated net sales of the Company for the preceding fiscal year; PROVIDED,
HOWEVER, that such amount shall be excluded in the calculation of Restricted
Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) to make any loans or advances to the Company or (c) to transfer
any of its property or assets to the Company, except: (i) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the
Original Issue Date; (ii) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (iii)
any encumbrance or restriction pursuant to an agreement effecting a Refinancing
of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or
(ii) of this covenant or this clause (iii) or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant or this clause
(iii); PROVIDED, HOWEVER, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable to the Noteholders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
agreements; (iv) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases to the extent such provisions restrict the
transfer of the lease or the property leased thereunder or in purchase money
financings; (v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreements or mortgages; (vi) encumbrances or
restrictions imposed by operation of applicable law; and (vii) any restriction
with respect to a Restricted Subsidiary imposed pursuant to an agreement entered
into for the sale or disposition of all or substantially all the Capital Stock
or assets of such Restricted Subsidiary pending the closing of such sale or
disposition.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition, and at least 85% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) FIRST, to the extent the
Company elects (or is required by the terms of any Senior Indebtedness), to
prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness (other
than any Disqualified Stock) of a Wholly Owned Subsidiary or such Restricted
Subsidiary (in each case other than Indebtedness owed to the Company or an
Affiliate of the Company) within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (B) SECOND, to the
extent of the balance of such Net Available Cash after application in accordance
with clause (A), to the extent the Company elects, to acquire Additional Assets;
PROVIDED, HOWEVER, that the Company shall be required to commit such Net
Available Cash to the acquisition of Additional Assets within one year from the
later of the date of such Asset Disposition or the receipt of such Net Available
Cash (the "Receipt Date") and shall be required to consummate the acquisition
of such Additional Assets within 18 months from the Receipt Date; (C) THIRD, to
the extent of the balance of such Net Available Cash after application in
accordance with clauses (A) and (B), to make an offer pursuant to paragraph (b)
below to the holders of the Notes (and to holders of other Senior
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Subordinated Indebtedness designated by the Company) to purchase Notes (and such
other Senior Subordinated Indebtedness) pursuant to and subject to the
conditions contained in the Indenture; and (D) FOURTH, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A), (B) and (C) to (x) the acquisition by the Company or any Wholly Owned
Subsidiary or such Restricted Subsidiary of Additional Assets or (y) the
prepayment, repayment or purchase of Indebtedness (other than any Disqualified
Stock) of the Company (other than Indebtedness owed to an Affiliate of the
Company) or Indebtedness of any Subsidiary (other than Indebtedness owed to the
Company or an Affiliate of the Company), in each case within one year from the
later of the receipt of such Net Available Cash and the date the offer described
in clause (b) below is consummated; PROVIDED, HOWEVER, that in connection with
any prepayment, repayment or purchase of Indebtedness pursuant to clause (A),
(C) or (D) above, the Company or such Restricted Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions of this paragraph,
the Company and the Restricted Subsidiaries shall not be required to apply any
Net Available Cash in accordance with this paragraph except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this paragraph exceeds $2.5 million. Pending
application of Net Available Cash pursuant to this covenant, such Net Available
Cash shall be invested in Permitted Investments. Notwithstanding anything
contained in this "-- Certain Covenants" section to the contrary, the Company
shall not sell, convey, pledge, hypothecate or otherwise transfer the Houston
Facility substantially as an entirety in one transaction or a series of related
transactions to any Person, including, but not limited to, any Subsidiary,
except for (i) pledges or security interests granted in connection with securing
Indebtedness borrowed under the Bank Credit Agreement, and (ii) transactions
that comply with the "-- Merger and Consolidation" covenant described below.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the express assumption of Indebtedness of the Company or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are converted by the Company or such
Restricted Subsidiary into cash within 90 days of closing the transaction.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(ii)(C)
above, the Company will be required to purchase Notes tendered pursuant to an
offer by the Company for the Notes (and other Senior Subordinated Indebtedness)
at a purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Indebtedness, such lesser price, if any, as may be provided for by the terms of
such Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of Notes (and any other Senior
Subordinated Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with clause (a)(ii)(D)
above. The Company shall not be required to make such an offer to purchase Notes
(and other Senior Subordinated Indebtedness) pursuant to this covenant if the
Net Available Cash available therefor is less than $10 million (which lesser
amount shall be carried forward for purposes of determining whether such an
offer is required with respect to any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction")
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unless the terms thereof (1) are no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained at the time of such
transaction in a comparable transaction on arm's-length dealings with a Person
who is not such an Affiliate, (2) if such Affiliate Transaction involves an
amount in excess of $2.5 million, (i) are set forth in writing and (ii) have
been approved by a majority of the members of the Board of Directors having no
material personal financial stake in such Affiliate Transaction and (3) if such
Affiliate Transaction involves an amount in excess of $5 million, have been
determined by a nationally recognized investment banking firm to be fair, from a
financial standpoint, to the Company or its Restricted Subsidiary, as the case
may be.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "-- Limitation on Restricted Payments," or any payment or transaction
specifically excepted from the definition of Restricted Payment, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors or the
board of directors of the relevant Restricted Subsidiary, (iii) the grant of
stock options or similar rights to employees and directors pursuant to plans
approved by the Board of Directors or the board of directors of the relevant
Restricted Subsidiary, (iv) loans or advances to officers, directors or
employees in the ordinary course of business, (v) the payment of reasonable fees
to directors of the Company and its Restricted Subsidiaries who are not
employees of the Company or its Restricted Subsidiaries, (vi) any Affiliate
Transaction between the Company and a Wholly Owned Subsidiary or between Wholly
Owned Subsidiaries, (vii) the purchase of or the payment of Indebtedness of or
monies owed by the Company or any of its Restricted Subsidiaries for goods or
materials purchased, or services received, in the ordinary course of business,
(viii) the purchase of or the payment of Indebtedness of or monies owed by the
Company or any of its Restricted Subsidiaries or fees to be paid to Sterling or
any Affiliate of Sterling, in each case pursuant to a written agreement in
existence on the date of the Indenture and (ix) any Tax Sharing Agreement;
PROVIDED, HOWEVER, that the aggregate amount payable by the Company pursuant
thereto shall not exceed the sum of (A) the amount of taxes which the Company
would have been liable for on a stand-alone basis plus (B) the amount of any
state net worth tax applicable to Holdings and TPC Holding.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary or (ii) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary remains a Restricted Subsidiary;
PROVIDED, HOWEVER, that in connection with any such sale or disposition of
Capital Stock the Company or any such Restricted Subsidiary complies with the
covenant described under "-- Limitation on Sales of Assets and Subsidiary
Stock."
MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, its assets substantially as an entirety to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) shall expressly assume, by an indenture supplemental
thereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company would be able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness;" (iv)
immediately after giving effect to such transaction, the Successor Company shall
have Consolidated Net Worth in an amount that is not less than the Consolidated
Net Worth of the Company prior to such transaction minus any costs incurred in
connection with such transaction; and (v) the Company shall have delivered to
the Trustee an officer's certificate and an opinion
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of counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor company, only in the case
of a conveyance, transfer or lease, shall not be released from the obligation to
pay the principal of and interest on the Notes.
SEC REPORTS. Notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC and provide within 15 days to
the Trustee and Noteholders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections; PROVIDED, HOWEVER, that if Holdings shall have become a Guarantor
with respect to all obligations relating to the Notes (or the Exchange Notes),
the reports, information and other documents required to be filed and provided
as described hereunder may, at the Company's option, be filed by and be those of
Holdings rather than the Company; PROVIDED FURTHER, HOWEVER, that in the event
Holdings conducts, directly or indirectly, any business or holds, directly or
indirectly, any significant assets other than the capital stock of TPC Holding
or the Company at the time of filing and providing any such report, information
or other document containing financial statements of Holdings, Holdings shall
include in such report, information or other document summarized financial
information (as defined in Rule 1-02(bb) of Regulation S-X promulgated by the
SEC) with respect to the Company.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above, (iv) the failure by
the Company to comply for 30 days after notice with any of its obligations in
the covenants described above under "Change of Control" (other than a failure
to purchase Notes) or under "-- Certain Covenants" under "-- Limitation on
Indebtedness," "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries," "-- Limitation on Restricted Payments,"
"-- Limitation on Restrictions on Distributions from Restricted
Subsidiaries," -- "Limitation on Sales of Assets and Subsidiary Stock,"
" -- Limitation on Affiliate Transactions," "Limitation on the Sale or
Issuance of Capital Stock of Restricted Subsidiaries," or "-- SEC Reports,"
(v) the failure by the Company to comply for 60 days after notice with its other
agreements contained in the Indenture, (vi) Indebtedness of the Company or any
Significant Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default and
the total amount of such Indebtedness unpaid or accelerated exceeds $5 million
(the "cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of Holdings, TPC Holding, the Company or any
Significant Subsidiary (the "bankruptcy provisions") or (viii) any judgment or
decree for the payment of money in excess of $5 million is entered against the
Company or any Significant Subsidiary, remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed within 10
days after notice (the "judgment default provision"). However, a default under
clause (iv) or (v) will not constitute an Event of Default until the Trustee or
the holders of 25% in principal amount of the outstanding Notes notify the
Company of the default and the Company does not cure such default within the
time specified after receipt of such notice.
If an Event of Default (other than the bankruptcy provisions relating to
the Company) occurs and is continuing, the Trustee or the holders of at least
25% in principal amount of the outstanding Notes may declare the principal of
and accrued but unpaid interest on all the Notes to be due and payable. Upon
such a declaration, such principal and interest shall be due and payable
immediately. If an Event of Default relating to the bankruptcy provisions
relating to the Company occurs and is continuing, the principal of and interest
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on all the Notes will IPSO FACTO become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holders
of the Notes. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration with
respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless (i) such
holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy, (iii) such holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as the board of directors, the executive committee or a
committee of its trust officers determines that withholding notice is not
opposed to the interest of the holders of the Notes. In addition, the Company is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Company also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding.
Without the consent of each holder of an outstanding Note affected thereby,
no amendment may (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption" above, (v) make any Note payable in money other than that stated in
the Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions or
(viii) make any change to the subordination provisions of the Indenture that
would adversely affect the Noteholders.
Without the consent of any holder of the Notes, the Company and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
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Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Notes, to secure the Notes, to add to the covenants of the Company for
the benefit of the holders of the Notes or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any holder of the Notes or to comply with any requirement of the
SEC in connection with the qualification of the Indenture under the Trust
Indenture Act. However, no amendment may be made to the subordination provisions
of the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
their Representative) consent to such change.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
The Company at its option at any time may terminate all its obligations
under the Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. In addition, the Company at its option at any time may terminate its
obligations under "Change of Control" and under the covenants described under
"-- Certain Covenants" (other than the covenant described under "-- Merger
and Consolidation") (and any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Notes), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Significant Subsidiaries and the judgment default provision described
under "-- Defaults" above and the limitations contained in clauses (iii) and
(iv) of the first paragraph under, "-- Certain Covenants -- Merger and
Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of
the failure of the Company to comply with clause (iii) or (iv) of the first
paragraph under "-- Certain Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and interest on the Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of an Opinion of Counsel to
the effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
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CONCERNING THE TRUSTEE
Fleet National Bank is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
Such bank may also act as a depository of funds for or makes loans to, and
performs other services for, the Company or its affiliates in the ordinary
course of business in the future. The corporate trust office of the Trustee is
located at 777 Main Street, Hartford, Connecticut 06115.
The Holders of a majority in principal amount of the 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 if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent 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 shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture. The Trustee may resign at any
time or may be removed by the Company. If the Trustee resigns, is removed or
becomes incapable of acting as Trustee or if a vacancy occurs in the office of
the Trustee for any cause, a successor Trustee shall be appointed in accordance
with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and the Indenture. The Indenture also
contains certain limitations on the right of the Trustee, as a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received by it in respect of any such claims, as security or otherwise.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger or
consolidation (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted Subsidiary), (ii) all
or substantially all the assets of any division or line of business of the
Company or any Restricted Subsidiary or (iii) any other assets of the Company or
any Restricted Subsidiary outside of the ordinary course of business of the
Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and
(iii) above, (x) a disposition of the Excluded Assets, (y) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary and (z) for purposes
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of the covenant described under "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted
Payment permitted by the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" or a disposition specifically
excepted from the definition of Restricted Payment).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as
at the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means the Bank Credit Agreement, dated as of the
date of the Original Indenture among the Company, as successor to Finance Co.,
Texas Commerce Bank National Association, as agent, and the lenders party
thereto, as such agreement, in whole or in part, may be amended, renewed,
extended, increased (but only so long as such increase is permitted under the
terms of the Indenture), substituted, refinanced, restructured, replaced
(including, without limitation, any successive renewals, extensions, increases,
substitutions, refinancings, restructurings, replacements, supplements or other
modifications of the foregoing). Subsequent to the date of the Indenture, there
may be multiple Bank Credit Agreements and the term "Bank Credit Agreement"
shall mean all such Bank Credit Agreements.
"Bank Indebtedness" means any and all amounts payable by the Company
under or in respect of the Bank Credit Agreement, as amended, refinanced or
replaced from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceeding), fees, charges,
expenses, reimbursement obligations, Guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or
(except for the purposes of the covenant described under " -- Certain
Covenants -- Change of Control") any committee thereof duly authorized to act
on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; PROVIDED, HOWEVER, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the
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discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, (2) if since the beginning of such
period the Company or any Restricted Subsidiary shall have made any Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Disposition for such period, or increased by an amount
equal to the EBITDA (if negative), directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period, (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (2) or (3) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period, and (5) in calculating EBITDA and
Consolidated Interest Expense for any period prior to the Original Issue Date
for the purposes of calculating the Consolidated Coverage Ratio, without
duplicating adjustments made pursuant to clauses (1) through (4) above, EBITDA
and Consolidated Interest Expense for such period shall be calculated giving
effect to the pro forma adjustments set forth under "Pro Forma Financial
Information" above and to a one-time employee compensation expense incurred in
connection with the Transactions. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to capital leases and one-third of the rental expense attributable
to operating leases, (ii) amortization of debt discount and debt issuance cost,
(iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments
in discontinued operations, (ix) interest accruing on any Indebtedness of any
other Person to the extent such Indebtedness is Guaranteed by the Company or any
Restricted Subsidiary, and (x) the cash contributions to any employee stock
ownership plan or similar trust
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to the extent such contributions are used by such plan or trust to pay interest
or fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) the Company's equity in a net loss of any such
Person for such period shall be included in determining such Consolidated Net
Income; (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition; (iii) any net income of any Restricted Subsidiary to
the extent that such Restricted Subsidiary is subject to restrictions, directly
or indirectly, on the payment of dividends or the making of distributions by
such Restricted Subsidiary, directly or indirectly, to the Company, except that
(A) subject to the exclusion contained in clause (iv) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Restricted Subsidiary for such period
shall be included in determining such Consolidated Net Income; (iv) any gain
(but not loss) realized upon the sale or other disposition of any assets of the
Company or its consolidated Subsidiaries (including pursuant to any
sale-and-leaseback arrangement) which is not sold or otherwise disposed of in
the ordinary course of business and any gain (but not loss) realized upon the
sale or other disposition of any Capital Stock of any Person; (v) extraordinary
gains or losses; and (vi) the cumulative effect of a change in accounting
principles. Notwithstanding the foregoing, for the purposes of the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments"
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under such covenant pursuant to clause (a)(iii)(E) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $15 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
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"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the
Notes; PROVIDED, HOWEVER, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and
"-- Certain Covenants -- Change of Control."
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense, and (d) all other
non-cash items reducing such Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of, or reserve for, cash
disbursement for any subsequent period) less all non-cash items increasing such
Consolidated Net Income (such amount calculated pursuant to this clause (d) not
to be less than zero), in each case for such period. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Subsidiary or
its stockholders.
"Employee Offering" means any registration of shares of Common Stock by
Holdings for sale to certain employees of Holdings and its Subsidiaries
following the Acquisition.
"ESOP" means the Company's Employee Stock Ownership Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" means (i) .4547 acres at 145343 Memorial Drive,
Houston, Texas; (ii) 30.007 acres located at Highway 6 and Briarforest, Houston,
Harris County, Texas; (iii) 8.8962 acres located on Richmond and West Hollow
Drive, Houston, Harris County, Texas; (iv) 2.9613 acres located at 8705-8707
Katy Freeway, Houston, Harris County, Texas; (v) a 4.14560 acre tract of land
located at Highway 288 and South MacGregor Drive, Houston, Harris County, Texas;
(vi) lots 11, 12, 13, 14, 15, 16, 17, 18, 19 and 20, Block 133 located at 206
North Kaufman, Ennis, Texas; and (vii) one airplane.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Original Issue Date, including those
set forth (i) in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (ii) in
statements and pronouncements of the Financial Accounting Standards Board, (iii)
in such other statements by such other entity as approved by a significant
segment of the accounting profession, and (iv) in the rules and regulations of
the SEC governing the inclusion of financial statements (including pro forma
financial statements) in periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting staff of
the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); PROVIDED,
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HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean
any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Houston Facility" means the Company's plant located at 8600 Park Place
Boulevard, Houston, Texas 77017, together with all land owned or leased by the
Company adjacent or in proximity thereto, all improvements or additions to such
plant or land, including docks, pipelines and facilities for traincar and truck
service, all equipment, catalysts and other items used in the production,
processing, purification, finishing, extraction, hydrogenation, dehydrogenation,
dimerization, oxo-dehydrogenation, back-cracking, skeletal isomerization or
fractionation of chemical products, feedstocks or intermediaries.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for Indebtedness; PROVIDED, HOWEVER, that any Indebtedness of a Person existing
at the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such Person and all obligations of such Person
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business); (iv) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations described in
clauses (i) through (iii) above) entered into in the ordinary course of business
of such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured; and (viii) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement designed
solely to protect the Company or any Restricted Subsidiary against fluctuations
in interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person making the
advance or loan) or other extensions of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others
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or any payment for property or services for the account or use of others), or
any purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. "Investment" shall not include payments by
the Company to the ESOP (i) for the purpose of servicing Indebtedness of the
ESOP, (ii) for the purpose of paying administrative expenses of the ESOP, and
(iii) on behalf of employees of the Company or its Subsidiaries that do not
exceed, during any fiscal year, 10% of the aggregate compensation expense during
such fiscal year attributable to employees of the Company and its Subsidiaries
who are eligible to participate in the ESOP. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that if such
designation is made in connection with the acquisition of such Subsidiary or the
assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be
deemed to be the consideration paid in connection with such acquisition;
PROVIDED FURTHER, HOWEVER, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the
time of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Investment Grade Rating" means a rating of BBB - or higher by S&P and
Baa3 or higher by Moody's or the equivalent of such rating by S&P and Moody's or
by any other Rating Agency selected as provided in the definition of Rating
Agency.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or required by law to
close. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record
shall not be affected.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax
expenses, brokerage commissions, underwriting discounts or commissions or sales
commissions and other reasonable fees and expenses (including, without
limitation, fees and expenses of counsel, accountants and investment bankers)
related to such Asset Disposition or converting to cash any other proceeds
received, and any relocation and severance expenses as a result thereof, and all
Federal, state, provincial, foreign and local taxes required to be accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition or made in order to obtain a necessary consent to such Asset
Disposition or to comply with applicable law, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition and (iv) appropriate
amounts provided by the seller as a reserve, in accordance with GAAP, against
any liabilities associated with the property or other assets disposed in such
Asset Disposition and retained by the Company or any Restricted Subsidiary after
such Asset Disposition, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Disposition. Further, with respect to an Asset Disposition by a Subsidiary which
is not a wholly-owned Subsidiary, Net Available Cash shall be reduced pro rata
for the portion of the equity of such Subsidiary which is not owned by the
Company.
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"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Original Indenture" means the Indenture, dated as of July 1, 1996, as
amended, between the Company and Fleet National Bank, as trustee, as in effect
on the date of the Indenture.
"Original Issue Date" means the closing date for the sale and original
issuance of the Original Notes, which was July 1, 1996.
"Original Notes" means the notes issued from time to time under the
Original Indenture.
"Permitted Holders" means (i) each Person who owns Capital Stock of
Holdings on the date of issuance of (a) the Notes or (b) the Common Stock in
connection with the Employee Offering, (ii) any Person who on the date of
issuance of the Notes is or was before such date an officer, director,
stockholder, employee or consultant of Sterling, (iii) the ESOP, (iv) any
savings or investment plan sponsored by the Company or Holdings, (v) with
respect to any Person covered by the preceding clauses (i) through (iv) (A) in
the case of an entity, any Affiliate of such Person, and (B) in the case of an
individual, any spouse, parent, sibling, child or grandchild (in each case,
whether such relationship arises from birth, adoption or through marriage), or
(vi) any trust, limited liability company, corporation, limited or general
partnership or other entity, a majority of interest of the beneficiaries,
stockholders, partners or owners (direct or beneficial) of which are Persons of
the type referred to in the preceding clauses (i) through (v).
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; and (viii) any Person to the extent
such Investment represents the non-cash portion of the consideration received
for an Asset Disposition as permitted pursuant to the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock."
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the premium,
if any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of Holdings, TPC Holding or the Company pursuant to an effective
registration statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offeringhas been
consummated and (y) at least 15% of the total issued and outstanding common
stock of Holdings, TPC Holding or the Company, as
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applicable, has been distributed by means of an effective registration statement
under the Securities Act or sales pursuant to Rule 144 under the Securities Act.
"Rating Agency" means S&P and Moody's, or if S&P or Moody's or both shall
not make a rating on the Notes publicly available, a nationally recognized
statistical rating agency or agencies, as the case may be, selected by the
Company (as certified by a resolution of the Board of Directors) which shall be
substituted for S&P or Moody's or both, as the case may be.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the
Original Issue Date or Incurred in compliance with the Indenture including
Indebtedness that Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that
(i) such Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER,
HOWEVER, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company on the Original Issue Date.
"Representative" means any trustee, agent or representative (if any) for
an issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person), other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation), (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company held by any Person or
of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition), or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not
an Unrestricted Subsidiary.
"Revolving Credit Provisions" means the provisions in the Bank Credit
Agreement pursuant to which the lenders have committed to make available to the
Company a revolving credit facility in a maximum principal amount of $40
million.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
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"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter Incurred and (ii) accrued and unpaid
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company to the extent
post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
the Company is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes;
PROVIDED, HOWEVER, that Senior Indebtedness shall not include (1) any obligation
of the Company to any Subsidiary, (2) any liability for Federal, state, local or
other taxes owed or owing by the Company, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness of the Company (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior in any respect to any other Indebtedness
or other obligation of the Company or (5) that portion of any Indebtedness which
at the time of Incurrence is Incurred in violation of the Indenture.
"Senior Subordinated Indebtedness" means the Notes, the Original Notes
and any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank PARI PASSU with the Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"S&P" means Standard & Poor's Ratings Group.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Stock Purchase Agreement" means the stock purchase agreement dated as of
May 14, 1996, by and among TPC Holding, Holdings, certain shareholders of TOC,
and certain shareholders of the Company.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Original Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, limited liability company, limited or general partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) 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 (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
"Tax Sharing Agreement" means any tax sharing agreement between the
Company, TPC Holding and Holdings or any other person with which the Company is
required to, or is permitted to, file a consolidated tax return or with which
the Company is or could be part of a consolidated group for tax purposes.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above
112
<PAGE>
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P, and
(v) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's.
"Term Loan Provisions" means the provisions in the Bank Credit Agreement
pursuant to which the lenders have committed to make available to the Company
$140 million of credit facilities in the form of amortizing term loans.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately
after giving effect to such designation (x) if such Unrestricted Subsidiary at
such time has Indebtedness, the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be by
the Company to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
113
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the principal federal
income tax matters of general application relating to the Exchange Offer and the
holding and disposing of the Original Series B Notes and the Exchange Notes and
reflects the opinion provided by Bracewell & Patterson, L.L.P. ("Counsel"),
counsel to the Company, as to these matters. There can be no assurance that the
Internal Revenue Service will take a similar view as to any of the tax
consequences described below. The discussion is based on current provisions of
the Internal Revenue Code, existing Treasury regulations promulgated thereunder
and administrative and judicial interpretations thereof, all of which are
subject to change. The discussion does not purport to describe all aspects of
federal income taxation that may be relevant to a holder in light of its
particular tax status and its other income, deductions and credits and does not
discuss any state, local or foreign tax matters. Moreover, certain holders
(including insurance companies, tax-exempt organizations and foreign persons)
may be subject to special rules not discussed below. The discussion is limited
to investors who hold the Original Series B Notes, and will hold any Exchange
Notes acquired pursuant to the Exchange Offer, as capital assets (generally,
property held for investment).
DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH HOLDER OF ORIGINAL
SERIES B NOTES IS URGED TO CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF THE EXCHANGE OF ITS ORIGINAL SERIES B NOTES FOR EXCHANGE
NOTES, AND THE OWNERSHIP AND DISPOSITION OF NOTES, INCLUDING THE EFFECT OF
POSSIBLE CHANGES IN THE TAX LAWS.
EXCHANGE OF ORIGINAL SERIES B NOTES FOR EXCHANGE NOTES
Under Treasury Regulations, a "significant modification" of a debt
instrument is deemed to constitute a sale or exchange therefor for federal
income tax purposes, resulting (in appropriate circumstances) in gain or loss to
the holder of the modified debt instrument, cancellation of indebtedness to the
issuer of the modified debt instrument, and various changes under the original
issue discount rules.
Although there is no precedent directly on point or closely analogous,
because the economic rights of the holder of Original Series B Notes VIS-A-VIS
the Company will not be modified as a result of an exchange of such notes for
Exchange Notes, such exchange should not be a significant modification for these
purposes and the Exchange Notes should be treated as a continuation of the
corresponding Original Series B Notes. The Company will take this position and
intends to report the transaction in this manner for federal income tax
purposes. Even if the exchange of Exchange Notes for Original Series B Notes is
not treated as a continuation of the Original Series B Notes, the exchange
should constitute a recapitalization of the Company within the meaning of
section 368(a)(1)(E) of the Internal Revenue Code, which would be a tax-free
transaction for the holders of Original Series B Notes, except to the extent the
principal amount of securities received exceeds the principal amount of
securities surrendered therefor. Thus, the holder of Original Series B Notes
should not recognize gain or loss upon the exchange of such securities for
Exchange Notes; the holder's basis in the Exchange Notes should be the same as
its basis in the Original Series B Notes, and the holder's holding period for
the Exchange Notes for federal income tax purposes should include any holding
period for the Original Series B Notes.
If the exchange of Exchange Notes for Original Series B Notes were not
viewed as a continuation of the Original Series B Notes, then notwithstanding
that the Original Series B Notes were issued without original issue discount, if
the issue price of the Exchange Notes is less than that of the Original Series B
Notes, the Exchange Notes would be viewed as possessing original issue discount.
However, the holder would also have amortizable bond premium (see
" -- AMORTIZABLE BOND PREMIUM"below) with respect to the Exchange Notes to the
extent the holder's tax basis in the Exchange Notes exceeds the issue price for
such notes. It is likely that any original issue discount income attributable to
the Exchange Notes and any amortizable bond premium on such notes would offset
one another, leaving the holder with substantially the same taxable interest
income for each period under the Exchange Notes as it would have had under the
Original Series B Notes.
The remaining summary of federal income tax consequences of owning and
disposing of the Exchange Notes also applies to holders of Original Series B
Notes who do not accept the Exchange Offer.
114
<PAGE>
THE NOTES
STATED INTEREST. A holder of a Note is required to report as ordinary
income the stated interest earned on the Note in accordance with such holder's
method of tax accounting.
AMORTIZABLE BOND PREMIUM. If a holder purchases a Note and its tax basis
in the Note as of the date of purchase exceeds the greater of the principal
amount or the amount payable on a call date prior to maturity, the holder may be
entitled to elect to treat such excess as bond premium which is amortizable over
the term of the Note in accordance with a constant yield to maturity method that
takes into account the compounding of interest. An election to amortize bond
premium applies to all debt obligations acquired by the taxpayer in the taxable
year of the election and all subsequent years, unless revoked with the consent
of the Internal Revenue Service. If amortizable bond premium for a holder is
determined by reference to a call price, and if the Note is not subsequently
redeemed on the call date, then, for purposes of determining future amounts of
amortizable bond premium, the Note will be considered to be reissued on such
date for an amount equal to the nonexercised call price. The amount of
amortizable bond premium with respect to a Note generally will be treated as a
reduction in the holder's interest income on the Note. The holder's tax basis in
the Note will be reduced by any bond premium it is allowed to amortize.
Purchasers of Notes should consult their tax advisors concerning the existence
of amortizable bond premium and the effect of the associated election.
DISPOSITION. In general, upon the sale, redemption or other disposition of
a Note, the holder will recognize (i) ordinary interest income to the extent of
any interest that has accrued while the holder held the Note but has not yet
been taken into income by the holder and (ii) gain or loss equal to the
difference between the amount realized from such disposition (exclusive of any
amounts treated as ordinary interest income under clause (i)) and the holder's
tax basis in the Note. Except as provided under " -- MARKET DISCOUNT" below,
the gain or loss described in clause (ii) of the preceding sentence will be
capital gain or loss and will be long-term if the Note was held for more than
one year.
MARKET DISCOUNT. If a holder purchases a Note after issuance, there will
be market discount equal to the excess, if any, of the principal amount of the
Note over the holder's tax basis in the Note at the time of acquisition, unless
such excess qualified for a de minimis exception. Under the market discount
rules, any gain recognized by a holder upon the sale or other disposition of a
Note with market discount will be taxable as ordinary interest income to the
extent of the portion of the market discount that accrued on a straight-line
basis (or, at the election of the holder, on a constant yield to maturity basis)
while the holder held the Note. Market discount income may be recognized on a
gift of a Note as if the Note had been sold for its fair market value. A holder
of a Note with market discount may be required to defer deductions for a portion
of such holder's interest expense on any indebtedness incurred or maintained to
purchase or carry the Note.
As an alternative to the foregoing, a holder of a Note with market discount
may elect under certain circumstances to accrue such market discount income
currently (in which case its tax basis in the Note will be increased by such
accrued market discount income and the deduction-deferral rule described in the
preceding paragraph will not apply to the Note). Any such election applies to
all obligations acquired by the holder in the taxable year of the election and
all subsequent years, unless revoked with the consent of the IRS.
BACKUP WITHHOLDING. Under certain circumstances, the failure of a holder
of Notes to provide sufficient information to establish that such holder is
exempt from the backup withholding provisions of the Internal Revenue Code will
subject such holder to backup withholding at a rate of 31% of interest paid with
respect to the Notes and on the proceeds of a sale or redemption of the Notes.
In general, backup withholding applies if a holder fails to furnish a correct
taxpayer identification number, fails to report dividends and interest income in
full, or fails to certify that such holder has provided a correct taxpayer
identification number and that the holder is not subject to withholding. An
individual taxpayer's identification number is such person's Social Security
number.
115
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the issuance and sale of the Notes
offered hereby will be passed upon for the Company by Bracewell & Patterson,
L.L.P., Houston, Texas. Certain members of Bracewell & Patterson, L.L.P. own
less than .5% of the outstanding Common Stock of Holdings.
EXPERTS
The combined financial statements of TOC, its subsidiaries and Clarkston as
of May 31, 1995 and as of June 30, 1996, for the years ended May 31, 1994 and
1995, the twelve months ended May 31, 1996 and the one month ended June 30, 1996
and the financial statements of Finance Co. as of June 30, 1996 included in this
Prospectus and Registration Statement have been audited by Coopers & Lybrand
L.L.P. ("C&L"), independent public accountants, as stated in their report
included herein and are included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
On January 15, 1997, the Audit Committee of the Board of Directors of the
Company recommended, and the Company's Board of Directors approved, the
engagement of the independent certified public accounting firm of Deloitte &
Touche LLP ("D&T") to audit the consolidated financial statements of the
Company for the year ending June 30, 1997. Accordingly, the engagement of C&L as
the Company's independent auditors was discontinued. The reports of C&L on the
Company's combined financial statements for the year ended May 31, 1995, the
twelve months ended May 31, 1996 and the one month ended June 30, 1996 did not
contain an adverse opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principles. In connection
with the audits of the Company's combined financial statements for the year
ended May 31, 1995, the twelve months ended May 31, 1996 and the one month ended
June 30, 1996, and during the subsequent interim period prior to January 15,
1997, there were no disagreements between the Company and C&L on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope and procedures which, if not resolved to the satisfaction of C&L, would
have caused C&L to make reference to the matter in their reports. There were no
reportable events (as defined in Regulation S-K Item 304(a)(1)(v)) during the
year ended May 31, 1995, the 12 months ended May 31, 1996, the one month ended
June 30, 1996 and the subsequent interim period prior to January 15, 1997. The
Company has not consulted with D&T during the year ended May 31, 1995, the 12
months ended May 31, 1996, the one month ended June 30, 1996 or any subsequent
interim period prior to January 15, 1997 on either the application of accounting
principles or the type of opinion D&T might issue on the Company's financial
statements.
116
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
TPC Finance Corp. .........................................................
Report of Independent
Accountants ......................................................... F-2
Balance Sheet as of June 30,
1996 ................................................................ F-3
Texas Petrochemicals Corporation (and
Predecessor)
Report of Independent
Accountants ......................................................... F-4
Consolidated Balance Sheets as
of December 31, 1996, June 30,
1996 and
as of May 31, 1995 ................................................. F-5
Consolidated Statements of
Operations for the six months
ended December 31, 1996
and 1995, the one month ended
June 30, 1996 and 1995, for the
twelve months
ended May 31, 1996, and for
the years ended May 31, 1995
and 1994 ............................................................ F-6
Combined Statements of
Stockholders' Equity for the
one month ended June 30, 1996,
for the twelve months ended
May 31, 1996, and for the years
ended May 31, 1995
and 1994 ........................................................... F-7
Consolidated Statements of Cash
Flows for the six months ended
December 31, 1996
and 1995, the one month ended
June 30, 1996 and 1995, for the
twelve months
ended May 31, 1996, and for
the years ended May 31, 1995
and 1994 ............................................................ F-8
Notes to Consolidated Financial
Statements .......................................................... F-9
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
TPC Finance Corp.:
We have audited the accompanying balance sheet of TPC Finance Corp.
("Finance Co.") as of June 30, 1996. This balance sheet is the responsibility
of Finance Co.'s management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Finance Co. as of June 30, 1996 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
August 16, 1996
F-2
<PAGE>
TPC FINANCE CORP.
BALANCE SHEET
JUNE 30, 1996
ASSETS
Cash................................. $ 1,000
---------
Total...................... $ 1,000
=========
STOCKHOLDER'S EQUITY
Common stock $0.01 par value; 1,000
shares authorized; 1,000 shares
issued and outstanding............. $ 10
Additional paid-in capital........... 990
---------
Total...................... $ 1,000
=========
NOTE: TPC Finance Corp. ("Finance Co.") was incorporated in Texas on May 2,
1996. On May 14, 1996, Finance Co.'s parent, TPC Holding Corp. ("TPC
Holding") entered into an agreement to purchase the outstanding capital
stock of Texas Olefins Company ("TOC") and the outstanding capital stock
(not already owned by TOC) of Texas Petrochemicals Corporation and its
subsidiaries. Effective July 1, 1996, the acquisition closed for total
consideration of approximately $377 million. In connection with the
acquisition, Finance Co. incurred indebtedness of approximately $315
million and loaned the combined net proceeds to TPC Holding. Finance Co.
was then merged with and into Texas Petrochemicals Corporation.
F-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Texas Olefins Company:
We have audited the accompanying combined balance sheet of Texas Olefins
Company, subsidiaries and affiliate as of June 30, 1996 and May 31, 1995, and
the related combined statements of operations, stockholders' equity, and cash
flows for the one month period ended June 30, 1996, the twelve month period
ended May 31, 1996 and for the years ended May 31, 1995 and 1994. 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 combined financial statements referred to above present
fairly, in all material respects the combined financial position of Texas
Olefins Company, subsidiaries and affiliate as of June 30, 1996 and May 31,
1995, and the combined results of their operations and their cash flows for the
one month period ended June 30, 1996, the twelve month period May 31, 1996 and
for the years ended May 31, 1995 and 1994, in conformity with generally accepted
accounting principles.
As further described in Note 3 to the combined financial statements,
effective July 1, 1996 the Company was acquired for approximately $377 million
in a series of transactions.
As discussed in Note 2 to the combined financial statements, effective June
1, 1993 and June 1, 1994, the Company changed its method of accounting for
income taxes and its method of accounting for investment securities,
respectively.
COOPERS & LYBRAND L.L.P.
Houston, Texas
August 16, 1996
F-4
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, JUNE 30, MAY 31,
1996 1996 1995
------------ ---------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 141 $ 4,780 $ 17,829
Investment securities........... -- 6,794 21,126
Accounts receivable:
Trade...................... 41,112 35,279 40,098
Due from broker............ -- -- 4,498
Inventories (Note 5)............ 21,944 11,934 17,232
Prepaid expenses................ 11,014 9,665 8,245
Other current assets............ 2,078 2,088 2,225
------------ ---------- ----------
Total current
assets............. 76,289 70,540 111,253
Property, plant and equipment, net
(Note 6)........................... 251,601 81,814 90,071
Investments in land held for sale in
1996 (Note 8)...................... 3,886 6,181 18,773
Investment in and advances to limited
partnership (Note 9)............... 2,844 2,824 3,217
Goodwill............................. 223,726 -- --
Other assets, net (Note 7)........... 14,181 6,523 7,423
------------ ---------- ----------
Total assets.......... $572,527 $ 167,882 $ 230,737
============ ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................. $ 10,477 $ -- $ --
Accounts payable -- trade....... 31,253 40,131 35,958
Notes payable to stockholders
and former stockholder........ -- -- 697
Accrued expenses (Note 10)...... 20,049 4,727 7,298
Dividends payable............... -- 677 --
Current portion of cash bonus
plan.......................... 7,875 -- --
Current portion of long-term
debt.......................... 13,000 -- --
------------ ---------- ----------
Total current
liabilities........ 82,654 45,535 43,953
------------ ---------- ----------
Revolving line of credit (Note 11)... 4,500 13,000 --
Long-term debt....................... 295,500 -- --
Cash bonus plan...................... 21,656 -- --
Notes payable to stockholders and
former stockholder................. -- -- 325
Deferred income taxes (Note 12)...... 106,262 15,763 22,125
Minority interest in net assets of
consolidated subsidiary............ -- 1,107 1,062
Commitments and contingencies (Note
13)................................
Stockholders' equity:
Common stock, $1 par value,
4,162,000 shares authorized
and outstanding............... 4,162 -- --
Additional paid in capital...... 71,643 -- --
Accumulated deficit............. (4,850) -- --
Note receivable from ESOP....... (9,000) -- --
Net equity of Predecessor....... -- 92,477 163,272
------------ ---------- ----------
Total stockholders'
equity............. 61,955 92,477 163,272
------------ ---------- ----------
Total
liabilities
and
stockholders'
equity........ $572,527 $ 167,882 $ 230,737
============ ========== ==========
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE
SIX MONTHS ENDED ONE MONTH ONE MONTH MONTHS
DECEMBER 31, ENDED ENDED ENDED YEAR ENDED MAY 31,
-------------------------- JUNE 30, JUNE 30, MAY 31, ----------------------
1996 1995 1996 1995 1996 1995 1994
----------- ----------- --------- --------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 246,736 $ 226,507 $ 41,384 $ 36,187 $ 455,585 $ 474,677 $ 352,447
Cost of goods sold...... 216,507 187,557 35,992 29,408 379,468 396,360 268,813
Depreciation and
amortization.......... 15,894 7,403 1,277 1,210 14,982 14,298 13,572
----------- ----------- --------- --------- ---------- ---------- ----------
Gross profit....... 14,335 31,547 4,115 5,569 61,135 64,019 70,062
Selling, general and
administrative
expenses.............. 4,228 5,850 1,683 2,246 19,070 16,571 16,730
----------- ----------- --------- --------- ---------- ---------- ----------
Income from
operations... 10,107 25,697 2,432 3,323 42,065 47,448 53,332
----------- ----------- --------- --------- ---------- ---------- ----------
Interest income
(expense), net........ (17,367) (1,565) (76) 149 (1,630) 720 (238)
Other income (expense):
Dividend income.... -- 29 252 362 487
Charitable
contributions.... (51) -- (655) (657) (5,116)
Gain (loss) on
disposal of
assets and
investment
securities,
net.............. (280) 298 (3,099) 1,112 3,385
Impairment of
investment in
land............. -- -- (12,592) -- --
Other, net......... 1,488 210 (37) (261) 167 283 453
----------- ----------- --------- --------- ---------- ---------- ----------
1,488 210 (368) 66 (15,927) 1,100 (791)
----------- ----------- --------- --------- ---------- ---------- ----------
Income (loss)
before
income
taxes and
minority
interest... (5,772) 24,342 1,988 3,538 24,508 49,268 52,303
Provision (benefit) for
income taxes (Note
12)................... (922) 8,141 761 1,264 7,903 16,880 18,396
Minority interest in net
loss of consolidated
subsidiary............ -- 89 9 8 143 129 5
----------- ----------- --------- --------- ---------- ---------- ----------
Net income
(loss)..... $ (4,850) $ 16,290 $ 1,236 $ 2,282 $ 16,748 $ 32,517 $ 33,912
=========== =========== ========= ========= ========== ========== ==========
Pro Forma net income to
reflect income taxes
for Affiliate (Note
12)................... $ 15,458 $ 1,236 $ 2,182 $ 15,098 $ 30,448 $ 32,755
=========== ========= ========= ========== ========== ==========
Loss per share.......... $ (1.17)
===========
Weighted average shares
outstanding........... 4,162,000
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
TEXAS OLEFINS COMPANY, SUBSIDIARIES AND AFFILIATE
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
CLASS A CLASS B AFFILIATE LOSS ON
COMMON COMMON COMMON RETAINED INVESTMENT TREASURY
STOCK STOCK STOCK EARNINGS SECURITIES STOCK TOTAL
-------- --------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1993................ $200,000 $5,042,800 $1,000,000 $123,780,734 $(1,872,000) $128,151,534
Net income........................... 33,912,111 33,912,111
Dividends............................ (21,404,500) (21,404,500)
Purchase of 60,000 shares of treasury
stock.............................. (250,743) (250,743)
Cancellation of 14,400 shares of
Class B common stock............... (14,400) (921,600) 936,000
-------- --------- --------- ----------- ---------- ---------- -----------
Balance, May 31, 1994................ 200,000 5,028,400 1,000,000 135,366,745 (1,186,743) 140,408,402
Net income........................... 32,516,837 32,516,837
Dividends............................ (6,253,200) (6,253,200)
Sale of 60,000 shares of treasury
stock.............................. 250,743 250,743
Cancellation of 7,200 shares of Class
B common stock..................... (7,200) (460,800) 468,000
Unrealized loss on investment
securities, net of taxes........... $(3,650,584) (3,650,584)
-------- --------- --------- ----------- ---------- ---------- -----------
Balance, May 31, 1995................ 200,000 5,021,200 1,000,000 161,169,582 (3,650,584) (468,000) 163,272,198
Net income........................... 16,748,619 16,748,619
Redemption of 25,000 shares of Class
A common stock and 1,565,670 shares
of Class B common stock............ (95,440,200) (95,440,200)
Sale of 376,670 shares of treasury
stock.............................. 22,600,200 22,600,200
Dividends............................ (16,526,000) (16,526,000)
Change in unrealized loss on
investment securities, net of
taxes.............................. 3,007,034 3,007,034
Cancellation of 1,214,000 shares of
Class B Common Stock............... (1,214,000) (71,626,000) 72,840,000
Cancellation of 7,200 shares of Class
B common stock..................... (7,200) (460,800) 468,000
Redemption and cancellation of
1,000,000 shares of Affiliate
common stock....................... (1,000,000) (1,000,000)
-------- --------- --------- ----------- ---------- ---------- -----------
Balance, May 31, 1996................ 200,000 3,800,000 -- 89,305,401 (643,550) -- 92,661,851
Net income........................... 1,235,927 1,235,927
Net change in unrealized loss on
investment securities, net of
taxes.............................. (743,709) (743,709)
Liquidating dividend to affiliate
shareholders....................... (677,000) (677,000)
-------- --------- --------- ----------- ---------- ---------- -----------
Balance June 30, 1996................ $200,000 $3,800,000 $ -- $89,864,328 $(1,387,259) $ -- $92,477,069
======== ========= ========= =========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ONE TWELVE
SIX MONTHS ENDED MONTH ONE MONTH MONTHS YEAR ENDED MAY 31,
DECEMBER 31, ENDED ENDED ENDED
-------------------------- JUNE 30, JUNE 30, MAY 31, --------------------
1996 1995 1996 1995 1996 1995 1994
----------- ----------- -------- ----------- -------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................ $ (4,850) $ 16,290 $ 1,236 $ 2,282 $16,748 $ 32,517 $ 33,912
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization
of fixed assets.............. 12,921 7,403 1,259 1,192 14,768 14,072 13,308
Amortization of goodwill and
other assets................. 3,784 -- 18 18 214 226 264
(Gain) loss on disposal of
assets and investment
securities, net.............. -- -- 280 (298) 3,099 (1,112) (3,385)
Impairment of investment in
land......................... -- -- -- -- 12,592 -- --
Earnings from limited
partnership.................. (270) -- 190 (35) 202 (260) (577)
Minority interest in net loss
of consolidated subsidiary... -- (89) (9 ) (8) (143 ) (129) (5)
Deferred income taxes.......... (584) (1,510) (237 ) (142) (5,829 ) 818 272
Change in:
Accounts receivable.......... (5,834) (7,361) 7,723 8,189 1,593 (18,100) 5,630
Inventories.................. (10,011) 8,584 3,069 (6,120) 2,230 12,954 (20,902)
Other current and noncurrent
assets..................... (1,735) (5,442) 1,424 (137) (3,616 ) (852) (742)
Accounts payable............. (8,878) 10,133 (107 ) (6,198) 4,280 9,787 1,027
Accrued expenses............. 15,322 1,727 (932 ) 3,123 (1,638 ) 381 1,440
----------- ----------- -------- ----------- -------- --------- ---------
Net cash provided by (used
in) operating
activities............... (135) 29,735 13,914 1,866 44,500 50,302 30,242
Cash flows from investing activities:
Capital expenditures............. (5,171) (2,108) (1,997 ) (471) (5,462 ) (8,680) (12,550)
Purchase of investment securities
available for sale............. -- (6,331) -- -- (19,138 ) (33,998) (35,018)
Proceeds from sale of investment
securities available for sale
and non-plant assets........... 9,799 -- 702 6,395 32,821 16,778 42,241
Acquisition of the Company....... (371,057) -- -- -- -- -- --
Distribution received from
investment in limited
partnership.................... 250 -- -- -- -- -- --
Proceeds from the sale of
subsidiary and ranch........... 7,800 -- -- -- -- -- --
----------- ----------- -------- ----------- -------- --------- ---------
Net cash provided by (used
in) investing activities... (358,379) (8,439) (1,295 ) 5,924 8,221 (25,900) (5,327)
Cash flows from financing activities:
Bank overdraft................... 10,478 4,797 (12,383 ) -- 12,382 -- --
Proceeds from revolving line of
credit......................... 11,500 30,000 17,100 -- 100,050 25,000 88,100
Payments of revolving line of
credit......................... (20,000) -- (14,100 ) -- (90,050 ) (36,000) (87,100)
Proceeds from notes payable...... -- -- -- -- -- 1,000 1,000
Payments of notes payable........ -- (305) -- (716) (1,022 ) (4,697) (1,487)
Redemption of common stock....... -- (95,440) -- -- (96,440 ) -- (519)
Dividends paid................... -- (4,000) -- (3,763) (16,526 ) (9,085) (18,575)
Proceeds from sale of common
stock.......................... -- 22,600 -- -- 22,600 451 1,000
Proceeds from issuance of
long-term debt................. 315,000 15,000 -- -- -- -- --
Payments on long-term debt....... (6,500) (15,000) -- -- -- -- --
Payment of cash bonus plan....... (5,469) -- -- -- -- -- --
Debt issuance costs.............. (14,522) -- -- -- -- -- --
Investment by Parent............. 62,909 -- -- -- -- -- --
Reduction in note receivable
fromm ESOP..................... 1,000 -- -- -- -- -- --
Organizational costs............. (521) -- -- -- -- -- --
----------- ----------- -------- ----------- -------- --------- ---------
Net cash used in financing
activities................. 353,875 (42,348) (9,383 ) (4,479) (69,006 ) (23,331) (17,581)
----------- ----------- -------- ----------- -------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................... (4,639) (21,052) 3,236 3,311 (16,285 ) 1,071 7,334
Cash and cash equivalents, at
beginning of year.................. 4,780 22,849 1,544 17,829 17,829 16,758 9,424
----------- ----------- -------- ----------- -------- --------- ---------
Cash and cash equivalents, at end of
year............................... $ 141 $ 1,797 $ 4,780 $21,140 $ 1,544 $ 17,829 $ 16,758
=========== =========== ======== =========== ======== ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest..................... $ 6,822 $ 1,477 $ 62 $-- $ 2,330 $ 527 $ 663
Income taxes................. -- 7,400 877 -- 14,756 14,740 16,992
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
1. NATURE OF OPERATIONS:
The consolidated financial statements include the accounts of Texas
Petrochemicals Corporation and its wholly owned subsidiary, Texas Butylene
Chemical Company, collectively referred to as (the "Company" since July 1,
1996). The Company through its facility in Houston, Texas in the largest
producer of butadiene and butene-1, and the second largest producer of methyl
tertiary-butyl ether ("MTBE"), in North America, in terms of production
capacity. In addition, the Company is the sole producer of diisobutylene and
isobutylene concentrate in the United States and is the largest domestic
merchant supplier of high purity isobutylene to the chemical market. The
Company's products include: (i) butadiene, primarily used to produce synthetic
rubber; (ii) MTBE, used as an oxygenate and octane enhancer in gasoline;
(iii) n-butylenes (butene-1 and butene-2), used in the manufacture of plastic
resins, fuel additives and synthetic alcohols; and (iv) specialty isobutylenes,
primarily used in the production of specialty rubbers, lubricant additives,
detergents and coatings.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. The Company purchases a significant portion of its crude butadiene
requirements at prices which are adjusted based on the Company's selling price
of butadiene as well as the cost of natural gas used to produce butadiene,
thereby providing the Company with a fixed profit on such sales. Methanol and
isobutane are purchased at prices linked to prevailing market prices.
For the twelve months ended May 31, 1996 and for the one month ended June
30, 1996, approximately 43% and 45%, respectively, of the Company's total
revenues were derived from products sold on a fixed profit basis or whose
selling prices were linked, directly or indirectly, to raw material costs. The
Company believes that the combination of its fixed profit contracts, competitive
cost position and specialty product sales provides stability to its cash flows
and helps to offset the effects of cyclical downturns.
2. SIGNIFICANT ACCOUNTING POLICIES:
CHANGE IN FISCAL YEAR END
In June 1996 the Company's board of directors approved a change in the
Company's fiscal year end to June 30 from May 31. Accordingly, the accompanying
combined financial statements include results of operations and cash flows for
the one month transition period.
PRINCIPLES OF COMBINATION
The consolidated balance sheet and the consolidated statements of income
and cash flows for the periods prior to July 1, 1996 include the combined
presentation of the accounts of Texas Olefins Company, Texas Petrochemicals
Corporation, The Texas Falls Corporation and Clarkston Corporation (the
"Affiliate"), collectively referred to as (the "Predecessor"). Texas Olefins
Company was merged with and into Texas Petrochemicals Corporation in conjunction
with the Acquisition described in Note 3. The minority interest reflected in the
accompanying financial statements reflects approximately 20% of the common stock
of The Texas Falls Corporation not owned by the Company.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVESTMENT SECURITIES
Effective June 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," (SFAS 115). Management has classified all investments as
available-for-sale. Cost is determined by specific identification. Purchases and
F-9
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
sales are reflected on a trade date basis. Investment securities are carried at
fair value with any unrealized gains or losses reported as a component of
stockholders' equity, net of tax.
INVENTORIES
Inventories consist of raw materials, finished goods and chemicals used in
processing and are valued at the lower of average cost or market.
The Company may enter into product exchange agreements with suppliers
whereby certain inventories are exchanged for raw materials. These exchanges are
recorded at the lower of cost or market. Any resulting gains or losses from the
utilization of these exchanges are reflected in cost of chemical products sold.
Balances related to quantities due to or payable by the Company are included in
inventory.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Turnaround costs and
other maintenance and repairs are charged to expense as incurred while
significant improvements are capitalized. Upon retirement or sale of an asset,
the asset and the related accumulated depreciation is removed from the accounts
and any resulting gain or loss is reflected in operations.
DEPRECIATION
Depreciation of property, plant and equipment is computed using the
straight-line method over their estimated useful lives ranging from 3 to 31 1/2
years, with the plants being depreciated over 10 years.
OTHER ASSETS
Other assets include certain intangible assets and catalysts which are
amortized using the straight-line method over their useful lives ranging from 2
to 40 years.
IMPAIRMENT OF ASSETS
Prior to June 1, 1995, the Company recognized impairment of investments in
land and property, plant and equipment at the time when a decline in value of an
asset was determined to be permanent. Effective June 1, 1995, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
"Impairment of Long-Lived Assets and Assets to be Disposed of."
REVENUE RECOGNITION
The Company recognizes revenue from sales of refined products in the period
of delivery.
INCOME TAXES
Effective June 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The adoption had no effect on financial position or net income.
Under SFAS No. 109, deferred taxes are provided at the enacted tax rate on
temporary differences between assets and liabilities for financial and tax
reporting purposes.
Deferred taxes are recorded to reflect the effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
The Affiliate of the Company has elected for federal tax purposes to be
taxed under provisions of Subchapter S of the Internal Revenue Code. This
election requires the stockholders to include the Affiliate's net earnings,
losses and credits in their own income for tax purposes. Accordingly, the
Affiliate generally is not liable for federal income taxes and no provision for
federal income taxes is included in the accompanying financial statements. Pro
Forma net income to reflect the effect on the combined company of income
F-10
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
taxes for the Affiliate as if it were a taxable entity has been included on the
face of the income statement. The Affiliate's articles of incorporation require
its board of directors to declare a payment of a cash dividend to its
shareholders of no less than 110% of the maximum individual federal income tax
rate under the Internal Revenue Code for each calendar year, payable within 30
days after the Affiliate files its tax return.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENTLY ISSUED PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123, which is effective for fiscal years beginning
after December 31, 1995, encourages but does not require companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on new fair value accounting rules. The Company
has not yet determined if it will adopt this new fair value-based method of
accounting for its stock-based incentive plans or elect the disclosure
provisions of SFAS No. 123.
RECLASSIFICATIONS
Certain reclassifications have been made to previously issued financial
statements to conform to the current presentation. There is no resulting impact
on stockholders' equity or net income.
3. THE ACQUISITION (UNAUDITED):
On July 1, 1996, Texas Olefins Company ("TOC"), Texas Petrochemicals
Corporation and a raw material supply contract of the Affiliate were acquired
for approximately $377 million in a series of transactions (the
"Acquisition"). After the transactions, TOC was merged with and into Texas
Petrochemicals Corporation with Texas Petrochemicals Corporation becoming a 100%
owned subsidiary of Texas Petrochemicals Holdings, Inc. (the "Parent"). In
connection with the Acquisition, Texas Petrochemicals Corporation issued $175
million of Senior Subordinated Notes due 2006 (the "Subordinated Notes") and
borrowed $140 million under the Bank Credit Agreement. On the closing date of
the Acquisition, prior to closing, TOC sold to the previous majority shareholder
of TOC for $7.8 million in cash a ranch of approximately 1,900 acres and the
livestock and personality thereon and 80% of the outstanding capital stock of
The Texas Falls Corporation ("The Falls") owned by TOC. In June 1996, the
Affiliate was dissolved and a $677,000 liquidating dividend was declared to its
shareholders.
F-11
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
The following unaudited pro forma statements of operations assumes the
acquisition occurred on June 1, 1995 for the twelve months ended May 31, 1996
and on June 1, 1996 for the one month ended June 30, 1996 and on July 1, 1995
for the six months ended December 31, 1995.
PRO FORMA STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ONE MONTH TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996 MAY 31, 1996
----------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................. $ 225.9 $41.2 $ 454.2
Cost of goods sold................... 181.5 35.4 367.3
Depreciation and amortization........ 18.0 3.1 36.3
-------- ------------- -------------
Gross profit.................... 26.4 2.7 50.6
Selling, general and administrative
expenses........................... 4.1 1.5 12.7
-------- ------------- -------------
Income from operations..... 22.3 1.2 37.9
Interest expense, net................ 15.9 2.6 31.9
Other income (expense):
Dividend income................. -- --
Charitable contribution......... -- --
Loss on disposal of assets and
investment securities, net.... (0.3) (3.1)
Impairment of investment in
land.......................... -- (12.6)
Other, net...................... 0.1 0.1 0.1
-------- ------------- -------------
Loss before income taxes and minority
interest........................... 6.5 (1.6) (9.6)
Provision for income taxes........... 2.4 -- --
Minority interest in net loss of
consolidated subsidiary............ -- -- --
-------- ------------- -------------
Net loss................... $ 4.1 $(1.6) $ (9.6)
======== ============= =============
</TABLE>
4. INVESTMENT SECURITIES:
As of June 30, 1996 the Company held $6.8 million of equity securities with
an unamortized cost of $9.0 million and gross unrealized losses of $2.2 million.
Unrealized losses of $0.6 million and $1.4 million (net of deferred tax) related
to these securities is recorded as a component of stockholders' equity for the
twelve months ended May 31, 1996 and the one month ended June 30, 1996,
respectively. During the twelve months ended May 31, 1996 and the one month
ended June 30, 1996, gross realized gains of approximately $1.9 million and $0,
respectively, and gross realized losses of approximately $5.0 million and $0.3
million, respectively, were recognized on the sale of securities.
The Company held $3.7 million of bankers acceptance notes at May 31, 1995,
with scheduled maturities of less than one year. The Company also held
approximately $17.4 million of equity securities at May 31, 1995. Unrealized
losses of $3.6 million (net of deferred tax) related to these securities is
recorded as a component of stockholders' equity for the year ended May 31, 1995.
During the year ended May 31, 1995, gross realized gains of approximately $1.2
million and gross realized losses of approximately $0.05 million were recognized
on the sale of securities.
F-12
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
The amortized cost and estimated market values of investment securities at
May 31, 1995 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C>
Bankers acceptance notes............. $ 3,680 $ 3,680
Equity securities.................... 23,062 $ 350 $5,966 17,446
--------- ---------- ---------- ---------
Total........................... $26,742 $ 350 $5,966 $ 21,126
========= ========== ========== =========
</TABLE>
Included in cash and cash equivalents at May 31, 1995 and June 30, 1996 was
$22.9 million and $5.5 million of commercial paper with scheduled maturities of
less than three months. Aggregate cost approximated market value at May 31, 1995
and June 30, 1996.
5. INVENTORIES:
Inventories at December 31, 1996, June 30, 1996 and May 31, 1995 are
summarized as follows (in thousands of dollars):
DECEMBER 31, JUNE 30, MAY 31,
1996 1996 1995
------------ --------- ---------
Finished goods....................... $ 12,148 $ 5,481 $ 6,757
Raw materials........................ 7,745 4,533 8,787
Chemicals and supplies............... 2,051 1,920 1,688
------------ --------- ---------
$ 21,944 $ 11,934 $ 17,232
============ ========= =========
6. PROPERTY, PLANT AND EQUIPMENT:
Following is a summary of the Company's property, plant and equipment at
December 31, 1996, June 30, 1996 and May 31, 1995 (in thousands of dollars):
DECEMBER 31, JUNE 30, MAY 31,
1996 1996 1995
------------ ------------ ----------
Chemical plants...................... $252,586 $ 173,370 $ 161,130
Construction in progress............. 10,242 5,378 10,294
Other................................ 3,066 13,812 13,701
------------ ------------ ----------
265,894 192,560 185,125
Less allowance for depreciation,
depletion and amortization......... (14,293) (110,746) (95,054)
------------ ------------ ----------
Total........................... $251,601 $ 81,814 $ 90,071
============ ============ ==========
F-13
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
7. OTHER ASSETS:
Following is a summary of the Company's other assets at December 31, 1996,
June 30, 1996 and May 31, 1995 (in thousands of dollars):
DECEMBER 31, JUNE 30, MAY 31,
1996 1996 1995
------------ --------- ---------
Debt issue costs..................... $ 14,522 $ -- $ --
Organizational costs................. 521 -- --
Investment in The Falls and other.... -- 7,934 8,602
------------ --------- ---------
15,043 7,934 8,602
Less accumulated amortization........ 862 1,411 1,179
------------ --------- ---------
$ 14,181 $ 6,523 $ 7,423
============ ========= =========
8. INVESTMENT IN LAND HELD FOR SALE:
Land which is held for sale at December 31, 1996, June 30, 1996 and May 31,
1995 consists principally of unimproved real estate and is summarized as follows
(in thousands of dollars):
DECEMBER 31, JUNE 30, MAY 31,
LOCATION 1996 1996 1995
- ------------------------------------- ------------ --------- ---------
Highway 6
Houston, Texas....................... $ 1,307 $ 1,307 $ 6,799
Macgregor-Highway 288
Houston, Texas....................... 521 521 5,619
Richmond West Hollow
Houston, Texas....................... 975 975 2,977
The Falls,
New Ulm, Texas....................... -- 2,295 2,295
Baytown, Texas....................... 1,068 1,068 1,068
Other miscellaneous.................. 15 15 15
------------ --------- ---------
$ 3,886 $ 6,181 $ 18,773
============ ========= =========
During the twelve months ended May 31, 1996, the Company evaluated the
carrying value of its investment in land in light of the possible sale of these
assets in the foreseeable future and considering the criteria of SFAS No. 121,
determined that an impairment write-down was necessary. As a result, the Company
recorded a provision for estimated impairment of $12.6 million, with an
associated tax benefit of $4.7 million, to writedown certain investments in land
to estimated fair market value. Actual sales proceeds from investments in land
may differ from the carrying amounts at June 30, 1996.
9. INVESTMENT IN AND ADVANCES TO LIMITED PARTNERSHIP:
The Company and Hollywood Marine, Inc. formed a limited partnership,
Hollywood/Texas Olefins, Ltd., to operate four barges capable of transporting
chemicals. Texas Olefins Company is a 50% limited partner in the limited
partnership.
The Company accounts for this investment under the equity method and
records its portion of the limited partnership's net income as other income in
the accompanying combined statement of operations. Summarized financial
information of the partnership has not been presented because the Company's
investment in and its proportionate share of the partnership's operations are
not material.
F-14
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
10. ACCRUED EXPENSES:
At December 31, 1996, June 30, 1996 and May 31, 1995, accrued expenses
consisted of the following (in thousands of dollars):
DECEMBER 31, JUNE 30, MAY 31,
1996 1996 1995
------------ --------- ----------
Federal and state taxes.............. $ -- $ 959 $ 3,013
Accrued interest..................... 12,901 81 24
Property and sales taxes............. 4,609 2,370 2,144
Charitable contributions............. -- -- 1,265
Other expenses....................... 2,539 1,317 852
------------ --------- ----------
$ 20,049 $ 4,727 $ 7,298
============ ========= ==========
11. LONG-TERM DEBT:
Following is a summary of the Company's long-term debt at December 31,
1996, June 30, 1996 and May 31, 1995 (in thousands of dollars):
DECEMBER 31, JUNE 30, MAY 31,
1996 1996 1995
------------ --------- ---------
Bank Borrowings:
Term Loans...................... $124,500 $ -- $ --
ESOP Loan....................... 9,000 -- --
Revolving Credit Loans.......... 4,500 13,000 --
Subordinated Notes................... 175,000 -- --
------------ --------- ---------
313,000 13,000 --
Less current maturities.............. 13,000 -- --
------------ --------- ---------
Long-term debt....................... $300,000 $ 13,000 $ --
============ ========= =========
The Bank Credit Agreement provided for term loans in the amount of $130
million, an ESOP loan of $10 million, and a revolving credit facility of up to
$40 million. The debt initially bears interest at a greater of the prime rate
and the federal funds rate plus 1/2% plus a margin of 1%, due and payable
quarterly beginning September 30, 1996. The Subordinated Notes are due 2006 and
bear interest at 11 1/8% payable semiannually on January 1 and July 1. The Bank
Credit Agreement and the Subordinated Notes include certain restrictive
covenants which include, but are not limited to, limitations on capital
expenditures, indebtedness, investments and sales of assets and subsidiary
stock. Additionally, the Bank Credit Agreement requires the Company to maintain
certain financial ratios. For the six months ended December 31, 1996 the Company
obtained waivers under the Bank Credit Agreement for compliance with certain
financial ratios relating to fixed charge coverage, debt to equity, and net
worth and an amendment to the Bank Credit Agreement on March 28, 1997 to update
these financial ratios.
The Company had a revolving line of credit agreement with a bank which
permitted borrowings up to $30,000,000 of which $13,000,000 was outstanding at
June 30, 1996. The agreement was cancelled by the Company in connection with the
Acquisition and the new Bank Credit Agreement. The line of credit was
collateralized by the Company's accounts receivable and inventory and charged
interest at the Company's option of the prime rate or the Eurodollar rate plus
1% and required a commitment fee of 0.375% of the unused portion of the line of
credit. The agreement also contained various restrictive covenants which, among
other things, required the Company to maintain certain financial ratios and
restricted the Company's ability to incur additional indebtedness. The above
requirement to maintain certain financial ratios
F-15
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
effectively restricted the amount of dividends that could have been declared in
any given year. The Company's weighted average borrowing rate under this
agreement was 7.49%, 6.70% and 6.06% for the one month dated June 30, 1996, the
twelve months ended May 31, 1996 and the year ended May 31, 1995, respectively.
The Company's weighted average borrowing rate under various agreements which
expired in 1996 was approximately 8%.
12. FEDERAL AND STATE INCOME TAXES:
Significant components of the Company's deferred tax asset and liability at
December 31, 1996, June 30, 1996 and May 31, 1995 are as follows (in thousands
of dollars):
DECEMBER 31, JUNE 30, MAY 31,
1996 1996 1995
------------ ----------- -----------
Deferred tax asset -- current:
Net operating loss
carryforward.................. $ 414 $ -- $ --
Unrealized loss on investment
securities.................... -- 815 1,966
Costs capitalized to
inventory..................... -- -- 259
------------ ----------- -----------
$ 414 $ 815 $ 2,225
============ =========== ===========
Deferred tax asset (liability) -- noncurrent:
Investment in land.............. $ 4,660 $ 4,660 $ --
Property, plant and equipment... (110,922) $ (20,423) $ (22,125)
------------ ----------- -----------
Net deferred tax
(liability) -- noncurrent..... $ (106,262) $ (15,763) $ (22,125)
============ =========== ===========
The current deferred tax asset is included in other current assets in the
accompanying balance sheet.
The provision for federal and state income taxes is comprised of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
TWELVE
SIX MONTHS ONE MONTH ONE MONTH MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, MAY 31, MAY 31, MAY 31,
1996 1996 1995 1996 1995 1994
------------ --------- ------------ -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal............................. $ (414) $ 880 $1,281 $ 12,150 $14,314 $16,173
State............................... 75 118 125 1,582 1,748 1,951
------------ --------- ------------ -------- ------- -------
(339) 998 1,406 13,732 16,062 18,124
------------ --------- ------------ -------- ------- -------
Deferred:
Federal............................. (583) (210) (122) (5,461) 895 250
State............................... -- (27) (20) (368) (77) 22
------------ --------- ------------ -------- ------- -------
(583) (237) (142) (5,829) 818 272
------------ --------- ------------ -------- ------- -------
Total provision (benefit) for
income taxes................ $ (922) $ 761 $1,264 $ 7,903 $16,880 $18,396
============ ========= ============ ======== ======= =======
Pro Forma income tax
provision................... $ 761 $1,364 $ 9,553 $18,949 $19,553
========= ============ ======== ======= =======
</TABLE>
F-16
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
The Affiliate is a Subchapter S corporation and accordingly pays no federal
income tax. The Pro Forma income tax provision assumes that the income of the
Affiliate was taxable to the Company based on the Company's effective tax rate.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income from continuing operations. The
reasons for this difference are as follows:
<TABLE>
<CAPTION>
SIX ONE ONE TWELVE
MONTHS MONTH MONTH MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, MAY 31, MAY 31, MAY 31,
1996 1996 1995 1996 1995 1994
------------ -------- ----------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income
tax rate...................................... 35% 35% 35% 35% 35% 35%
Computed "expected" federal income tax........ $ (2,020) $ 696 $ 1,247 $ 8,578 $17,438 $18,306
Increase (decrease) in tax resulting from:
Affiliate earnings not subject to federal
income tax............................... -- -- (100) (1,651) (2,069) (1,157)
State income taxes, net of federal
benefit.................................. 49 59 68 789 1,086 1,283
Other, net................................. -- 6 49 280 518 (151)
Amortization............................... 1,049 -- -- (93) (93) (93)
Effect of 1% increase in statutory federal
income tax rate.......................... 208
------------ -------- ----------- ------- ------- -------
Provision (benefit) for income taxes............ $ (922) $ 761 $ 1,264 $ 7,903 $16,880 $18,396
============ ======== =========== ======= ======= =======
</TABLE>
13. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Corporation leases tank cars under noncancelable operating leases.
Under the terms of the lease agreements, the Corporation is reimbursed by
customers at a fixed rate per mile, based on the distance the tank cars travel.
Reimbursements were approximately $0.04 million, $0.8 million, $0.7 million and
$0.8 million for the one month period ended June 30, 1996, for the twelve months
ended May 31, 1996 and for the years ended May 31, 1995 and 1994, respectively.
The Corporation is also obligated under two operating leases to Hollywood/Texas
Olefins, Ltd. for the rental of four barges.
Total rent expense was approximately $0.4 million, $4.8 million, $4.4
million and $4.3 million (net of reimbursements described above and including
$0.2 million, $2.0 million, $2.0 million and $2.0 million for the rental of four
barges) for the one month period ended June 30, 1996, for the twelve months
ended May 31, 1996 and for the years ended May 31, 1995 and 1994, respectively.
Future minimum lease payments at June 30, 1996 are as follows (in thousands
of dollars):
FISCAL YEAR
- -------------------------------------
1997............................... $ 2,935
1998............................... 1,579
1999............................... 1,209
2000............................... 826
2001............................... 282
F-17
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
STOCK PURCHASE AGREEMENT
The Company entered into a stock purchase agreement with a certain minority
stockholder who owns 20,000 shares of the Company's outstanding Class A common
stock and 80,000 shares of the Company's outstanding Class B common stock. Under
the terms of this agreement, in the event of the stockholder's death, the
Company must redeem all shares owned by the deceased stockholder at a formula
price, which is adjusted annually. At May 31, 1995, the formula price per share
was approximately $58.
The Company has entered into a death benefit agreement with an officer of
the Company who owns 660,000 shares of Class B common stock of the Company. This
agreement provides that in the event of the death of the officer, the Company is
obligated to redeem the shares at a price of $60 per share with twenty-five
percent of the purchase price payable at closing and the balance payable in five
equal annual installments plus interest at the rate of eight percent per annum.
This agreement replaces a previous agreement that obligated the Company to
redeem the shares in the event of the death of the officer at a price of $80 per
share.
The Corporation has entered into a stock purchase agreement with certain of
its minority stockholders who own 171,000 shares of the Corporation's
outstanding common stock. Under the terms of this agreement, such stockholders
may sell their shares to the Corporation at a formula price, which is adjusted
annually. Under this agreement, the Corporation is obligated to redeem the
shares in the event of the death of the stockholder at the formula price. At May
31, 1995, the formula price per share was approximately $54.
The Corporation has also entered into a Section 303 stock purchase
agreement with an officer of the Corporation who owns 85,000 shares of the
Corporation's outstanding common stock. This agreement allows for the officer's
estate to require the Corporation to redeem the necessary shares so as to pay
estate taxes and funeral and administrative expenses upon the death of the
officer. Under the terms of this agreement, the redemption price per share will
be based upon the value of the shares as reflected on the federal estate tax
return.
Additionally, the Corporation entered into separate stock purchase
agreements with an officer of the Corporation and his spouse who own 500,000
shares of the Corporation's outstanding common stock as part of a community
estate. The agreement with the officer requires the Corporation to redeem
250,000 shares from the community estate upon the officer's death at a price of
$90 per share with twenty five percent of the redemption price payable at
closing and the balance payable in five annual installments plus interest at the
rate of eight percent per annum. The agreement with the officer's spouse allows
her to require the Corporation to redeem the 250,000 shares from the community
estate not redeemed as part of the officer's agreement for a period of one year
subsequent to the officer's death at the same price and payable in the same
manner as set forth in the officer's agreement. Additionally, the spouse's
agreement requires the Corporation to redeem 250,000 shares of the stock from
the community estate in the event that she predeceases the officer at a price of
$90 per share with sixty percent of the redemption price payable at closing and
the balance payable in thirty-six equal monthly installments plus interest at
the rate of eight percent per annum.
All of the Affiliate's common stock is subject to a stock purchase
agreement. Under the terms of the stock purchase agreement, the Affiliate is
obligated to redeem all of a stockholder's shares in the event of death and has
an option to redeem all of a stockholder's shares in certain other instances.
The redemption price is equal to the Affiliate's adjusted book value, as defined
in the agreement, divided by the number of outstanding shares. At May 31, 1995,
the redemption price per share was $8.15. Of the total redemption amount, 25% is
to be paid in cash with the remaining balance to be paid in 42 equal monthly
installments as evidenced by an interest bearing promissory note.
F-18
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
STOCK OPTION AGREEMENTS
The Corporation has entered into stock option agreements with two of its
officers which granted them the option to purchase 100,000 shares of common
stock. The option purchase price for the shares is $40 per share. At May 31,
1995, 30,000 shares were exercisable. During the fiscal year ended May 31, 1994,
one of the officers forfeited his option to purchase 50,000 shares of common
stock.
In the event the option is exercised, the Corporation and the officers will
enter into stock purchase agreements. Under the terms of the agreement, transfer
of the stock is restricted and only the Corporation, at its option, may redeem
the stock. However, upon death of the officer, the Corporation is obligated to
redeem the officer's shares. In all instances the redemption price will be the
greater of the formula price in the agreement or $40 per share. At May 31, 1995
the formula price was approximately $54 per share.
SALARY CONTINUATION AGREEMENTS
The Corporation has entered into salary continuation agreements with three
of its officers. The agreements provide that if the officer is an employee of
the Corporation upon death, an amount ranging from $10,000 to $25,000 would be
payable monthly to his estate for a period of five years.
PURCHASE COMMITMENTS
The Company and the Affiliate have purchase commitments incident to the
ordinary conduct of business. The prices of such purchase commitments are based
on formulas which are determined from the prevailing market rates for such
products. These commitments generally have cancellation provisions given proper
notification.
LITIGATION
The Company is involved in various legal proceedings which arose during the
normal course of business. Management of the Company is vigorously defending
such matters and is of the opinion that their ultimate resolution will not have
a material adverse effect on the Company. See Note 18.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state and local laws and
regulations administered by the U.S. Environmental Protection Agency, the U.S.
Coast Guard, the Army Corps of Engineers, the Texas Natural Resource
Conservation Commission, the Texas General Land Office, the Texas Department of
Health and various local regulatory agencies. The Company holds all required
permits and registrations necessary to comply substantially with all applicable
environmental laws and regulations, including permits and registrations for
wastewater discharges, solid and hazardous waste disposal and air emissions, and
management believes that the Company is in substantial compliances with all such
laws and regulations. While management does not expect that compliance with
existing environmental laws will have a material adverse effect on the Company's
financial condition, results of operations or cash flows, there can be no
assurance that future legislation, regulation or judicial or administrative
decisions will not have such an effect.
14. PROFIT SHARING PLANS:
The Corporation has a noncontributory profit sharing plan that covers all
full-time employees that have completed one year or more of service. Employees
can contribute up to 10% of their base compensation to a tax deferred fund which
is matched by the Corporation at the rate of $.25 per one dollar contributed by
the employee up to 6% of the employee's base compensation. The Corporation's
expense to match employee contributions was approximately $14,786, $195,627,
$180,000 and $150,000 for the one month period ended June 30, 1996, for the
twelve month period ended May 31, 1996 and for the years ended May 31, 1995 and
1994, respectively. Additionally, the Corporation made additional discretionary
contributions to the plan which amounted to approximately $0.2 million, $2.4
million, $2.6 million and $2.2 million for the
F-19
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
one month period ended June 30, 1996, for the twelve month period ended May 31,
1996 and for the years ended May 31, 1995 and 1994, respectively. The
Corporation's contributions vest with the employee at a rate of 20% per year.
15. RELATED PARTY TRANSACTIONS:
Prior to the Acquisition, the Company made contributions from time to time
to a charitable organization that is an affiliate of the Company. As of May 31,
1995 the Company had outstanding a $468,000 note payable to a stockholder of the
Company with an interest rate of 7% and a $554,490 note payable to a former
stockholder of the Company with an interest rate of 5.23%. Both notes were
repaid by the Company prior to June 30, 1996. Additionally, during the year
ended May 31, 1995, the Company repaid $4,000,000 on an 8% note payable to an
officer of the Company. Of such amount, $1,000,000 was borrowed during such year
and the remaining $3,000,000 was borrowed prior thereto.
16. CONCENTRATION OF CREDIT RISK:
The Company sells its products primarily to chemical and petroleum based
companies in North America. For the one month period ended June 30, 1996, for
the twelve month period ended May 31, 1996 and for the years ended May 31, 1995
and 1994 approximately 46%, 50%, 35% and 53% of the Company's sales were to four
customers. The Company had two customers which represented 14% and 16% of sales
during the one month period ended June 30, 1996 and 16% and 19% of sales during
the twelve month period ended May 31, 1996. The Company had one customer which
represented 12% of sales during the year ended May 31, 1995. The Company had
three customers which represented 12%, 20% and 13% of sales during the year
ended May 31, 1994. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral for accounts receivable. The
Company's credit losses have been minimal.
The Company maintains its cash deposits and short-term investments with a
major bank and a financial services company which at certain times exceed the
federally insured limits. Management assesses the financial condition of these
institutions and believes that any possible credit loss is minimal.
17. FINANCIAL INSTRUMENTS:
At June 30, 1996 the Company estimated that the carrying value and fair
value of its financial instruments other than investment securities were
approximately the same. The methods and assumptions used to estimate the fair
value of each class of financial instruments were as follows:
CASH AND CASH EQUIVALENTS -- Fair value was considered to be the same as
the carrying value.
ACCOUNTS RECEIVABLE -- The Company estimated that the net carrying amount
of its accounts receivable was not materially different from the fair value of
such receivables.
ACCOUNTS PAYABLE -- Fair value was considered to be the same as the
carrying value.
DEBT -- In the absence of an active trading market, and considering such
debt has floating interest rates the Company estimated that the carrying amount
of its debt, both current and non-current, was not materially different from the
fair value of such debt.
18. STOCK REDEMPTION:
Effective July 28, 1995 the Company's Board of Directors approved the
redemption of 25,000 shares of Class A common stock and 1,565,670 shares of
Class B common stock from certain stockholders for total consideration of
approximately $95 million. The redemption was paid with cash of approximately
$80 million and with the issuance to a former stockholder of a $15 million
promissory note due November 1, 1995 collateralized by 915,000 shares of Class B
common stock and the personal guarantee of an officer of the Company.
F-20
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS
UNAUDITED)
In connection with the above redemption the Company's Board of Directors
approved the sale of (1) 351,670 shares of Class B treasury stock to certain
officers of the Company and to a trust at the price of $60 per share, and (2)
25,000 shares of Class A treasury stock to an officer of the company at a price
of $60 per share.
STOCKHOLDER ACTION
On September 12, 1995, the stock redemption and other transactions
described above, the management bonus and other transactions previously approved
by the Board of Directors were not ratified by the Company's stockholders. Those
items were not ratified due to the abstention of the trustee representing a
majority of Class B common stock. The abstaining stockholder has the right, for
up to two years from September 12, 1995, to vote in favor of or against the
aforementioned transaction or take other action on behalf of the trust
beneficiaries. The Company cannot predict what action the abstaining stockholder
will take. Accordingly, the Company cannot determine the effect, if any, of this
uncertainty on the combined financial position, results of operations or cash
flows of the Company.
STOCK PURCHASE AGREEMENTS
The Company's Board of Directors has also approved a stock purchase
agreement with certain officers who own 185,000 shares of the Company's
outstanding Class A common stock and 1,081,670 shares of the Company's
outstanding Class B common stock. Under the terms of this agreement in the event
any of these officers ceases full time employment with the Company or in the
event of the stockholder's death, the Company must redeem all of the
stockholder's shares at a redemption price of $60 per share. This agreement
supersedes the previous stock purchase agreements of the Company which are
described in Note 13. During 1996, the Company's board of directors approved the
cancellation of such stock purchase agreement in anticipation of the acquisition
of the Company.
F-21
<PAGE>
ANNEX A
TEXAS PETROCHEMICALS CORPORATION
LETTER OF TRANSMITTAL
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
OF
TEXAS PETROCHEMICALS CORPORATION
PURSUANT TO THE PROSPECTUS
DATED ...................., 1997
THIS OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
...................., 1997, UNLESS EXTENDED BY THE COMPANY IN ITS SOLE
DISCRETION (THE "EXPIRATION DATE"). TENDERS OF NOTES MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FLEET NATIONAL BANK
<TABLE>
<CAPTION>
<S> <C> <C>
BY MAIL: BY FACSIMILE: BY HAND:
Fleet National Bank (860) 986-7908 Fleet National Bank
Corporate Trust Operations Corporate Trust Operations
777 Main Street, Lower Level Confirm by Telephone: 777 Main Street, Lower Level
Hartford, CT 06115 Hartford, CT 06115
Attention: Patricia Williams (860) 986-2910 Attention: Patricia Williams
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
A-1
<PAGE>
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR ORIGINAL SERIES B
NOTES TO THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
This Letter of Transmittal is to be used by holders ("Holders") of
11 1/8% Series B Senior Subordinated Notes due 2006 (the "Original Series B
Notes") of Texas Petrochemicals Corporation (the "Company") if: (i)
certificates representing Original Series B Notes are to be physically delivered
to the Exchange Agent herewith by such Holders; (ii) tender of Original Series B
Notes is to be made by book-entry transfer to the Exchange Agent's account at
The Depository Trust Company ("DTC") pursuant to the procedures set forth
under the caption "The Exchange Offer -- Procedures for Tendering Original
Series B Notes -- BOOK-ENTRY DELIVERY PROCEDURES" in the Prospectus dated
........... ...., 1997 (the "Prospectus"); or (iii) tender of Original Series
B Notes is to be made according to the guaranteed delivery procedures set forth
under the caption "The Exchange Offer -- Procedures for Tendering Original
Series B Notes -- GUARANTEED DELIVERY" in the Prospectus, and, in each case,
instructions are not being transmitted through the DTC Automated Tender Offer
Program ("ATOP"). The undersigned hereby acknowledges receipt of the
Prospectus. All capitalized terms used herein and not defined shall have the
meanings ascribed to them in the Prospectus.
Holders of Original Series B Notes that are tendering by book-entry
transfer to the Exchange Agent's account at DTC can execute the tender through
ATOP, for which the transaction will be eligible. DTC participants that are
accepting the exchange offer as set forth in the Prospectus and this Letter of
Transmittal (together, the "Exchange Offer") must transmit their acceptance to
DTC which will edit and verify the acceptance and execute a book-entry delivery
to the Exchange Agent's account at DTC. DTC will then send an Agent's Message to
the Exchange Agent for its acceptance. Delivery of the Agent's Message by DTC
will satisfy the terms of the Exchange Offer as to execution and delivery of a
Letter of Transmittal by the participant identified in the Agent's Message. DTC
participants may also accept the Exchange Offer by submitting a notice of
guaranteed delivery through ATOP.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
If a Holder desires to tender Original Series B Notes pursuant to the
Exchange Offer and time will not permit this Letter of Transmittal, certificates
representing such Original Series B Notes and all other required documents to
reach the Exchange Agent, or the procedures for book-entry transfer cannot be
completed, on or prior to the Expiration Date, then such Holder must tender such
Original Series B Notes according to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer -- Procedures for Tendering
Original Series B Notes -- GUARANTEED DELIVERY" in the Prospectus. See
Instruction 2.
The undersigned should complete, execute and deliver this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer.
A-2
<PAGE>
TENDER OF ORIGINAL SERIES B NOTES
- -------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED ORIGINAL SERIES B NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED ORIGINAL SERIES B NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:_________________________________________________
Account Number:________________________________________________________________
Transaction Code Number:_______________________________________________________
[_] CHECK HERE IF TENDERED ORIGINAL SERIES B NOTES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):_______________________________________________
Window Ticket Number (if any):_________________________________________________
Date of Execution of Notice of Guaranteed Delivery:____________________________
Name of Eligible Institution that Guaranteed Delivery:_________________________
- -------------------------------------------------------------------------------
A-3
<PAGE>
List below the Original Series B Notes to which this Letter of Transmittal
relates. The name(s) and address(es) of the registered Holder(s) should be
printed, if not already printed below, exactly as they appear on the Original
Series B Notes tendered hereby. The Original Series B Notes and the principal
amount of Original Series B Notes that the undersigned wishes to tender should
be indicated in the appropriate boxes. If the space provided is inadequate, list
the certificate number(s) and principal amount(s) on a separately executed
schedule and affix the schedule to this Letter of Transmittal.
- --------------------------------------------------------------------------------
DESCRIPTION OF ORIGINAL SERIES B NOTES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES)
OF REGISTERED HOLDER(S) AGGREGATE PRINCIPAL
(PLEASE FILL IN IF BLANK) CERTIFICATE PRINCIPAL AMOUNT AMOUNT
SEE INSTRUCTION 3. NUMBER(S)* REPRESENTED** TENDERED**
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL
AMOUNT OF
ORIGINAL SERIES B
NOTES
</TABLE>
- --------------------------------------------------------------------------------
* NEED NOT BE COMPLETED BY HOLDERS TENDERING BY BOOK-ENTRY TRANSFER.
** UNLESS OTHERWISE SPECIFIED, THE ENTIRE AGGREGATE PRINCIPAL AMOUNT REPRESENTED
BY THE ORIGINAL SERIES B NOTES DESCRIBED ABOVE WILL BE DEEMED TO BE TENDERED.
SEE INSTRUCTION 4.
- --------------------------------------------------------------------------------
A-4
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Texas Petrochemicals Corporation ("the
Company"), upon the terms and subject to the conditions set forth in its
Prospectus dated ..........................., 1997 (the "Prospectus"), receipt
of which is hereby acknowledged, and in accordance with this Letter of
Transmittal (which together constitute the "Exchange Offer"), the principal
amount of Original Series B Notes indicated in the foregoing table entitled
"Description of Original Series B Notes" under the column heading "Principal
Amount Tendered." The undersigned represents that it is duly authorized to
tender all of the Original Series B Notes tendered hereby which it holds for the
account of beneficial owners of such Original Series B Notes ("Beneficial
Owner(s)") and to make the representations and statements set forth herein on
behalf of such Beneficial Owner(s).
Subject to, and effective upon, the acceptance for purchase of the
principal amount of Original Series B Notes tendered herewith in accordance with
the terms and subject to the conditions of the Exchange Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Company, all
right, title and interest in and to all of the Original Series B Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent the true and lawful agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent also acts as the agent of the Company)
with respect to such Original Series B Notes, with full powers of substitution
and revocation (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to (i) present such Original Series B Notes and all
evidences of transfer and authenticity to, or transfer ownership of, such
Original Series B Notes on the account books maintained by DTC to, or upon the
order of, the Company, (ii) present such Original Series B Notes for transfer of
ownership on the books of the Company, and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Original Series B
Notes, all in accordance with the terms and conditions of the Exchange Offer as
described in the Prospectus.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iii) except as indicated below, neither the
undersigned nor any Beneficial Owner is an "affiliate," as defined in Rule 405
under the Securities Act of 1933, as amended (together with the rules and
regulations promulgated thereunder, the "Securities Act"), of the Company and
(iv) the undersigned and each Beneficial Owner acknowledge and agree that (x)
any person participating in the Exchange Offer with the intention or for the
purpose of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale of the Exchange Notes acquired by such person with a
registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K of the Securities and Exchange Commission
(the "Commission") and cannot rely on the interpretation of the Staff of the
Commission set forth in the no-action letters that are alluded to in the section
of the Prospectus entitled "The Exchange Offer -- Registration Rights" and (y)
any broker-dealer that pursuant to the Exchange Offer receives Exchange Notes
for its own account in exchange for Original Series B Notes which it acquired
for its own account as a result of market-making activities or other trading
activities must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes. If the undersigned is
a broker-dealer that will receive Exchange Notes for its own account, it
represents and warrants that the Original Series B Notes to be exchanged for the
Exchange Notes were acquired as the result of market-making activities or other
trading activities, and it acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Notes. By so acknowledging and by
delivering a prospectus, a broker-dealer shall not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
A-5
<PAGE>
The undersigned understands that tenders of Original Series B Notes may be
withdrawn by written notice of withdrawal received by the Exchange Agent at any
time prior to the Expiration Date in accordance with the Prospectus. In the
event of a termination of the Exchange Offer, the Original Series B Notes
tendered pursuant to the Exchange Offer will be returned to the tendering
Holders promptly (or, in the case of Original Series B Notes tendered by
book-entry transfer, such Original Series B Notes will be credited to the
account maintained at DTC from which such Original Series B Notes were
delivered). If the Company makes a material change in the terms of the Exchange
Offer or the information concerning the Exchange Offer or waives a material
condition of such Exchange Offer, the Company will disseminate additional
Exchange Offer materials and extend such Exchange Offer, if and to the extent
required by law.
The undersigned understands that the tender of Original Series B Notes
pursuant to any of the procedures set forth in the Prospectus and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Exchange Offer. The Company's acceptance for exchange of
Original Series B Notes tendered pursuant to any of the procedures described in
the Prospectus will constitute a binding agreement between the undersigned and
the Company in accordance with the terms and subject to the conditions of the
Exchange Offer. For purposes of the Exchange Offer, the undersigned understands
that validly tendered Original Series B Notes (or defectively tendered Original
Series B Notes with respect to which the Company has, or has caused to be,
waived such defect) will be deemed to have been accepted by the Company if, as
and when the Company gives oral or written notice thereof to the Exchange Agent.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Original
Series B Notes tendered hereby, and that when such tendered Original Series B
Notes are accepted for purchase by the Company, the Company will acquire good
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim or right. The undersigned and
each Beneficial Owner will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or by the Company to be necessary or
desirable to complete the sale, assignment and transfer of the Original Series B
Notes tendered hereby.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall not be affected by, and shall survive the death or incapacity
of the undersigned and any Beneficial Owner(s), and any obligation of the
undersigned or any Beneficial Owner(s) hereunder shall be binding upon the
heirs, executors, administrators, trustees in bankruptcy, personal and legal
representatives, successors and assigns of the undersigned and such Beneficial
Owner(s).
The undersigned understands that the delivery and surrender of any Original
Series B Notes is not effective, and the risk of loss of the Original Series B
Notes does not pass to the Exchange Agent, until receipt by the Exchange Agent
of this Letter of Transmittal, or a manually signed facsimile hereof, properly
completed and duly executed, together with all accompanying evidences of
authority and any other required documents in form satisfactory to the Company.
All questions as to form of all documents and the validity (including time of
receipt) and acceptance of tenders and withdrawals of Original Series B Notes
will be determined by the Company, in its sole discretion, which determination
shall be full and binding.
Unless otherwise indicated herein under "Special Issuance Instructions,"
the undersigned hereby requests that any Original Series B Notes representing
principal amounts not tendered or not accepted for exchange be issued in the
name(s) of the undersigned (and in the case of Original Series B Notes tendered
by book-entry transfer, by credit to the account of DTC), and Exchange Notes
issued in exchange for Original Series B Notes pursuant to the Exchange Offer be
issued to the undersigned. Similarly, unless otherwise indicated herein under
"Special Delivery Instructions," the undersigned hereby requests that any
Original Series B Notes representing principal amounts not tendered or not
accepted for exchange and Exchange Notes issued in exchange for Original Series
B Notes pursuant to the Exchange Offer be delivered to the undersigned at the
address shown below the undersigned's signature(s). In the event that the
"Special Issuance Instructions" box or the "Special Delivery Instructions"
box is, or both are, completed, the undersigned hereby requests that any
Original Series B Notes representing principal amounts not tendered or not
accepted for purchase be issued in the name(s) of, certificates for such
Original Series B Notes be delivered to, and Exchange Notes issued in exchange
for Original Series B Notes pursuant to the Exchange Offer be issued in the
name(s) of, and be delivered to, the person(s) at the address(es) so indicated,
as applicable. The undersigned recognizes that the Company has no obligation
pursuant to the "Special Issuance Instructions"
A-6
<PAGE>
box or "Special Delivery Instructions" box to transfer any Original Series B
Notes from the name of the registered Holder(s) thereof if the Company does not
accept for exchange any of the principal amount of such Original Series B Notes
so tendered.
[ ]CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD ORIGINAL SERIES B
NOTES IS AN AFFILIATE OF THE COMPANY.
[ ]CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD ORIGINAL SERIES B
NOTES TENDERED HEREBY IS A BROKER-DEALER WHO ACQUIRED SUCH NOTES DIRECTLY
FROM THE COMPANY OR AN AFFILIATE OF THE COMPANY.
[ ]CHECK HERE AND COMPLETE THE LINES BELOW IF YOU OR ANY BENEFICIAL OWNER FOR
WHOM YOU HOLD ORIGINAL SERIES B NOTES TENDERED HEREBY IS A BROKER-DEALER WHO
ACQUIRED SUCH NOTES IN MARKET-MAKING OR OTHER TRADING ACTIVITIES. IF THIS BOX
IS CHECKED, THE COMPANY WILL SEND 10 ADDITIONAL COPIES OF THE PROSPECTUS AND
10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO TO YOU OR SUCH BENEFICIAL
OWNER AT THE ADDRESS SPECIFIED IN THE FOLLOWING LINES.
Name:___________________________________
Address:________________________________
________________________________
________________________________
A-7
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Original Series B Notes in a principal amount not
tendered or not accepted for exchange are to be issued in the name of, or
Exchange Notes are to be issued in the name of, someone other than the person(s)
whose signature(s) appear(s) within this Letter of Transmittal or issued to an
address different from that shown in the box entitled "Description of Original
Series B Notes" within this Letter of Transmittal.
Issue: [ ] Original Series B Notes
[ ] Exchange Notes
(check as applicable)
Name..............................................
(PLEASE PRINT)
Address...........................................
(PLEASE PRINT)
..................................................
(ZIP CODE)
..................................................
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 HEREIN)
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Original Series B Notes in a principal amount not
tendered or not accepted for exchange or Exchange Series B Notes are to be sent
to someone other than the person(s) whose signature(s) appear(s) within this
Letter of Transmittal or to an address different from that shown in the box
entitled "Description of Original Series B Notes" within this Letter of
Transmittal.
Delivery: [ ] Original Series B Notes
[ ] Exchange Notes
(check as applicable)
Name..............................................
(PLEASE PRINT)
Address...........................................
(PLEASE PRINT)
..................................................
(ZIP CODE)
..................................................
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 HEREIN)
- --------------------------------------------------------------------------------
A-8
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(To be completed by all tendering
Holders of Original Series B Notes regardless of whether Original Series B
Notes are being physically delivered herewith)
This Letter of Transmittal must be signed by the registered Holder(s) exactly
as name(s) appear(s) on certificate(s) for Original Series B Notes or, if
tendered by a participant in DTC exactly as such participant's name appears on
a security position listing as owner of Original Series B Notes, or by the
person(s) authorized to become registered Holder(s) by endorsements and
documents transmitted herewith. If signature is by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, please set forth full
title and see Instruction 5.
................................................................................
................................................................................
Signature(s) of Registered Holder(s) or Authorized Signatory
(SEE GUARANTEE REQUIREMENT BELOW)
Dated: ................................................................ 1997
Name(s): .....................................................................
.....................................................................
(Please Print)
Capacity (Full Title):........................................................
Address: .....................................................................
.....................................................................
(Including Zip Code)
Area Code and
Telephone Number:.............................................................
Tax Identification or
Social Security Number:.......................................................
(Complete Accompanying Substitute Form W-9)
SIGNATURE GUARANTEE
(IF REQUIRED-SEE INSTRUCTIONS 1 AND 5)
Authorized Signature:.........................................................
Name of Firm:.................................................................
[PLACE SEAL HERE]
- --------------------------------------------------------------------------------
A-9
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. SIGNATURE GUARANTEES. Signatures of this Letter of Transmittal must be
guaranteed by a recognized member of the Medallion Signature Guarantee Program
or by any other "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 promulgated under the Exchange Act (each of the foregoing, an
"Eligible Institution"), unless the Original Series B Notes tendered hereby
are tendered (i) by a registered Holder of Original Series B Notes (or by a
participant in DTC whose name appears on a security position listing as the
owner of such Original Series B Notes) that has not completed either the box
entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal, or (ii) for the account
of an Eligible Institution. If the Original Series B Notes are registered in the
name of a person other than the signer of this Letter of Transmittal, if
Original Series B Notes not accepted for exchange or not tendered are to be
returned to a person other than the registered Holder or if Exchange Notes are
to be issued in the name of or sent to a person other than the registered
Holder, then the signatures on this Letter of Transmittal accompanying the
tendered Original Series B Notes must be guaranteed by an Eligible Institution
as described above. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND ORIGINAL SERIES B NOTES. This
Letter of Transmittal is to be completed by Holders if (i) certificates
representing Original Series B Notes are to be physically delivered to the
Exchange Agent herewith by such Holders; (ii) tender of Original Series B Notes
is to be made by book-entry transfer to the Exchange Agent's account at DTC
pursuant to the procedures set forth under the caption "The Exchange
Offer -- Procedures for Tendering Original Series B Notes -- BOOK-ENTRY DELIVERY
PROCEDURES" in the Prospectus; or (iii) tender of Original Series B Notes is to
be made according to the guaranteed delivery procedures set forth under the
caption "The Exchange Offer -- Procedures for Tendering Original Series B
Notes -- GUARANTEED DELIVERY" in the Prospectus. All physically delivered
Original Series B Notes, or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of all Original Series B Notes delivered
electronically, as well as a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof), any required signature
guarantees and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at one of its addresses set forth on the cover
page hereto on or prior to the Expiration Date, or the tendering Holder must
comply with the guaranteed delivery procedures set forth below. DELIVERY OF
DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
If a Holder desires to tender Original Series B Notes pursuant to the
Exchange Offer and time will not permit this Letter of Transmittal, certificates
representing such Original Series B Notes and all other required documents to
reach the Exchange Agent, or the procedures for book-entry transfer cannot be
completed, on or prior to the Expiration Date, such Holder must tender such
Original Series B Notes pursuant to the guaranteed delivery procedures set forth
under the caption "The Exchange Offer -- Procedures for Tendering Original
Series B Notes -- GUARANTEED DELIVERY" in the Prospectus. Pursuant to such
procedures, (i) such tender must be made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Company, or an Agent's Message with
respect to guaranteed delivery that is accepted by the Company, must be received
by the Exchange Agent, either by hand delivery, mail, telegram, or facsimile
transmission, on or prior to the Expiration Date; and (iii) the certificates for
all tendered Original Series B Notes, in proper form for transfer (or
confirmation of a book-entry transfer or all Original Series B Notes delivered
electronically into the Exchange Agent's account at DTC pursuant to the
procedures for such transfer set forth in the Prospectus), together with a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) and any other documents required by this Letter of
Transmittal, or in the case of a book-entry transfer, a properly transmitted
Agent's Message, must be received by the Exchange Agent within two business days
after the date of the execution of the Notice of Guaranteed Delivery.
A-10
<PAGE>
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE ORIGINAL SERIES B
NOTES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC AND ANY
ACCEPTANCE OR AGENT'S MESSAGE DELIVERED THROUGH ATOP, IS AT THE ELECTION AND
RISK OF THE TENDERING HOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THIS
INSTRUCTION 2, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE
PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE
MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE EXCHANGE AGENT PRIOR TO SUCH DATE.
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or a facsimile
thereof), waive any right to receive any notice of the acceptance of their
Original Series B Notes for exchange.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the principal amount represented by Original Series B
Notes should be listed on a separate signed schedule attached hereto.
4. PARTIAL TENDERS. (Not applicable to Holders who tender by book-entry
transfer). If Holders wish to tender less than the entire principal amount
evidenced by any Original Series B Note submitted, such Holders must fill in the
principal amount that is to be tendered in the column entitled "Principal
Amount Tendered." The minimum permitted tender is $1,000 in principal amount of
Original Series B Notes. All other tenders must be in integral multiples of
$1,000 in principal amount. In the case of a partial tender of Original Series B
Notes, as soon as practicable after the Expiration Date, new certificates for
the remainder of the Original Series B Notes that were evidenced by such
Holder's old certificates will be sent to such Holder, unless otherwise provided
in the appropriate box on this Letter of Transmittal. The entire principal
amount that is represented by Original Series B Notes delivered to the Exchange
Agent will be deemed to have been tendered, unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, INSTRUMENTS OF TRANSFER AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the registered
Holder(s) of the Original Series B Notes tendered hereby, the signatures must
correspond with the name(s) as written on the face of the certificate(s) without
alteration, enlargement or any change whatsoever. If this Letter of Transmittal
is signed by a participant in DTC whose name is shown as the owner of the
Original Series B Notes tendered hereby, the signature must correspond with the
name shown on the security position listing as the owner of the Original Series
B Notes.
If any of the Original Series B Notes tendered hereby are registered in the
name of two or more Holders, all such Holders must sign this Letter of
Transmittal. If any of the Original Series B Notes tendered hereby are
registered in different names on several certificates, it will be necessary to
complete, sign and submit as many separate Letters of Transmittal as there are
different registrations of certificates.
If this Letter of Transmittal or any Original Series B Note or instrument
of transfer is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and proper evidence satisfactory to the Company of such person's
authority to so act must be submitted.
When this Letter of Transmittal is signed by the registered Holder(s) of
the Original Series B Notes listed herein and transmitted hereby, no
endorsements of Original Series B Notes or separate instruments of transfer are
required unless Exchange Notes are to be issued, or Original Series B Notes not
tendered or exchanged are to be issued, to a person other than the registered
Holder(s), in which case signatures on such Original Series B Notes or
instruments of transfer must be guaranteed by an Eligible Institution.
IF THIS LETTER OF TRANSMITTAL IS SIGNED OTHER THAN BY THE REGISTERED
HOLDER(S) OF THE ORIGINAL SERIES B NOTES LISTED HEREIN, THE ORIGINAL SERIES B
NOTES MUST BE ENDORSED OR ACCOMPANIED BY APPROPRIATE
A-11
<PAGE>
INSTRUMENTS OF TRANSFER, IN EITHER CASE SIGNED EXACTLY AS THE NAME(S) OF THE
REGISTERED HOLDER(S) APPEAR ON THE ORIGINAL SERIES B NOTES AND SIGNATURES ON
SUCH ORIGINAL SERIES B NOTES OR INSTRUMENTS OF TRANSFER ARE REQUIRED AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION, UNLESS THE SIGNATURE IS THAT OF AN
ELIGIBLE INSTITUTION.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If certificates for
Exchange Notes or unexchanged or untendered Original Series B Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes or such Original Series B Notes are to be sent
to someone other than the signer of this Letter of Transmittal or to an address
other than that shown herein, the appropriate boxes on this Letter of
Transmittal should be completed. All Original Series B Notes tendered by
book-entry transfer and not accepted for payment will be returned by crediting
the account at DTC designated herein as the account for which such Original
Series B Notes were delivered.
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company
will pay or cause to be paid any transfer taxes with respect to the transfer and
sale of Original Series B Notes to it, or to its order, pursuant to the Exchange
Offer. If Exchange Notes, or Original Series B Notes not tendered or exchanged
are to be registered in the name of any persons other than the registered
owners, of if tendered Original Series B Notes are registered in the name of any
persons other than the persons signing this Letter of Transmittal, the amount of
any transfer taxes (whether imposed on the registered Holder or such other
person) payable on account of the transfer to such other person must be paid to
the Company or the Exchange Agent (unless satisfactory evidence of the payment
of such taxes or exemption therefrom is submitted) before the Exchange Notes
will be issued.
8. WAIVER OF CONDITIONS. The conditions of the Exchange Offer may be
amended or waived by the Company, in whole or in part, at any time and from time
to time in the Company's sole discretion, in the case of any Original Series B
Notes tendered.
9. SUBSTITUTE FORM W-9. Each tendering owner of a Note (or other payee)
is required to provide the Exchange Agent with a correct taxpayer identification
number ("TIN"), generally the owner's social security or federal employer
identification number, and with certain other information, on Substitute Form
W-9, which is provided hereafter under "Important Tax Information," and to
certify that the owner (or other payee) is not subject to backup withholding.
Failure to provide the information on the Substitute Form W-9 may subject the
tendering owner (or other payee) to a $50 penalty imposed by the Internal
Revenue Service and 31% federal income tax withholding on the payment of
interest on the Notes. The box in Part 3 of the Substitute Form W-9 may be
checked if the tendering owner (or other payee) has not been issued a TIN and
has applied for a TIN or intends to apply for a TIN in the near future. If the
box in Part 3 is checked and the Exchange Agent is not provided with a TIN by
the time of payment, the Exchange Agent will withhold 31% on all such payments
of interest on the Notes until a TIN is provided to the Exchange Agent.
10. BROKER-DEALERS PARTICIPATING IN THE EXCHANGE OFFER. If no
broker-dealer checks the last box on page 7 of this Letter of Transmittal, the
Company has no obligation under the Registration Rights Agreement to allow the
use of the Prospectus for resales of the Exchange Notes by broker-dealers or to
maintain the effectiveness of the Registration Statement of which the Prospectus
is a part after the consummation of the Exchange Offer.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or
requests for assistance or additional copies of the Prospectus, this Letter of
Transmittal or the Notice of Guaranteed Delivery may be directed to the Exchange
Agent at the telephone numbers and location listed above. A Holder or owner may
also contact such Holder's or owner's broker, dealer, commercial bank or trust
company or nominee for assistance concerning the Exchange Offer.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER
WITH CERTIFICATES REPRESENTING THE ORIGINAL SERIES B NOTES AND ALL OTHER
REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
A-12
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, an owner of Original Series B Notes whose
tendered Original Series B Notes are accepted for exchange is required to
provide the Exchange Agent with such owner's current TIN on Substitute Form W-9
below. If such owner is an individual, the TIN is his or her social security
number. If the Exchange Agent is not provided with the correct TIN, the owner or
other recipient of Exchange Notes may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, any interest on Exchange Notes paid to
such owner or other recipient may be subject to 31% backup withholding tax.
Certain owners of Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that owner must submit to the Exchange Agent a properly
completed Internal Revenue Service Form W-8 (a "Form W-8"), signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
Backup withholding is not an additional tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding, the owner is required to notify the Exchange
Agent of the owner's current TIN (or the TIN of any other payee) by completing
the following form, certifying that the TIN provided on Substitute Form W-9 is
correct (or that such owner is awaiting a TIN), and that (i) the owner has not
been notified by the Internal Revenue Service that the owner is subject to
backup withholding as a result of failure to report all interest or dividends or
(ii) the Internal Revenue Service has notified the owner that the owner is no
longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the owner of the Original
Series B Notes. If the Original Series B Notes are registered in more than one
name or are not registered in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9," for additional guidance on which number to report.
A-13
<PAGE>
- --------------------------------------------------------------------------------
PAYER'S NAME: FLEET NATIONAL BANK
- --------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW.
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYOR'S REQUEST FOR TAXPAYER PART 2--Certification--Under the penalties of
IDENTIFICATION NUMBER ("TIN") perjury, I certify that:
(1) The number shown on this form is my correct
taxpayer identification number (or I am
waiting for a number to be issued to me),
and
(2) I am not subject to backup withholding
because: (a) I am exempt from backup
Social security number(s) or withholding, or (b) I have not been notified
Employer Identification Number(s) by the Internal Revenue Service (IRS) that
I am subject to backup withholding as a
_________________________________ result of a failure to report all interest
or dividends, or (c) the IRS has notified
me that I am no longer subject to backup
withholding.
SIGNATURE________________________
CERTIFICATION INSTRUCTIONS--You must cross
out item (2) above if you have been notified
DATE_____________________________ by the IRS that you are currently subject to
backup withholding because of under reporting
interest or dividends on your tax return.
PART 3--
Awaiting TIN [ ]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHOLDING OF 31%.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable cash payments made to me will be withheld until I provide a taxpayer
identification number.
Signature ___________________ Date ___________________________________________
A-14
<PAGE>
NO DEALER, SALESPERSON 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 HOLDINGS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. 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 OR HOLDINGS SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
PAGE
----
Available Information................... 3
Prospectus Summary...................... 5
Risk Factors............................ 15
The Transactions........................ 22
The Exchange Offer...................... 25
Use of Proceeds......................... 34
Capitalization.......................... 35
Pro Forma Financial Information......... 36
Selected Historical Financial Data...... 43
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 45
Business................................ 57
Management.............................. 75
Related Transactions.................... 81
Beneficial Ownership of Holdings' Common
Stock................................. 82
Description of the Bank Credit
Agreement............................. 83
Description of the Notes................ 87
Certain Federal Income Tax
Considerations........................ 114
Legal Matters........................... 116
Experts................................. 116
Index to Financial Statements........... F-1
Annex A-Texas Petrochemicals Corporation
Letter of Transmittal................. A-1
Until ...................., 1997 (90 days after the date of this
Prospectus), all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
Texas Petrochemicals
Corporation
PROSPECTUS
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Article 2.02A of the Texas Business Corporation Act (the "TBCA")
provides, in relevant part, as follows:
Subject to the provisions of Section B and C of this Article, each
corporation shall have the power:
(16) To indemnify directors, officers, employees, and agents of the
corporation, and to purchase and maintain liability insurance for those
persons.
As permitted by Section G of Article 2.02-1 of the TBCA or any successor
statute (the "Indemnification Article"), the Company's Bylaws (a) makes
mandatory the indemnification permitted under Section B of the Indemnification
Article as contemplated by Section G thereof; (b) makes mandatory its payment or
reimbursement of the reasonable expenses incurred by a former or present
director who was, is, or is threatened to be made a named defendant or
respondent in a proceeding upon such director's compliance with the requirements
of Section K of the Indemnification Article; and (c) extends the mandatory
indemnification referred to in Section (a) above and the mandatory payment or
reimbursement of expenses referred to in Section (b) above (i) to all former or
present officers of the Company and (ii) to all persons who are or were serving
at the request of the Company as a director, officer, partner or trustee of
another foreign or domestic corporation, partnership, joint venture, trust or
employee benefit plan, to the same extent that the Company is obligated to
indemnify and pay or reimburse expenses to directors. The Company's Bylaws also
provide that the Company shall pay or reimburse expenses incurred by any
director, officer, employee or agent in connection with such person's appearance
as a witness or other participation in a proceeding at a time when such person
is not a named defendant or respondent in such proceeding.
Pursuant to policies of Directors and Officers Liability and Company
Reimbursement insurance with total limits of $10,000,000, the Directors and
Officers of the Company are insured, subject to the limits, retention,
exceptions and other terms and conditions of such policies, against liability
for any actual or alleged error or misstatement or misleading statement or act
or omission or neglect or breach of duty while acting in their capacities as
Directors or Officers of the Company.
In addition, Section 5(b) of the Registration Rights Agreement filed as
Exhibit 4.2 hereto provides for indemnification of the Company and the
Directors, Officers and Controlling Persons of the Company by holders of the
Notes.
The Company has entered into Indemnity Agreements with its directors and
certain officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
TBCA, as described above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
3.1 -- Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4, File No. 333-11596).
3.2 -- Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-4, File No.
333-11596).
4.1* -- Indenture dated as of March 1, 1997 by and between the Company and
Fleet National Bank, as Trustee, with respect to the 11 1/8% Series
B Senior Subordinated Notes due 2006, including the form of the
Note.
4.2* -- Registration Rights Agreement by and between the Company and Chase
Securities Inc., effective as of March 13, 1997.
II-1
<PAGE>
5* -- Opinion of Bracewell & Patterson, L.L.P. as to the validity of the
Exchange Notes being offered.
8* -- Opinion of Bracewell & Patterson, L.L.P. as to certain federal
income tax matters.
10.1 -- Holdings' 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-4,
File No. 333-11596).
10.2 -- TPC Employee Stock Ownership Plan (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form S-4,
File No. 333-11596).
10.3 -- TPC Employee Stock Ownership Plan Trust Agreement (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-4, File No. 333-11596).
10.4 -- TPC Cash Bonus Plan (incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement on Form S-4, File No.
333-11596).
10.5 -- Security Agreement by and between Boatmen's Trust Company of Texas
and the Company (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-4, File No. 333-11596).
10.6 -- TPC Profit Sharing Plan (incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form S-4, File No.
333-11596).
10.7 -- Lease for Calcasieu Parish, Louisiana (incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form S-4,
File No. 333-11596).
10.8 -- Credit Agreement dated as of July 1, 1996 among the Company, Texas
Commerce Bank, National Association, ABN AMRO North America, Inc.,
and The Bank of Nova Scotia (incorporated by reference to Exhibit
10.8 to the Company's Registration Statement on Form S-4, File No.
333-11596).
10.9 -- Security Agreement dated as of July 1, 1996 by and between the
Company and Texas Commerce Bank, National Association (incorporated
by reference to Exhibit 10.9 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
10.10 -- Pledge Agreement dated as of July 1, 1996 by and between the Company
and Texas Commerce Bank, National Association (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
10.11 -- Letter Agreement dated May 6, 1996, by and among The Sterling Group,
Inc., Holdings, TPC Holding, and the Company (incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
10.12 -- Form of Indemnity Agreement between the Company and each of its
officers and directors (incorporated by reference to Exhibit 10.12
to the Company's Registration Statement on Form S-4, File No.
333-11596).
10.13 -- Form of Tax Sharing Agreement among Holdings, TPC Holding, the
Company and Texas Butylene Chemical Corporation (incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
10.14 -- Employment Agreement with Bill W. Waycaster (incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
12* -- Statement re Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of the Company (incorporated by reference to Exhibit 21
to the Company's Registration Statement on Form S-4, File No.
333-11596).
23.1* -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consents of Bracewell & Patterson, L.L.P. (included in their
opinions filed as Exhibits 5 and 8 hereto).
24* -- Powers of Attorney.
25* -- Statement of Eligibility and Qualification on Form T-1 of Fleet
National Bank as Trustee under the Indenture.
- ------------
* Filed herewith
II-2
<PAGE>
(b) Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer of controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, TEXAS
PETROCHEMICALS CORPORATION HAS DULY CAUSED THIS REGISTRATION STATEMENT OR
AMENDMENT THERETO TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON APRIL 3, 1997.
TEXAS PETROCHEMICALS CORPORATION
By: B. W. WAYCASTER
B. W. WAYCASTER
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON APRIL 3, 1997.
SIGNATURE TITLE
- ----------------------------- -----------------------------------------------
WILLIAM A. McMINN* Chairman
WILLIAM A. MCMINN
B. W. WAYCASTER Director, President and Chief Executive Officer
B. W. WAYCASTER (principal executive officer)
CLAUDE E. MANNING Chief Financial Officer
CLAUDE E. MANNING (principal financial and accounting officer)
GORDON A. CAIN* Director
GORDON A. CAIN
JAMES J. COLLIS* Director
JAMES J. COLLIS
WILLIAM B. HUFF* Director
WILLIAM B. HUFF
SUSAN O. RHENEY* Director
SUSAN O. RHENEY
JOHN T. SHELTON* Director
JOHN T. SHELTON
*By: STEPHEN R. WRIGHT
STEPHEN R. WRIGHT
(ATTORNEY-IN-FACT FOR PERSONS INDICATED)
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
3.1 -- Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4, File No. 333-11596).
3.2 -- Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-4, File No.
333-11596).
4.1* -- Indenture dated as of March 1, 1997 by and between the Company and
Fleet National Bank, as Trustee, with respect to the 11 1/8% Series
B Senior Subordinated Notes due 2006, including the form of the
Note.
4.2* -- Registration Rights Agreement by and between the Company and Chase
Securities Inc., effective as of March 13, 1997.
5* -- Opinion of Bracewell & Patterson, L.L.P. as to the validity of the
Exchange Notes being offered.
8* -- Opinion of Bracewell & Patterson, L.L.P. as to certain federal
income tax matters.
10.1 -- Holdings' 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-4,
File No. 333-11596).
10.2 -- TPC Employee Stock Ownership Plan (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form S-4,
File No. 333-11596).
10.3 -- TPC Employee Stock Ownership Plan Trust Agreement (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-4, File No. 333-11596).
10.4 -- TPC Cash Bonus Plan (incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement on Form S-4, File No.
333-11596).
10.5 -- Security Agreement by and between Boatmen's Trust Company of Texas
and the Company (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-4, File No. 333-11596).
10.6 -- TPC Profit Sharing Plan (incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form S-4, File No.
333-11596).
10.7 -- Lease for Calcasieu Parish, Louisiana (incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form S-4,
File No. 333-11596).
10.8 -- Credit Agreement dated as of July 1, 1996 among the Company, Texas
Commerce Bank, National Association, ABN AMRO North America, Inc.,
and The Bank of Nova Scotia (incorporated by reference to Exhibit
10.8 to the Company's Registration Statement on Form S-4, File No.
333-11596).
10.9 -- Security Agreement dated as of July 1, 1996 by and between the
Company and Texas Commerce Bank, National Association (incorporated
by reference to Exhibit 10.9 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
10.10 -- Pledge Agreement dated as of July 1, 1996 by and between the Company
and Texas Commerce Bank, National Association (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
10.11 -- Letter Agreement dated May 6, 1996, by and among The Sterling Group,
Inc., Holdings, TPC Holding, and the Company (incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
10.12 -- Form of Indemnity Agreement between the Company and each of its
officers and directors (incorporated by reference to Exhibit 10.12
to the Company's Registration Statement on Form S-4, File No.
333-11596).
10.13 -- Form of Tax Sharing Agreement among Holdings, TPC Holding, the
Company and Texas Butylene Chemical Corporation (incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
10.14 -- Employment Agreement with Bill W. Waycaster (incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement
on Form S-4, File No. 333-11596).
<PAGE>
12* -- Statement re Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of the Company (incorporated by reference to Exhibit 21
to the Company's Registration Statement on Form S-4, File No.
333-11596).
23.1* -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consents of Bracewell & Patterson, L.L.P. (included in their
opinions filed as Exhibits 5 and 8 hereto).
24* -- Powers of Attorney.
25* -- Statement of Eligibility and Qualification on Form T-1 of Fleet
National Bank as Trustee under the Indenture.
- ------------
* Filed herewith
EXECUTION COPY
INDENTURE dated as of March 1, 1997, between Texas
Petrochemicals Corporation, a Texas corporation (the
"Company"), and Fleet National Bank, a national banking
association duly organized and existing under the laws
of the United States (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 11-1/8% Series
B Senior Subordinated Notes due 2006 (the "Initial Securities") and, if and when
issued pursuant to a registered exchange for Initial Securities, the Company's
11-1/8% Series B Senior Subordinated Notes due 2006 (the "Exchange Securities"),
and if and when issued pursuant to a private exchange for Initial Securities,
the Company's 11-1/8% Series B Senior Subordinated Notes due 2006 (the "Private
Exchange Securities", together with the Exchange Securities and the Initial
Securities, the "Securities"):
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquisition" means the acquisition, consummated on July 1, 1996, by
TPC Holding of all of the outstanding capital stock of Texas Olefins Company and
all of the outstanding capital stock (other than the capital stock owned by
Texas Olefins Company) of Texas Petrochemicals Corporation.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person
<PAGE>
2
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Disposition" means any sale, lease, trans fer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger or consolidation (each referred to for the purposes of this definition
as a "disposition"), of (i) any shares of Capital Stock of a Restricted
Subsidiary (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary), (ii) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary or (iii) any other assets
of the Company or any Restricted Subsidiary outside of the ordinary course of
business of the Company or such Restricted Subsidiary (other than, in the case
of (i), (ii) and (iii) above, (x) a disposition of the Excluded Assets, (y) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary and (z) for purposes of
Section 4.07 only, a disposition that constitutes a Restricted Payment permitted
by Section 4.05 or a disposition specifically excepted from the definition of
Restricted Payment).
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Securities, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determina tion, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Stock multi
plied by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable by the Company
under or in respect of the Credit Agreement, as amended, refinanced or replaced
from time to
<PAGE>
3
time, including principal, premium (if any), interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post-filing
interest is allowed in such proceeding), fees, charges, expenses, reimbursement
obligations, Guarantees and all other amounts payable thereunder or in respect
thereof.
"Board of Directors" means the Board of Directors of the Company or
(except for the purposes of Section 4.10) any committee thereof duly authorized
to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to
be classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following
events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that for purposes of this clause (i) such person
shall be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 35% of the total voting power of the then outstanding Voting
Stock of the Company; PROVIDED, HOWEVER, that the Permitted Holders
beneficially own (for purposes of this clause (i), the Permitted Holders
shall be deemed to
<PAGE>
4
beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so
long as the Permitted Holders beneficially own (as so defined), directly
or indirectly, in the aggregate a majority of the voting power of the
Voting Stock of the parent corporation), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the then
outstanding Voting Stock of the Company than such other person and do not
have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Board of Directors (for the
purposes of this clause (i), such other person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person is the beneficial owner (as
defined in this clause (i)), directly or indirectly, of more than 35% of
the voting power of the Voting Stock of such parent corporation and the
Permitted Holders beneficially own (as defined above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of
the Voting Stock of such parent corporation and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent corporation);
(ii) during any period of two consecutive years, individuals who at
the beginning of such period consti tuted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66-2/3% of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office; or
(iii) the merger or consolidation of Holdings, TPC Holding or the
Company with or into another Person or the merger of another Person with
or into Holdings, TPC Holding or the Company, or the sale of all or
substantially all the assets of Holdings, TPC Holding or the Company to
another Person (in each case other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation,
the securities of Holdings, TPC Holding or the Company, as applicable,
that are outstanding immediately prior to such transaction and which
<PAGE>
5
represent 100% of the aggregate voting power of the Voting Stock of
Holdings, TPC Holding or the Company, as applicable, are changed into or
exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition
to any other consideration, securities of the surviving corporation or a
parent corporation that owns all of the capital stock of such corporation
that represent immediately after such transaction, at least 35% of the
aggregate voting power of the Voting Stock of the surviving corporation or
such parent corporation, as the case may be.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Texas Petrochemicals Corporation, until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
indenture securities.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; PROVIDED, HOWEVER, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased,
<PAGE>
6
defeased or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period, (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (2) or (3) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period, and (5) in calculating EBITDA and
Consolidated Interest Expense for any period prior to the Original Issue Date
for the purposes of calculating the Consolidated Coverage Ratio, without
duplicating adjustments made pursuant to clauses (1) through (4) above, EBITDA
and Consolidated Interest Expense for such period shall be calculated giving
effect to the pro forma adjustments set forth under the caption "Pro Forma
Financial Information" in the Offering Memorandum and to a one-time employee
compensation expense incurred in connection with the Transactions. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on
<PAGE>
7
the date of determination had been the applicable rate for the entire period
(taking into account any Interest Rate Agreement applicable to such Indebtedness
if such Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred by the Company or its Restricted Subsidiaries, (i) interest
expense attributable to capital leases and one-third of the rental expense
attributable to operating leases, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) non-cash interest expenses, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs associated with
Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock held by Persons other than the
Company or a Wholly Owned Subsidiary, (viii) interest incurred in connection
with Investments in discontinued operations, (ix) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary and (x) the cash contributions to
any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness Incurred by such
plan or trust.
"Consolidated Net Income" means, for any period, the net income of
the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) the Company's equity in a net loss of any such
Person for such period shall be included in determining such Consolidated Net
Income; (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition; (iii) any net income of any Restricted Subsidiary to
the extent that such Restricted
<PAGE>
8
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary, directly
or indirectly, to the Company, except that (A) subject to the exclusion
contained in clause (iv) below, the Company's equity in the net income of any
such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution paid to another Restricted Subsidiary, to
the limitation contained in this clause) and (B) the Company's equity in a net
loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; not loss) realized upon the sale or
other disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a
change in accounting principles.
Notwithstanding the foregoing, for the purpose of Section 4.05 only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
Section pursuant to clause (a)(iii)(E) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Credit Agreement" means the Credit Agreement, dated as of the date
of the Original Indenture, among the Company, Texas Commerce Bank National
Association, as agent, and the lenders party thereto, as such agreement, in
whole
<PAGE>
9
or in part, may be amended, renewed, extended, increased (but only so long as
such increase is permitted under the terms of this Indenture), substituted,
refinanced, restructured, replaced (including, without limitation, any
successive renewals, extensions, increases, substitutions, refinancings,
restructurings, replacements, supplements or other modifications of the
foregoing). Subsequent to the Original Issue Date, there may be multiple Credit
Agreements and the term "Credit Agreement" shall mean all such Credit
Agreements.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement to which
such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and
(ii) any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $15 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Securities; PROVIDED, HOWEVER, that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the first anniversary of the Stated Maturity of the
Securities shall not constitute Disqualified Stock if the
<PAGE>
10
"asset sale" or "change of control" provisions applicable to such Capital Stock
are not more favorable to the holders of such Capital Stock than the provisions
described in Section 4.07 and Section 4.10.
"EBITDA" for any period means the sum of Consolidated Net Income,
plus Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense, and (d) all other
non-cash items reducing such Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of, or reserve for, cash
disbursement for any subsequent period) less all non-cash items increasing such
Consolidated Net Income (such amount calculated pursuant to this clause (d) not
to be less than zero), in each case for such period. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Subsidiary or
its stockholders.
"Employee Offering" means any registration of shares of Common Stock
by Holdings for sale to certain employees of Holdings and its Subsidiaries
following the Acquisition.
"ESOP" means the Company's Employee Stock Ownership Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" means (i) .4547 acres at 145343 Memorial Drive,
Houston, Texas; (ii) 30.007 acres located at Highway 6 and Briarforest, Houston,
Harris County, Texas; (iii) 8.8962 acres located on Richmond and West Hollow
Drive, Houston, Harris County, Texas; (iv) 2.9613 acres located at 8705-8707
Katy Freeway, Houston, Harris County, Texas; (v) a 4.14560 acre tract of land
located at Highway 288 and South MacGregor Drive, Houston, Harris County, Texas;
(vi) lots 11, 12, 13, 14, 15, 16, 17, 18, 19 and 20,
<PAGE>
11
Block 133 located at 206 North Kaufman, Ennis, Texas; and (vii) one airplane.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Original Issue Date, including those
set forth (i) in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (ii) in
statements and pronouncements of the Financial Accounting Standards Board, (iii)
in such other statements by such other entity as approved by a significant
segment of the accounting profession, and (iv) in the rules and regulations of
the SEC governing the inclusion of financial statements (including pro forma
financial statements) in periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting staff of
the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any Person and
any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such Person (whether arising by virtue of agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
The term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Holdings" means Texas Petrochemical Holdings, Inc., a Delaware
corporation.
"Houston Facility" means the Company's plant located at 8600 Park
Place Boulevard, Houston, Texas 77017,
<PAGE>
12
together with all land owned or leased by the Company adjacent or in proximity
thereto, all improvements or additions to such plant or land, including docks,
pipelines and facilities for traincar and truck service, all equipment,
catalysts and other items used in the production, processing, purification,
finishing, extraction, hydrogenation, dehydrogenation, dimerization,
oxo-dehydrogenation, back-cracking, skeletal isomerization or fractionation of
chemical products, feedstocks or intermediaries.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for Indebtedness; PROVIDED, HOWEVER, that any Indebtedness of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication),
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions entered into
by such Person;
(iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(iv) all obligations of such Person for the reim bursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is
<PAGE>
13
reimbursed no later than the tenth Business Day follow ing receipt by such
Person of a demand for reimburse ment following payment on the letter of
credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Indenture" means this Indenture as amended or
supplemented from time to time.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement designed
solely to protect the Company or any Restricted Subsidiary against fluctuations
in interest rates.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts receivable on the balance sheet of the Person making
the advance or loan) or other extensions of credit (including by way of
Guarantee or similar arrangement) or capital contribution to (by means of any
transfer of cash or
<PAGE>
14
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, Indebtedness
or other similar instruments issued by such Person. "Investment" shall not
include payments by the Company to the ESOP (i) for the purpose of servicing
Indebtedness of the ESOP, (ii) for the purpose of paying administrative expenses
of the ESOP, and (iii) on behalf of employees of the Company or its Subsidiaries
that do not exceed, during any fiscal year, 10% of the aggregate compensation
expense during such fiscal year attributable to employees of the Company and its
Subsidiaries who are eligible to participate in the ESOP. For purposes of the
definition of "Unrestricted Subsidiary", the definition of "Restricted Payment"
and Section 4.05, (i) "Investment" shall include the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that if such
designation is made in connection with the acquisition of such Subsidiary or the
assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be
deemed to be the consideration paid in connection with such acquisition;
PROVIDED FURTHER, HOWEVER, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Investment Grade Rating" means a rating of BBB- or higher by S&P
and Baa3 or higher by Moody's or the equivalent of such rating by S&P and
Moody's or by any other Rating Agency selected as provided in the definition of
Rating Agency.
"Issue Date" means the date on which the Initial Securities are
originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
<PAGE>
15
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax
expenses, brokerage commissions, underwriting discounts or commissions or sales
commissions and other reasonable fees and expenses (including, without
limitation, fees and expenses of counsel, accountants and investment bankers)
related to such Asset Disposition or converting to cash any other proceeds
received, and any relocation and severance expenses as a result thereof, and all
Federal, state, provincial, foreign and local taxes required to be accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition or made in order to obtain a necessary consent to such Asset
Disposition or to comply with applicable law, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition and (iv) appropriate
amounts provided by the seller as a reserve, in accordance with GAAP, against
any liabilities associated with the property or other assets disposed in such
Asset Disposition and retained by the Company or any Restricted Subsidiary after
such Asset Disposition, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Disposition. Further, with respect to an Asset Disposition by a
Subsidiary which is not a Wholly Owned Subsidiary, Net Available Cash shall be
reduced pro rata for the portion of the equity of such Subsidiary which is not
owned by the Company.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
<PAGE>
16
"Offering Memorandum" means the Offering Memorandum dated March 6,
1997 relating to the sale of the Securities.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Chief Financial Officer, the Treasurer or the Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
the Company or the Trustee.
"Original Indenture" means the Indenture, dated as of July 1, 1996,
as amended, between the Company and Fleet National Bank, as trustee, as in
effect on the date of this Indenture.
"Original Issue Date" means the closing date for the sale and
original issuance of the Original Securities, which was July 1, 1996.
"Original Securities" means the securities issued from time to time
under the Original Indenture.
"Permitted Holders" means (i) each Person who owns Capital Stock of
Holdings on the date of original issuance of (a) the Original Securities or (b)
the Common Stock in connection with the Employee Offering, (ii) any Person who
on the date of original issuance of the Original Securities is or was before
such date an officer, director, stockholder, employee or consultant of Sterling,
(iii) the ESOP, (iv) any savings or investment plan sponsored by the Company or
Holdings, (v) with respect to any Person covered by the preceding clauses (i)
through (iv) (A) in the case of an entity, any Affiliate of such Person, and (B)
in the case of an individual, any spouse, parent, sibling, child or grandchild
(in each case, whether such relationship arises from birth, adoption or through
marriage), or (vi) any trust, limited liability company, corporation, limited or
general partnership or other entity, a majority of interest of the
beneficiaries, stockholders, partners or owners (direct or beneficial) of which
are Persons of the type referred to in the preceding clauses (i) through (v).
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon
the making of such
<PAGE>
17
Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary
business of such Restricted Subsidiary is a Related Business; (ii) another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that such
Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; and (viii) any Person to the extent
such Investment represents the non-cash portion of the consideration received
for an Asset Disposition as permitted pursuant to Section 4.07.
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus
the premium, if any, payable on the Security which is due or overdue or is to
become due at the relevant time.
"Public Equity Offering" means an underwritten primary public
offering of common stock of Holdings, TPC
<PAGE>
18
Holding or the Company pursuant to an effective registration statement under the
Securities Act.
"Public Market" means any time after (x) a Public Equity Offering
has been consummated and (y) at least 15% of the total issued and outstanding
common stock of Holdings, TPC Holding or the Company, as applicable, has been
distributed by means of an effective registration statement under the Securities
Act or sales pursuant to Rule 144 under the Securities Act.
"Rating Agency" means S&P and Moody's, or if S&P or Moody's or both
shall not make a rating on the Securities publicly available, a nationally
recognized statistical rating agency or agencies, as the case may be, selected
by the Company (as certified by a resolution of the Board of Directors) which
shall be substituted for S&P or Moody's or both, as the case may be.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the
Original Issue Date or Incurred in compliance with this Indenture including
Indebtedness that Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that
(i) such Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER,
HOWEVER, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
<PAGE>
19
"Related Business" means any business related, ancillary or
complementary to the businesses of the Company on the Original Issue Date.
"Representative" means any trustee, agent or representative (if any)
for an issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person), other than dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and dividends or distributions payable solely to the Company or a
Restricted Subsidiary, and other than pro rata dividends or other distributions
made by a Subsidiary that is not a Wholly Owned Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation), (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock of the Company
held by any Person or of any Capital Stock of a Restricted Subsidiary held by
any Affiliate of the Company (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Company that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition), or (iv) the making
of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is
not an Unrestricted Subsidiary.
"Revolving Credit Provisions" means the provisions in the Credit
Agreement pursuant to which the lenders have committed to make available to the
Company a revolving credit facility in a maximum principal amount of $40
million.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such
<PAGE>
20
property to a Person and the Company or a Restricted Subsidiary leases it from
such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" means the Securities issued under this Indenture.
"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the Original Issue Date or thereafter Incurred and (ii) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
the Company is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Securities;
PROVIDED, HOWEVER, that Senior Indebtedness shall not include (1) any obligation
of the Company to any Subsidiary, (2) any liability for Federal, state, local or
other taxes owed or owing by the Company, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness of the Company (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior in any respect to any other Indebtedness
or other obligation of the Company or (5) that portion of any Indebtedness which
at the time of Incurrence is Incurred in violation of this Indenture.
"Senior Subordinated Indebtedness" means the Securities, the
Original Securities and any other Indebtedness of the Company that specifically
provides that such Indebtedness is to rank PARI PASSU with the Securities in
right of payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC.
<PAGE>
21
"S&P means Standard & Poor's Ratings Group.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Sterling" means The Sterling Group, Inc.
"Stock Purchase Agreement" means the stock purchase agreement dated
as of May 14, 1996, by and among TPC Holding, Holdings, certain shareholders of
TOC, and certain shareholders of the Company.
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Original Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, limited liability company, limited or general partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) 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 (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
"Tax Sharing Agreement" means any tax sharing agreement between the
Company, TPC Holding and Holdings or any other person with which the Company is
required to, or is permitted to, file a consolidated tax return or with which
the Company is or could be part of a consolidated group for tax purposes.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under
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22
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000 (or
the foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P, and (v)
investments in securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or "A" by Moody's.
"Term Loan Provisions" means the provisions in the Credit Agreement
pursuant to which the lenders have committed to make available to the Company
$140 million of credit facilities in the form of amortizing term loans.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of this Indenture.
"TOC" means Texas Olefins Corporation, a Texas corporation.
"TPC Holding" means TPC Holding Corp., a Delaware corporation.
"Transactions" means the sale of the Original Securities, the
Acquisition, the borrowings under the Credit Agreement, the sale of
approximately $50 million of common stock of Holdings, the sale by Holdings of
its 13-1/2% Senior Discount Notes Due 2007 and common stock of Holdings to raise
approximately $30 million, the establishment of the ESOP, the payment of certain
fees and expenses, and other
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23
related transactions, all of which were consummated on or prior to July 1, 1996.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, such designation would
be permitted under Section 4.05. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that
immediately after giving effect to such designation (x) if such Unrestricted
Subsidiary at such time has Indebtedness, the Company could Incur $1.00 of
additional Indebtedness under Section 4.03(a) and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be by the Company to the Trustee by promptly filing with the Trustee a copy of
the board resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
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24
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, PROVIDED that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" of a Person means all classes of Capital Stock or
other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares and shares held
by other Persons to the extent such shares are required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary) is owned by
the Company or one or more Wholly Owned Subsidiaries.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
---- -------
"Affiliate Transaction" ................ 4.08
"Bankruptcy Law" ....................... 6.01
"Blockage Notice" ...................... 10.03
"covenant defeasance option" ........... 8.01(b)
"Custodian" ............................ 6.01
"Event of Default" ..................... 6.01
"legal defeasance option" .............. 8.01(b)
"Legal Holiday" ........................ 11.08
"Offer" ................................ 4.07
"Offer Amount" ......................... 4.07
"Offer Period" ......................... 4.07
"pay the Securities" ................... 10.03
"Paying Agent" ......................... 2.03
"Payment Blockage Period" .............. 10.03
"Purchase Date" ........................ 4.07
"Registrar"............................. 2.03
"Successor Company" .................... 5.01
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25
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limita tion;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date prepared
in accordance with GAAP;
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26
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater; and
(9) all references to the date the Securities were originally issued
shall refer to the date the Initial Securities were originally issued.
ARTICLE II
THE SECURITIES
SECTION 2.01. FORM AND DATING. Provisions relating to the Initial
Securities, the Private Exchange Securities and the Exchange Securities are set
forth in Appendix A, which is hereby incorporated in and expressly made part of
this Indenture. The Initial Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to Appendix A
which is hereby incorporated in and expressly made a part of this Indenture. The
Exchange Securities, the Private Exchange Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in Exhibit 1 to Appendix A and Exhibit A
are part of the terms of this Indenture.
SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Secu rities and
may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenti cates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be con-
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27
clusive evidence that the Security has been authenticated under this Indenture.
The Trustee shall authenticate and deliver Securi ties for original
issue in an aggregate principal amount of $50,000,000 upon a written order of
the Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company. Such order shall specify the
amount of the Securities to be authenticated and the date on which the original
issue of Securities is to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed that amount except as provided
in Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. Unless limited by the
terms of such appoint ment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authen tication by such agent. An
authenticating agent has the same rights as any Registrar, Paying Agent or agent
for service of notices and demands.
SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Secur ities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any addi tional paying agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the provi
sions of this Indenture that relate to such agent. The Company shall notify the
Trustee of the name and address of any such agent. If the Company fails to
maintain a Regis trar or Paying Agent, the Trustee shall act as such and shall
be entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
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28
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. If the Company
or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as
Paying Agent and hold it as a separate trust fund. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and to account
for any funds disbursed by the Paying Agent. Upon complying with this Section,
the Paying Agent shall have no further liability for the money delivered to the
Trustee.
SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in as
current a form as is reasonably prac ticable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE. The Secur ities shall be issued
in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of Section 8-401(1)
of the Uniform Commercial Code are met. When Securities are presented to the
Registrar or a co-registrar with a request to exchange them for an equal
principal amount of Securities of other denominations, the Registrar shall make
the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's or co-registrar's
request. The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with any transfer or
exchange pursuant to this Section. The Company shall not be required to make and
the Registrar need not register transfers or exchanges of Securities selected
for redemption (except, in the case of Securities to be
<PAGE>
29
redeemed in part, the portion thereof not to be redeemed) or any Securities for
a period of 15 days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee may charge the
Holder for their expenses in replacing a Security.
Every replacement Security is an obligation of the Company.
SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Sec tion 2.07, it ceases to be
outstanding unless the Trustee
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30
and the Company receive proof satisfactory to them that the replaced Security is
held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may be,
and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. TEMPORARY SECURITIES. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Secur ities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.10. CANCELATION. The Company at any time may deliver
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record reten tion requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancelation and deliver a certificate of such destruction to the Company unless
the Company directs the Trustee to deliver canceled Securities to the Company.
The Company may not issue new Securities to replace Securities it has redeemed,
paid or delivered to the Trustee for cancelation.
SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
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31
SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
PROVIDED, HOWEVER, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE III
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in
this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the condi tions herein.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee
considers fair and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. The Trustee shall
make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Secur ities that have denominations larger than $1,000. Secur ities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
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32
SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to
be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is pro hibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or
portion thereof) called for redemption ceases to accrue on and after the
redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surren der to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date.
Failure to give notice or
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33
any defect in the notice to any Holder shall not affect the validity of the
notice to any other Holder.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued inter est on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to the
Trustee for cancelation.
SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Secur ity
surrendered.
ARTICLE IV
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue princi pal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC REPORTS. Notwithstanding that the Company may not
be required to remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company shall file with the SEC and provide
within 15 days to the Trustee and Securityholders with such annual reports and
such information, documents and other reports as are specified in Sections 13
and 15(d) of the Exchange Act and applicable to a U.S. corporation
<PAGE>
34
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections; PROVIDED, HOWEVER, that if Holdings
shall have become a Guarantor with respect to all obligations relating to the
Securities, the reports, information and other documents required to be filed
and provided as described hereunder may, at the Company's option, be filed by
and be those of Holdings rather than the Company; PROVIDED FURTHER, HOWEVER,
that in the event Holdings conducts, directly or indirectly, any business or
holds, directly or indirectly, any significant assets other than the capital
stock of TPC Holding or the Company at the time of filing and providing any such
report, information or other document containing financial statements of
Holdings, Holdings shall include in such report, information or other document
summarized financial information (as defined in Rule 1-02(bb) of Regulation S-X
promulgated by the SEC) with respect to the Company. The Company also shall
comply with the other provisions of TIA ss. 314(a).
SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company shall not
Incur, directly or indirectly, any Indebtedness unless, on the date of such
Incurrence, the Consolidated Coverage Ratio exceeds 2.0 to 1.0, if such
Indebtedness is Incurred from the Original Issue Date through June 30, 1999 and
2.25 to 1.0 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding Section 4.03(a), the Company may Incur any or
all of the following Indebtedness:
(i) Indebtedness Incurred pursuant to the Term Loan Provisions of
the Credit Agreement or any indenture or term loan provision of any other
credit or loan agreement in an aggregate principal amount which, when
taken together with the principal amount of all other Indebtedness
Incurred pursuant to this clause (i) and then outstanding, does not exceed
(A) $140 million LESS (B) the aggregate amount of all principal repayments
of any such Indebtedness made after the Original Issue Date (other than
any such principal repayments made as a result of the Refinancing of any
such Indebtedness);
(ii) Indebtedness Incurred pursuant to the Revolving Credit
Provisions of the Credit Agreement or any other revolving credit facility
in a principal amount which, when taken together with all letters of
credit and the principal amount of all other Indebtedness Incurred
pursuant to this clause (ii) and
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35
then outstanding, does not exceed the greater of $40 million and the sum
of (A) 65% of the book value of the inventory of the Company and its
Restricted Subsidiaries and (B) 85% of the book value of the accounts
receivables of the Company and its Restricted Subsidiaries;
(iii) Indebtedness owed to and held by a Wholly Owned Subsidiary;
PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital
Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness
(other than to another Wholly Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the Company;
(iv) the Original Securities, Securities or any Indebtedness, the
proceeds of which are used to Refinance the Original Securities or the
Securities in full;
(v) Indebtedness outstanding on the Original Issue Date (other than
Indebtedness described in clause (i), (ii), (iii) or (iv) of this Section
4.03(b)) and Indebtedness Incurred under Section 4.03(a) of the Original
Indenture prior to the Issue Date (other than Indebtedness described in
clause (iv) of this Section 4.03(b));
(vi) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to Section 4.03(a) or pursuant to clause (iv) or (v) or this
clause (vi) or pursuant to Section 4.04;
(vii) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Company
pursuant to this Indenture;
(viii) Indebtedness of the Company consisting of obligations in
respect of purchase price adjustments in connection with the acquisition
or disposition of assets by the Company or any Restricted Subsidiary
permitted under this Indenture;
(ix) Capital Lease Obligations in an aggregate principal amount not
exceeding $5 million at any one time outstanding; and
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36
(x) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (i) through (ix)
above or Section 4.03(a)) does not exceed $10 million at any one time
outstanding.
For purposes of this clause (b), Indebtedness Incurred pursuant to
Section 4.03(b)(i) and (b)(ii) of the Original Indenture prior to the Issue Date
shall be deemed to have been Incurred pursuant to clause (i) and (ii) of this
Section 4.03(b), respectively.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Indebtedness shall constitute Refinancing Indebtedness and shall be subordinated
to the Securities to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with Section 4.03, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
(e) Notwithstanding Sections 4.03(a) and (b), the Company shall not
Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness
that is not Senior Indebtedness unless contemporaneously therewith effective
provision is made to secure the Securities equally and ratably with such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
SECTION 4.04. LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK OF
RESTRICTED SUBSIDIARIES. The Company shall not permit any Restricted Subsidiary
to Incur,
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37
directly or indirectly, any Indebtedness or Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by the
Company or a Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any
subsequent issuance or transfer of any Capital Stock which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or
any subsequent transfer of such Indebtedness or Preferred Stock (other
than to the Company or a Wholly Owned Subsidiary) shall be deemed, in each
case, to constitute the issuance of such Indebtedness or Preferred Stock
by the issuer thereof;
(b) Indebtedness or Preferred Stock of a Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary was acquired
by the Company (other than Indebtedness or Preferred Stock Incurred in
connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Company); PROVIDED, HOWEVER, that on the date of such
acquisition and after giving effect thereto, the Company would have been
able to Incur at least $1.00 of additional Indebtedness pursuant to
Section 4.03(a);
(c) Indebtedness or Preferred Stock outstanding on the Original
Issue Date (other than Indebtedness described in Section 4.04(a) or
Section 4.04(b));
(d) Indebtedness of any Restricted Subsidiary consisting of
obligations in respect of purchase price adjustments in connection with
the acquisition or disposition of assets by the Company or any Restricted
Subsidiary permitted under this Indenture;
(e) Preferred Stock which is not Disqualified Stock; PROVIDED,
HOWEVER, that such Restricted Subsidiary shall not pay cash dividends on
such Preferred Stock; and
(f) Refinancing Indebtedness Incurred in respect of Indebtedness or
Preferred Stock referred to in Section 4.04(b) or Section 4.04(c) or this
Section 4.04(f); PROVIDED, HOWEVER, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness or Preferred
Stock of a Subsidiary described in Section 4.04(b), such
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38
Refinancing Indebtedness shall be Incurred only by such Subsidiary.
SECTION 4.05. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes, and after giving effect to, the proposed Restricted
Payment:
(i) a Default shall have occurred and be continuing (or would result
therefrom);
(ii) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); or
(iii) the aggregate amount of such Restricted Pay ment and all other
Restricted Payments since the Original Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the
period (treated as one account ing period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during which
the Original Securities were originally issued to the end of the
most recent fiscal quarter ending at least 45 days prior to the date
of such Restricted Payment (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit) PROVIDED, HOWEVER,
that if the Securities achieve an Investment Grade Rating during any
fiscal quarter, the percentage for such fiscal quarter (and for any
other fiscal quarter where, on the first day of such fiscal quarter,
the Securities shall have an Investment Grade Rating) will be 100%
of Consolidated Net Income during such fiscal quarter; PROVIDED
FURTHER, HOWEVER, that if such Restricted Payment is to be made in
reliance upon an additional amount permitted pursuant to the
immediately preceding proviso, the Securities must have an
Investment Grade Rating at the time such Restricted Payment is
declared or, if not declared, made;
(B) the aggregate Net Cash Proceeds received by the Company
from the issuance or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Original Issue Date (other
than an issuance or sale to a Subsidiary of the Company and other
than an issuance or sale to an employee
<PAGE>
39
stock ownership plan or to a trust established by Holdings or any of
its Subsidiaries for the benefit of their employees);
(C) the aggregate Net Cash Proceeds received by the Company
subsequent to the Original Issue Date from the issue or sale of its
Capital Stock (other than Disqualified Stock) to an employee stock
ownership plan or a trust established by Holdings or any of its
Subsidiaries for the benefit of their employees; PROVIDED, HOWEVER,
that with respect to any such Net Cash Proceeds received from such
an employee stock ownership plan or trust through the Incurrence of
Indebtedness in connection with such issue or sale of Capital Stock,
which Indebtedness also constitutes Indebtedness of the Company,
such aggregate Net Cash Proceeds shall be limited to an amount equal
to any increase in the Consolidated Net Worth of the Company
resulting from principal repayments made by such employee stock
ownership plan with respect to such Indebtedness;
(D) the amount by which Indebtedness of the Company is reduced
on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the
Original Issue Date, of any Indebtedness of the Company for Capital
Stock (other than Disqualified Stock) of the Company (less the
amount of any cash, or the fair value of any other property,
distributed by the Company upon such conversion or exchange),
whether pursuant to the terms of such Indebtedness or pursuant to an
agreement with a creditor to engage in an equity for debt exchange;
(E) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in
each case to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries, and (ii) the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market
value of the net assets of an Unrestricted Subsidiary at the time
such Unrestricted Subsidiary is designated a Restricted Subsidiary;
PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the
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40
Company or any Restricted Subsidiary in such Unrestricted
Subsidiary; and
(F) to the extent not covered in clauses (A) through (E) of
this Section 4.05(a)(iii), the aggregate net cash proceeds received
after the Original Issue Date by the Company as capital
contributions (other than from any of its Restricted Subsidiaries)
plus $5 million.
(b) The provisions of Section 4.05(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of
the substan tially concurrent sale of, Capital Stock of the Company (other
than (A) Disqualified Stock, (B) Capital Stock issued or sold to a
Subsidiary of the Company or (C) Capital Stock issued or sold to an
employee stock ownership plan or to a trust established by Holdings or any
of its Subsidiaries for the benefit of their employees to the extent that
such employee stock ownership plan or trust has Incurred Indebtedness to
finance the purchase of such Capital Stock, which Indebtedness also
constitutes Indebtedness of the Company); PROVIDED, HOWEVER, that (A) such
purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments and (B) the Net Cash Proceeds from such sale, and
any Net Cash Proceeds (as defined in the Original Indenture) excluded from
the calculation of amounts under Section 4.05(a)(iii)(B) of the Original
Indenture pursuant to clause (B) of the proviso to Section 4.05(b)(i) of
the Original Indenture prior to the Issue Date, shall be excluded from the
calculation of amounts under Section 4.05(a)(iii)(B);
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to Section 4.03; PROVIDED, HOWEVER, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant;
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41
PROVIDED, HOWEVER, that such dividend shall be included in the calculation
of the amount of Restricted Payments;
(iv) a payment by the Company to TPC Holding, Holdings or the ESOP,
or directly by the Company, to be used to repurchase, redeem, acquire or
retire for value any Capital Stock of Holdings pursuant to any
stockholders' agreement, management equity subscription plan or agreement,
stock option plan or agreement, or other employee plan or agreement or
employee benefit plan in effect as of the Original Issue Date or such
similar employee plan or agreement or employee benefit plan as may be
adopted by the Company from time to time; PROVIDED, HOWEVER, that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Capital Stock shall not exceed $2,000,000 in any fiscal year;
PROVIDED FURTHER, HOWEVER, that such amount shall be excluded in the
calculation of Restricted Payments;
(v) a payment by the Company to Holdings, TPC Holding or the ESOP to
be used to repurchase Capital Stock of Holdings pursuant to the
requirements of the ESOP in an aggregate amount in any fiscal year not to
exceed the minimum amount required to be paid in cash under the ESOP as in
effect on the Original Issue Date; PROVIDED, HOWEVER, that such amount
shall be excluded in the calculation of Restricted Payments;
(vi) a payment by the Company to TPC Holding or Holdings pursuant to
the Tax Sharing Agreement; PROVIDED, HOWEVER, that the amount of any such
payment shall not exceed the sum of (A) the amount of taxes which the
Company would have been liable for on a stand-alone basis plus (B) the
amount of any state net worth tax applicable to Holdings and TPC Holding;
PROVIDED FURTHER, HOWEVER, such amount shall be excluded in the
calculation of Restricted Payments; and
(vii) a payment by the Company to TPC Holding or Holdings to pay
their operating and administrative expenses, including, without
limitation, directors' fees, legal and audit expenses, SEC compliance
expenses and corporate franchise and other taxes, in an amount not to
exceed the greater of $1,000,000 per fiscal year and 0.125% of the
consolidated net sales of the Company for the preceding fiscal year;
PROVIDED, HOWEVER, that such amount shall be excluded in the calculation
of Restricted Payments.
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42
SECTION 4.06. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (a) to pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (b) to make any loans or advances to the
Company or (c) to transfer any of its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Original Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in Section 4.06(i) or Section 4.06(ii) or this Section
4.06(iii) or contained in any amendment to an agreement referred to in
Section 4.06(i) or Section 4.06(ii) or this Section 4.06(iii); PROVIDED,
HOWEVER, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable to the Securityholders than encumbrances
and restrictions with respect to such Restricted Subsidiary contained in
such agreements;
(iv) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases to the extent such provisions restrict
the transfer of the lease or the property leased thereunder or in purchase
money financings;
(v) in the case of Section 4.06(c), restrictions contained in
security agreements or mortgages securing
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43
Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security agreements
or mortgages;
(vi) encumbrances or restrictions imposed by operation of applicable
law; and
(vii) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition
of all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition.
SECTION 4.07. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including the value of all
non-cash con sideration), as determined in good faith by the Board of Directors,
of the shares and assets subject to such Asset Disposition, and at least 85% of
the consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash or cash equivalents and (ii) an amount equal to 100% of
the Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) FIRST, to the extent the
Company elects (or is required by the terms of any Senior Indebtedness), to
prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness (other
than any Disqualified Stock) of a Wholly Owned Subsidiary (in each case other
than Indebtedness owed to the Company or an Affiliate of the Company) within one
year from the later of the date of such Asset Disposition or the receipt of such
Net Available Cash; (B) SECOND, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), to the extent
the Company elects, to acquire Additional Assets; PROVIDED, HOWEVER, that the
Company shall be required to commit such Net Available Cash to the acquisition
of Additional Assets within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash (the "Receipt Date") and
shall be required to consummate the acquisition of such Additional Assets within
18 months from the Receipt Date; (C) THIRD, to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A) and (B), to
make an offer pursuant to Section 4.07(b) to the holders of the Securities (and
to holders of other Senior Subordinated Indebtedness designated by the Company)
to purchase
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44
Securities (and such other Senior Subordinated Indebtedness) pursuant to and
subject to the conditions contained in this Indenture; and (D) FOURTH, to the
extent of the balance of such Net Available Cash after application in accordance
with clauses (A), (B) and (C) to (x) the acquisition by the Company or any
Wholly Owned Subsidiary or such Restricted Subsidiary of Additional Assets or
(y) the prepayment, repayment or purchase of Indebtedness (other than any
Disqualified Stock) of the Company (other than Indebtedness owed to an Affiliate
of the Company) or Indebtedness of any Subsidiary (other than Indebtedness owed
to the Company or an Affiliate of the Company), in each case within one year
from the later of the receipt of such Net Available Cash and the date the offer
described in Section 4.07(b) is consummated; PROVIDED, HOWEVER, that in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (A), (C) or (D) above, the Company or such Restricted Subsidiary shall
retire such Indebtedness and shall cause the related loan commitment (if any) to
be permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions of this paragraph,
the Company and the Restricted Subsidiaries shall not be required to apply any
Net Available Cash in accordance with this paragraph except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this paragraph exceeds $2.5 million. Pending
application of Net Available Cash pursuant to this Section 4.07, such Net
Available Cash shall be invested in Permitted Investments. Notwithstanding
anything contained in Article IV to the contrary, the Company shall not sell,
convey, pledge, hypothecate or otherwise transfer the Houston Facility
substantially as an entirety in one transaction or a series of related
transactions to any Person, including, but not limited to, any Subsidiary,
except for (i) pledges or security interests granted in connection with securing
Indebtedness borrowed under the Credit Agreement, and (ii) transactions that
comply with Article V.
For the purposes of this Section 4.07, the following are deemed to
be cash or cash equivalents: (x) the express assumption of Indebtedness of the
Company or any Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are converted by the Company or
such Restricted Subsidiary into cash within 90 days of closing the transaction.
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45
(b) In the event of an Asset Disposition that requires the purchase
of the Securities (and other Senior Subordinated Indebtedness) pursuant to
Section 4.07(a)(ii)(C), the Company will be required to purchase Securities
tendered pursuant to an offer by the Company for the Securities (and other
Senior Subordinated Indebtedness) at a purchase price of 100% of their principal
amount (without premium) plus accrued but unpaid interest (or, in respect of
such other Senior Subordinated Indebtedness, such lesser price, if any, as may
be provided for by the terms of such Senior Subordinated Indebtedness) in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in this Indenture. If the aggregate purchase price
of Securities (and any other Senior Subordinated Indebtedness) tendered pursuant
to such offer is less than the Net Available Cash allotted to the purchase
thereof, the Company will be required to apply the remaining Net Available Cash
in accordance with Section 4.07(a)(ii)(D). The Company shall not be required to
make such an offer to purchase Securities (and other Senior Subordinated
Indebtedness) pursuant to this covenant if the Net Available Cash available
therefor is less than $10 million (which lesser amount shall be carried forward
for purposes of determining whether such an offer is required with respect to
any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorationing as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum will
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials (or corresponding successor reports), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such Reports, and (iii) if material, appropriate pro forma
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46
financial information) and all instructions and materials necessary to tender
Securities pursuant to the Offer, together with the information contained in
clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.07(a). On such date, the
Company shall also irrevocably deposit with the Trustee or with a paying agent
(or, if the Company is acting as its own paying agent, segregate and hold in
trust) in Temporary Cash Investments an amount equal to the Offer Amount to be
held for payment in accordance with the provisions of this Section. Upon the
expiration of the period for which the Offer remains open (the "Offer Period"),
the Company shall deliver to the Trustee for cancelation the Securities or
portions thereof which have been properly tendered to and are to be accepted by
the Company. The Trustee shall, on the Purchase Date, mail or deliver payment to
each tendering Holder in the amount of the purchase price. In the event that the
aggregate purchase price of the Securities delivered by the Company to the
Trustee is less than the Offer Amount, the Trustee shall deliver the excess to
the Company immediately after the expiration of the Offer Period for application
in accordance with this Section.
(3) Holders electing to have a Security purchased will be required
to surrender the Security, with an appro priate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders will be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the Purchase Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security which was
delivered for purchase by the Holder and a statement that such Holder is
withdrawing his election to have such Security purchased. If at the expiration
of the Offer Period the aggregate principal amount of Securities surrendered by
Holders exceeds the Offer Amount, the Company shall select the Securities to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000,
or integral multiples thereof, shall be purchased). Holders whose Securities are
purchased only in part will be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
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47
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company will also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Sec tion. A Security shall
be deemed to have been accepted for purchase at the time the Trustee, directly
or through an agent, mails or delivers payment therefor to the surrender ing
Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 4.08. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into any
transaction (including the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless the terms thereof (1) are no less favorable to the Company
or such Restricted Subsidiary than those that could be obtained at the time of
such transaction in a comparable transaction on arm's-length dealings with a
Person who is not such an Affiliate, (2) if such Affiliate Transaction involves
an amount in excess of $2.5 million, (i) are set forth in writing and (ii) have
been approved by a majority of the members of the Board of Directors having no
material personal financial stake in such Affiliate Transaction and (3) if such
Affiliate Transaction involves an amount in excess of $5 million, have been
determined by a nationally recognized investment banking firm to be fair, from a
financial standpoint, to the Company or its Restricted Subsidiary, as the case
may be.
(b) The provisions of Section 4.08(a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 4.05, or any payment
or transaction specifically excepted from the definition of Restricted Payment,
(ii) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment arrangements,
stock options and stock ownership plans approved by the Board of Directors or
the board of directors of the relevant
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48
Restricted Subsidiary, (iii) the grant of stock options or similar rights to
employees and directors pursuant to plans approved by the Board of Directors or
the board of directors of the relevant Restricted Subsidiary, (iv) loans or
advances to officers, directors or employees in the ordinary course of business,
(v) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) any Affiliate Transaction between the Company and a Wholly
Owned Subsidiary or between Wholly Owned Subsidiaries, (vii) the purchase of or
the payment of Indebtedness of or monies owed by the Company or any of its
Restricted Subsidiaries for goods or materials purchased, or services received,
in the ordinary course of business, (viii) the purchase of or the payment of
Indebtedness of or monies owed by the Company or any of its Restricted
Subsidiaries or fees to be paid to Sterling or any Affiliate of Sterling, in
each case pursuant to a written agreement in existence on the date of this
Indenture and (ix) any Tax Sharing Agreement; PROVIDED, HOWEVER, that the
aggregate amount payable by the Company pursuant thereto shall not exceed the
sum of (A) the amount of taxes which the Company would have been liable for on a
stand-alone basis plus (B) the amount of any state net worth tax applicable to
Holdings and TPC Holding.
SECTION 4.09. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. The Company shall not sell or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary, and shall not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise
dispose of any shares of its Capital Stock except (i) to the Company or a Wholly
Owned Subsidiary or (ii) if, immediately after giving effect to such issuance,
sale or other disposition, such Restricted Subsidiary remains a Restricted
Subsidiary; PROVIDED, HOWEVER, that in connection with any such sale or
disposition of Capital Stock the Company or any such Restricted Subsidiary
complies with Section 4.07.
SECTION 4.10. CHANGE OF CONTROL. (a) Upon the occurrence of a Change
of Control, each Holder shall have the right to require that the Company
repurchase such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), in
accordance with the terms contemplated in Section 4.10(b).
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(b) Within 30 days following any Change of Control, the Company
shall mail a notice to the Trustee and to each Holder stating:
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical
income, cash flow and capitalization after giving effect to such Change of
Control);
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be required
to surrender the Security, with an appro priate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the purchase date. Holders will be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the purchase date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security which was
delivered for purchase by the Holder and a statement that such Holder is
withdrawing his election to have such Security purchased.
(d) On the purchase date, all Securities pur chased by the Company
under this Section shall be delivered by the Trustee for cancelation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any
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50
securities laws or regulations conflict with provisions of this Section, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Section by
virtue thereof.
SECTION 4.11. COMPLIANCE CERTIFICATE. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with TIA ss. 314(a)(4).
SECTION 4.12. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.13. REDEMPTION OF ORIGINAL NOTES. The Company shall not
redeem the Original Securities unless, substantially concurrently with such
redemption, the Company redeems an aggregate principal amount of Securities
(rounded to the nearest integral multiple of $1000) equal to the product of: (1)
a fraction, the numerator of which is the aggregate principal amount of Original
Securities to be so redeemed and the denominator of which is the aggregate
principal amount of Original Securities outstanding immediately prior to such
proposed redemption, and (2) the aggregate principal amount of Securities
outstanding immediately prior to such proposed redemption.
ARTICLE V
SUCCESSOR COMPANY
SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. The Company
shall not consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of transactions, its assets substan tially as an
entirety to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized
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51
and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satis factory to the
Trustee, all the obligations of the Company under the Securities and this
Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that is
not less than the Consolidated Net Worth of the Company prior to such
transaction minus any costs incurred in connection with such transaction;
and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
The Successor Company shall be the successor to the Company and
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture, but the predecessor company, only in the
case of a conveyance, transfer or lease, shall not be released from the
obligation to pay the principal of and interest on the Securities.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company.
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52
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if:
(1) the Company defaults in any payment of inter est on any Security
when the same becomes due and payable, whether or not such payment shall
be prohib ited by Article X, and such default continues for a period of 30
days;
(2) the Company (i) defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity,
upon optional redemption, upon declaration or otherwise, whether or not
such payment shall be prohibited by Article X or (ii) fails to redeem or
purchase Securities when required pursuant to this Indenture or the
Securities, whether or not such redemption or purchase shall be prohibited
by Article X;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09 or 4.10 (other than a failure to purchase
Securities) and such failure continues for 30 days after the notice
specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (1), (2),
(3) or (4) above) and such failure continues for 60 days after the notice
specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $5,000,000 or
its foreign currency equivalent at the time;
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53
(7) Holdings, TPC Holding, the Company or any Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custo dian of it or for
any substantial part of its property; or
(D) makes a general assignment for the bene fit of its
creditors;
or takes any comparable action under any foreign laws
relating to insolvency;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against Holdings, TPC Holding or the Company
or any Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of Holdings, TPC Holding or the
Company or any Significant Subsidiary or for any substantial part of
its property; or
(C) orders the winding up or liquidation of Holdings, TPC
Holding or the Company or any Significant Subsidiary;
or any similar relief is granted under any foreign laws
and the order or decree remains unstayed and in effect
for 60 days; or
(9) any judgment or decree for the payment of money in excess of
$5,000,000 or its foreign currency equivalent at the time is entered
against the Company or any Significant Subsidiary and is not discharged
and either (A) an enforcement proceeding has been commenced by any
creditor upon such judgment or decree or (B) there is a period of 60 days
following the entry of such judgment or decree during which such judgment
or decree is not discharged, waived or the execution thereof stayed within
10 days after the notice specified below.
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54
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4) or (5) is not an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Securities notify the Company of the Default and the Company does
not cure such Default within the time specified after receipt of such notice.
Such notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (4),
(5) or (9), its status and what action the Company is taking or proposes to take
with respect thereto.
SECTION 6.02. ACCELERATION. If an Event of Default (other than an
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the Securities by notice to the
Company and the Trustee, may declare the principal of and accrued but unpaid
interest on all the Securities to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.01(7) or Section 6.01(8) with respect to the
Company occurs and is continuing, the principal of and interest on all the
Securities shall IPSO FACTO become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Securityholders.
The Holders of a majority in principal amount of the outstanding Securities by
notice to the Trustee may rescind any such acceleration and its consequences if
the rescission would not conflict with any judgment or decree and if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due
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55
solely because of acceleration. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquies cence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security or (ii) a Default in respect of a
provision that under Section 9.02 cannot be amended without the consent of each
Securityholder affected. When a Default is waived, it is deemed cured, but no
such waiver shall extend to any subsequent or other Default or impair any
consequent right.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceed ing for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemni fication
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. LIMITATION ON SUITS. A Security holder may not pursue
any remedy with respect to this Inden ture or the Securities unless:
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56
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the outstanding
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding
any other provision of this Inden ture, the right of any Holder to receive
payment of princi pal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Secu rities, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to
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57
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disburse ments and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
SECTION 6.10. PRIORITIES. If the Trustee col lects any money or
property pursuant to this Article VI, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Sec tion 7.07;
SECOND: to holders of Senior Indebtedness to the extent required by
Article X;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securi ties for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment
to Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement
of any right or remedy under this Inden ture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including rea sonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount of the Securities.
SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatso ever claim or take the benefit or advantage of, any stay or
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58
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE VII
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the require ments of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabil ity for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
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59
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper per son. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opin ion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
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60
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it here under
in good faith and in accordance with the advice or opinion of such counsel.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The recitals contained herein
and in the Securities, except for the Trustee's certificates of authentication,
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities, except that
the Trustee represents that it is duly authorized to execute and deliver this
Indenture, authenticate the Securities and perform its obligations hereunder and
that the statements made by it in any Statement of Eligibility and Qualification
on Form T-1 supplied to the Company are true and accurate, subject to the
qualifications set forth therein. The Trustee shall not be accountable for the
use or application by the Company of Securities or the proceeds thereof.
SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest on any Security
(including payments pursuant to the mandatory redemption provisions of such
Security, if any), the Trustee may withhold the notice if and so long as a
committee of its Trust Officers in good faith determines that withholding the
notice is in the interests of Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as
practicable after each June 30 beginning with the June 30 following the date of
this Indenture, the Trustee shall mail to each Securityholder a brief report
dated as of June 30 that complies with TIA ss. 313(a). The Trustee also shall
comply with TIA ss. 313(b).
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61
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to
the Trustee from time to time rea sonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reim burse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee against any and all loss,
liability or expense (including attorneys' fees) incurred by it in connection
with the administration of this trust and the performance of its duties
hereunder. The Trustee shall notify the Company promptly of any claim for which
it may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee may have separate counsel and the Company shall pay the
fees and expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
of the Secur-
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61
ities may remove the Trustee by so notifying the Trustee and may appoint a
successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders
of a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appoint ment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee
consolidates with, merges or converts into, or
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63
transfers all or substantially all its corporate trust busi ness or assets to,
another corporation or banking associa tion, the resulting, surviving or
transferee corporation without any further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at
all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
ss. 310(b); PROVIDED, HOWEVER, that there shall be excluded from the operation
of TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
out standing if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURI TIES; DEFEASANCE. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancelation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article III hereof
and the
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64
Company irrevocably deposits with the Trustee funds suffi cient to pay at
maturity or upon redemption all outstanding Securities, including interest
thereon to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.07), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
8.01(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel and at the
cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time
may terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09 and Section 4.10 and the operation of Section
6.01(4), Section 6.01(6), Sections 6.01(7) and 6.01(8) with respect only to
Significant Subsidiaries, and Section 6.01(9) and the limitations contained in
clauses (iii) and (iv) of Section 5.01)("covenant defeasance option"). The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of the
Securities may not be accelerated because of an Event of Default specified in
Section 6.01(4), (6), (7), (8) (with respect only to Significant Subsidiaries)
or Section 6.01(9) or because of the failure of the Company to comply with
Sections 5.01(iii) and (iv).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07 and 7.08 and this
Article VIII shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
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SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and
interest on the Secu rities to redemption or maturity, as the case may be;
(2) the Company delivers to the Trustee a cer tificate from a
nationally recognized firm of indepen dent accountants expressing their
opinion that the pay ments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obliga tions plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article X;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Securityholders will not recognize income, gain or loss
for Federal income tax purposes as a result of such 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 defeasance had not
occurred;
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66
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Security holders will not recognize income, gain or loss for Federal
income tax purposes as a result of such cove nant 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; and
(8) the Company delivers to the Trustee an Offi cers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to
the defeasance and discharge of the Securities as contemplated by this
Article VIII have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article III.
SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in
trust money or U.S. Government Obliga tions deposited with it pursuant to this
Article VIII. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article X.
SECTION 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal or interest that remains unclaimed for two years,
and, thereafter, Securityholders entitled to the money must look to the Company
for payment as general creditors.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government
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67
Obligations in accordance with this Article VIII by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Secur ities shall be revived
and reinstated as though no deposit had occurred pursuant to this Article VIII
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with this Article VIII;
PROVIDED, HOWEVER, that, if the Company has made any payment of interest on or
principal of any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the
Trustee may amend this Indenture or the Securities without notice to or consent
of any Security holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article V;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; PROVIDED, HOWEVER, that the
uncertificated Securities are issued in registered form for purposes of
Sec tion 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article X that would limit or terminate
the benefits available to any holder of Senior Indebtedness (or
Representatives therefor) under Article X;
(5) to add guarantees with respect to the Securities or to secure
the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
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(7) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA; or
(8) to make any change that does not adversely affect the rights of
any Securityholder.
An amendment under this Section may not make any change that
adversely affects the rights under Article X of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. WITH CONSENT OF HOLDERS. The Company and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities. However, without the consent of each Securityholder
affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security
or change the time at which any Secur ity may be redeemed in accordance
with Article III;
(5) make any Security payable in money other than that stated in the
Security;
(6) make any change in Article X that adversely affects the rights
of any Securityholder under Article X; or
(7) make any change in Section 6.04 or 6.07 or the second sentence
of this Section.
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It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment. It shall be
sufficient if such consent approves the substance of the proposed amendment.
An amendment under this Section may not make any change that
adversely affects the rights under Article X of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment
to this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subse quent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subse quent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Security holder.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
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SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any
amendment authorized pursuant to this Article IX if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In sign ing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permit ted by this Indenture.
SECTION 9.07. PAYMENT FOR CONSENT. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE X
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and
each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article X, to the prior payment in full of
all Senior Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter incurred, including the obligations of the Company under the Credit
Agreement, and that the subordination is for the benefit of and enforceable by
the holders of Senior Indebtedness. The Securities shall in all respects rank
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71
PARI PASSU with all other Senior Subordinated Indebtedness of the Company,
including, without limitation, the Original Securities, and only Indebtedness of
the Company which is Senior Indebtedness shall rank senior to the Securities in
accordance with the provisions set forth herein. All provisions of this Article
X shall be subject to Section 10.12.
SECTION 10.02. LIQUIDATION, DISSOLUTION, BANK RUPTCY. Upon any
payment or distribution of the assets of the Company to creditors upon a total
or partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full of the Senior Indebtedness before Securityholders shall be
entitled to receive any payment of principal of or interest on the
Securities; and
(2) until the Senior Indebtedness is paid in full, any distribution
to which Securityholders would be entitled but for this Article X shall be
made to holders of Senior Indebtedness as their interests may appear,
except that Securityholders may receive shares of stock and any debt
securities that are subordinated to Senior Indebtedness to at least the
same extent as the Securities.
SECTION 10.03. DEFAULT ON SENIOR INDEBTEDNESS. The Company may not
pay the principal of, premium (if any) or interest on, the Securities or make
any deposit pursuant to Section 8.01 and may not repurchase, redeem or otherwise
retire any Securities (collectively, "pay the Securities") if (i) any Designated
Senior Indebtedness is not paid when due or (ii) any other default on Designated
Senior Indebtedness occurs and the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded or (y) such Senior Indebtedness has been paid in full; PROVIDED,
HOWEVER, that the Company may pay the Securities without regard to the foregoing
if the Company and the Trustee receive written notice approving such payment
from the Representative of the Designated Senior Indebtedness with respect to
which either of the events set forth in clause (i) or (ii) above has occurred
and is continuing. During the continuance of any default (other than a default
described in clause (i) or (ii) of the preceding sentence) with respect to any
Designated Senior Indebtedness pursuant
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72
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, the Company may not pay the
Securities for a period (a "Payment Blockage Period") commencing upon the
receipt by the Company and the Trustee of written notice (a "Blockage Notice")
of such default from the Representative of the holders of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) because such Designated Senior
Indebtedness has been repaid in full or (iii) because the default giving rise to
such Blockage Notice is no longer continuing). Notwithstanding the provisions
described in the immediately preceding sentence (but subject to the provisions
contained in the first sentence of this Section), unless the holders of such
Designated Senior Indebtedness or the Representative of such holders shall have
accelerated the maturity of such Designated Senior Indebtedness, the Company may
resume payments on the Securities after the end of such Payment Blockage Period.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period; PROVIDED, HOWEVER, that if any Blockage Notice
within such 360-day period is given by or on behalf of any holders of Designated
Senior Indebtedness (other than the Bank Indebtedness), the Representative of
the Bank Indebtedness may give another Blockage Notice within such period;
PROVIDED FURTHER, HOWEVER, that in no event may the total number of days during
which any Payment Blockage Period or Periods is in effect exceed 179 days in the
aggregate during any 360 consecutive day period. For purposes of this Section,
no default or event of default which existed or was continuing on the date of
the commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the Representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
SECTION 10.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of
the Securities is accelerated because of an Event of Default, the Company or the
Trustee
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shall promptly notify the holders of the Designated Senior Indebtedness (or
their Representative) of the acceleration.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a
distribution is made to Securityholders that because of this Article X should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for the holders of Senior Indebtedness and pay it over to
them as their interests may appear.
SECTION 10.06. SUBROGATION. After all Senior Indebtedness is paid in
full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness. A distribution made under this
Article X to holders of Senior Indebtedness which otherwise would have been made
to Securityholders is not, as between the Company and Securityholders, a payment
by the Company on Senior Indebtedness.
SECTION 10.07. RELATIVE RIGHTS. This Article X defines the relative
rights of Securityholders and holders of Senior Indebtedness. Nothing in this
Indenture shall:
(1) impair, as between the Company and Secu rityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, sub ject to the rights of holders of
Senior Indebtedness to receive distributions otherwise payable to
Securityholders.
SECTION 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No
right of any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
SECTION 10.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice
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74
satisfactory to it that payments may not be made under this Article X. The
Company, the Registrar or co-registrar, the Paying Agent, a Representative or a
holder of Senior Indebtedness may give the notice; PROVIDED, HOWEVER, that, if
an issue of Senior Indebtedness has a Representative, only the Representative
may give the notice.
The Trustee in its individual or any other capa city may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article X with respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of Senior Indebtedness; and
nothing in Article VII shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article X shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.07.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRE SENTATIVE. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
SECTION 10.11. ARTICLE X NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT
RIGHT TO ACCELERATE. The failure to make a payment pursuant to the Securities by
reason of any provision in this Article X shall not be construed as pre venting
the occurrence of a Default. Nothing in this Article X shall have any effect on
the right of the Secu rityholders or the Trustee to accelerate the maturity of
the Securities.
SECTION 10.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article VIII by the Trustee
for the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or subject to the
restrictions set forth in this Article X, and none of the Securityholders shall
be obligated to pay over any such amount to the Company or any holder of Senior
Indebtedness of the Company or any other creditor of the Company.
SECTION 10.13. TRUSTEE ENTITLED TO RELY. Upon any payment or
distribution pursuant to this Article X, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
juris-
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75
diction in which any proceedings of the nature referred to in Section 10.02 are
pending, (ii) upon a certificate of the liquidating trustee or agent or other
Person making such payment or distribution to the Trustee or to the Security
holders or (iii) upon the Representatives for the holders of Senior Indebtedness
for the purpose of ascertaining the Persons entitled to participate in such
payment or distribution, the holders of the Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article X. In the event that the Trustee determines, in good faith, that
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article X, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and other facts pertinent to the rights of such
Person under this Article X, and, if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment. The provisions of Sections 7.01
and 7.02 shall be applicable to all actions or omissions of actions by the
Trustee pursuant to this Article X.
SECTION 10.14. TRUSTEE TO EFFECTUATE SUBORDINA TION. Each
Securityholder by accepting a Security author izes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness as provided in this Article X and appoints the Trustee as
attorney-in-fact for any and all such purposes.
SECTION 10.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall mistakenly pay over or distribute to Securityholders or the Company or any
other Person, money or assets to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article X or otherwise.
SECTION 10.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to
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76
each holder of any Senior Indebtedness, whether such Senior Indebtedness was
created or acquired before or after the issuance of the Securities, to acquire
and continue to hold, or to continue to hold, such Senior Indebtedness and such
holder of Senior Indebtedness shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS. If any provision of
this Indenture limits, qualifies or con flicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. NOTICES. Any request, demand, authorization,
direction, declaration, notice, consent, waiver or act of Holders or other
document provided or pertained by this Indenture (herein collectively called
"Notice") to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Administration, which shall initially be 777 Main Street, Hartford,
Connecticut 06115; or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided)
if made, given, furnished or filed in writing to or with the Company
addressed to it at the address of its principal office, Attention: Chief
Financial Officer, which shall initially be 8707 Katy Freeway, Suite 300,
Houston, Texas 77024.
Any Notice to be given hereunder by any party to another shall be in
writing and delivered in person or by courier service requiring acknowledgment
of delivery, mailed by first class mail, postage prepaid, or telecopied to the
addressee (including telecopier number, if applicable) set forth herein. Notice
given by personal delivery or courier
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77
service shall be effective upon actual receipt. Notice given by mail shall be
effective five days after deposit with the United States postage service. Notice
given by telecopier shall be confirmed by appropriate answer-back and shall be
effective upon actual receipt if received during the recipient's normal business
hours or at the beginning of the recipient's next Business Day after receipt if
not received during the recipient's normal business hours. All Notices by
telecopier shall be confirmed promptly after transmission in writing by mail or
personal delivery. A party may change any address to which Notice is to be given
to it by giving Notice as provided above of such change of address. The initial
telecopier number for the Trustee is (860) 986-7920; the initial telecopier
number for the Company is (713) 461-1029.
Any notice or communication mailed to a Security holder shall be
mailed by first-class mail, postage prepaid to the Securityholder at the
Securityholder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed to a Securityholder in
the manner provided above, it shall be effective five days after deposit with
the United States postage service, whether or not the addressee receives it.
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
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(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opin ion of such
individual, such covenant or condition has been complied with.
SECTION 11.06. WHEN SECURITIES DISREGARDED. In determining whether
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which a Trust Officer of the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 11.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 11.08. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in
the State of New York.
<PAGE>
79
If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record date
shall not be affected.
SECTION 11.09. GOVERNING LAW. This Indenture and the Securities
shall be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 11.10. NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such lia bility. The waiver and release shall be part of the consi deration
for the issue of the Securities.
SECTION 11.11. SUCCESSORS. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12. MULTIPLE ORIGINALS. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13. TABLE OF CONTENTS; HEADINGS. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted
<PAGE>
80
for convenience of reference only, are not intended to be considered a part
hereof and shall not modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
TEXAS PETROCHEMICALS
CORPORATION,
by
------------------------
Name:
Title:
FLEET NATIONAL BANK,
by
------------------------
Name:
Title:
EXECUTION COPY
TEXAS PETROCHEMICALS CORPORATION
$50,000,000
11 1/8% Series B Senior Subordinated Notes due 2006
REGISTRATION RIGHTS AGREEMENT
March 13, 1997
Chase Securities Inc.
270 Park Avenue
New York, NY 10017
Ladies and Gentlemen:
Texas Petrochemicals Corporation, a Texas corporation (the
"Issuer"), proposes to issue and sell to Chase Securities Inc. (the "Initial
Purchaser"), upon the terms set forth in a purchase agreement dated as of March
6, 1997 (the "Purchase Agreement"), $50,000,000 aggregate principal amount of
its 11 1/8% Series B Senior Subordinated Notes due 2006 (the "Notes"). The Notes
will be issued pursuant to an Indenture, dated as of March 1, 1997, (the
"Indenture") between the Issuer and Fleet National Bank (the "Trustee"). As an
inducement to the Initial Purchaser, the Issuer agrees with the Initial
Purchaser, for the benefit of the holders of the Notes (including, without
limitation, the Initial Purchaser), the Exchange Notes (as defined below) and
the Private Exchange Notes (as defined below) (collectively the "Holders"), as
follows:
1. REGISTERED EXCHANGE OFFER. The Issuer shall, at its cost, prepare and,
not later than 75 days after (or if the 75th day is not a business day, the
first business day thereafter) the issue date of the Notes (the "Issue Date"),
file with the Securities and Exchange Commission (the "Commission") a
registration statement (the "Exchange Offer Registration Statement") on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the
Holders of Transfer Restricted Notes (as defined in Section 6 hereof), who are
not prohibited by any law or policy of the Commission from participating in the
Registered Exchange Offer, to issue and deliver to such Holders, in exchange for
the Notes, a like aggregate principal amount of debt securities (the "Exchange
Notes") of the Issuer issued under the Indenture and identical in all material
respects to the Notes (except for the transfer restrictions relating to the
Notes) that would be registered under the Securities Act. The Issuer shall use
all reasonable efforts to cause such Exchange Offer Registration Statement to
become effective under the Securities Act within 120 days (or if the 120th day
is not a business day, the first business day thereafter) after the Issue Date
of the Notes and shall keep the Exchange Offer Registration Statement effective
for not less than 30 days (or longer, if required by applicable law) after the
date on which notice of the Registered Exchange Offer is mailed to the Holders
(such period being called the "Exchange Offer Registration Period").
If the Issuer effects the Registered Exchange Offer, the Issuer will
be entitled to close the Registered Exchange Offer 30 days after the
commencement thereof provided that the Issuer has accepted all the Notes
theretofore validly tendered in accordance with the terms of the Registered
Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Issuer shall promptly commence the Registered
Exchange Offer. In connection with such Registered Exchange Offer, the Issuer
shall take such further action, including, without limitation, appropriate
filings under state securities laws, as may be necessary to realize the
foregoing objective subject to the proviso of Section 3(h).
Pursuant to current interpretations by the Commission's staff of
Section 5 of the Securities Act, in the absence of an applicable exemption
therefrom, (i) each Holder which is a broker-dealer electing to exchange Notes,
acquired for its own account as a result of market making activities or other
trading activities, for Exchange Notes (an "Exchanging Dealer"), is required to
deliver a prospectus containing substantially the information set forth in Annex
A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section, and in Annex C hereto
in the "Plan of Distribution" section of such prospectus in connection with a
sale of any such Exchange Notes received by such Exchanging Dealer pursuant to
the Registered Exchange Offer and (ii) if the Initial Purchaser elects to sell
Exchange Notes acquired in exchange for Notes constituting any portion of an
unsold allotment, the Initial Purchaser is required to deliver a prospectus
containing the information required by Items 507 or 508 of Regulation S-K under
the Securities Act, as applicable, in connection with such sale.
The Issuer shall use all reasonable efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein, in order to permit such prospectus to be usable by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Notes; PROVIDED, HOWEVER, that (i) in the case
where such prospectus and any amendment or supplement thereto must be delivered
by an Exchanging Dealer or the Initial Purchaser, such period shall be the
lesser of 180 days and the date on which all Exchanging Dealers and the Initial
Purchaser have sold all Exchange Notes held by them (unless such period is
extended pursuant to Section 3(j) below) and (ii) the Issuer shall make such
prospectus and any amendment or supplement thereto, available to any
broker-dealer for use in connection with any resale of any Exchange Notes for a
period not less than 90 days after the consummation of the Registered Exchange
Offer.
If, upon consummation of the Registered Exchange Offer, the Initial
Purchaser holds Notes acquired by it as part of its initial distribution, the
Issuer, simultaneously with the delivery of the Exchange Notes pursuant to the
Registered Exchange Offer, shall, to the extent lawful, issue and deliver to the
Initial Purchaser upon the written request of the Initial Purchaser, in exchange
(the "Private Exchange") for the Notes held by the Initial Purchaser, a like
principal amount of debt securities of the Issuer issued under the Indenture and
identical in all material respects (including the existence of restrictions on
transfer under the Securities Act and the securities laws of the several states
of the United States) to the Notes (the "Private Exchange Notes"). The Notes,
the Exchange Notes and the Private Exchange Notes are herein collectively called
the "Securities". The Issuer will use reasonable efforts to cause the Private
Exchange Notes to bear the same CUSIP number as the Exchange Notes.
In connection with the Registered Exchange Offer, the Issuer shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30
days (or longer, if required by applicable law) after the date notice
thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York,
which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last business day on which
the Registered Exchange Offer shall remain open, by delivering to the
institution specified in the notice, a telegram, telex, facsimile
transmission or letter by courier, setting forth the name of such Holder,
the principal amount of Notes delivered for exchange, and a statement that
such Holder is withdrawing such Holder's election to have Notes exchanged;
and
(e) otherwise comply in all material respects with
all applicable laws.
As soon as practicable after the close of the Registered Exchange
Offer or the Private Exchange, as the case may be, the Issuer shall:
(i) accept for exchange all the Notes validly tendered and not
withdrawn pursuant to the Registered Exchange Offer (and the Letter of
Transmittal which is an exhibit thereto) and the Private Exchange;
(ii) deliver to the Trustee for cancelation all the
Notes so accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver promptly to each
Holder of the Notes, Exchange Notes or Private Exchange Notes, as the case
may be, equal in principal amount to the Notes of such Holder so accepted
for exchange.
The Indenture will provide that the Exchange Notes will not be
subject to the transfer restrictions set forth in the Indenture and that all the
Securities will vote and consent together on all matters as one class and that
none of the Securities will have the right to vote or consent as a class
separate from one another on any matter.
Interest on each Exchange Note and Private Exchange Note issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the date of original issue of the Notes.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Issuer that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Notes received by such Holder will be
acquired in the ordinary course of business, (ii) such Holder will have no
arrangements or understanding with any person to participate in the distribution
of the Notes or the Exchange Notes within the meaning of the Securities Act,
(iii) such Holder is not an "affiliate", as defined in Rule 405 of the
Securities Act, of the Issuer or if it is an affiliate, such Holder will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is
not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes and (v) if such Holder is a broker-dealer, that it will receive
Exchange Notes for its own account in exchange for Notes that were acquired as a
result of market-making activities or other trading activities and that it will
be required to acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes.
Notwithstanding any other provisions hereof, the Issuer will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not, as of its date, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
2. SHELF REGISTRATION. If, (i) because of any change in law or in
applicable interpretations thereof by the staff of the Commission, the Issuer is
not permitted to effect a Registered Exchange Offer, as contemplated by Section
1 hereof, (ii) the Registered Exchange Offer is not consummated within 150 days
of the Issue Date, (iii) the Initial Purchaser so requests with respect to the
Notes (or any Private Exchange Notes) not eligible to be exchanged for Exchange
Notes in the Registered Exchange Offer and held by it following consummation of
the Registered Exchange Offer or (iv) any Holder (other than an Exchanging
Dealer) is not eligible to participate in the Registered Exchange Offer or, in
the case of any Holder (other than an Exchanging Dealer) that participates in
the Registered Exchange Offer, such Holder does not receive freely tradeable
Exchange Notes on the date of the exchange, the Issuer shall take the following
actions:
(a) The Issuer shall, at its cost, as promptly as practicable (but
in no event more than 30 days after so required or requested pursuant to
this Section 2) file with the Commission and thereafter shall use all
reasonable efforts to cause to be declared effective a registration
statement (the "Shelf Registration Statement", which may be combined with
the Exchange Offer Registration Statement, and, together with the Exchange
Offer Registration Statement, a "Registration Statement") on an
appropriate form under the Securities Act relating to the offer and sale
of the Transfer Restricted Notes by the Holders thereof from time to time
in accordance with the methods of distribution set forth in the Shelf
Registration Statement and Rule 415 under the Securities Act (hereinafter,
the "Shelf Registration"); PROVIDED, HOWEVER, that no Holder (other than
the Initial Purchaser) shall be entitled to have the Securities held by it
covered by such Shelf Registration Statement unless such Holder agrees in
writing to be bound by all the provisions of this Agreement applicable to
such Holder.
(b) The Issuer shall use all reasonable efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be usable by the Holders of the relevant
Securities, for a period of two years (or for such longer period if
extended pursuant to Section 3(j) below) from the date of its
effectiveness or such shorter period that will terminate when all the
Securities covered by the Shelf Registration Statement have been sold
pursuant thereto. The Issuer shall be deemed not to have used all
reasonable efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that would
result in Holders of Securities covered thereby not being able to offer
and sell such Securities during that period, unless such action is
required by applicable law.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Issuer shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein (in the case of the
prospectus, in light of the circumstances under which they were made) not
misleading.
3. REGISTRATION PROCEDURES. In connection with any Shelf
Registration contemplated by Section 2 hereof and, to the extent applicable, any
Registered Exchange Offer contemplated by Section 1 hereof, the following
provisions shall apply:
(a) The Issuer shall (i) furnish to the Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and, in the event that the Initial Purchaser
(with respect to any portion of an unsold allotment from the original
offering) is participating in the Registered Exchange Offer or the Shelf
Registration Statement, shall use all reasonable efforts to reflect in
each such document, when so filed with the Commission, such comments as
the Initial Purchaser reasonably may propose; (ii) include the information
set forth in Annex A hereto on the cover, in Annex B hereto in the
"Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section and in Annex C hereto in the "Plan of Distribution" section
of the prospectus forming a part of the Exchange Offer Registration
Statement and include the information set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer;
(iii) if requested by the Initial Purchaser, include the information
required by Items 507 or 508 of Regulation S-K under the Securities Act,
as applicable, in the prospectus forming a part of the Exchange Offer
Registration Statement; (iv) include within the prospectus contained in
the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchaser, which shall
contain a summary statement of the positions taken or policies made by the
staff of the Commission with respect to the potential "underwriter" status
of any broker-dealer that is the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of Exchange Notes received by such broker-dealer in the Registered
Exchange Offer (a "Participating Broker-Dealer"), whether such positions
or policies have been publicly disseminated by the staff of the Commission
or such positions or policies, in the reasonable judgment of the Initial
Purchaser based upon advice of counsel (which may be in-house counsel),
represent the prevailing views of the staff of the Commission; and (v) in
the case of a Shelf Registration Statement, include the names of the
Holders, who propose to sell Securities pursuant to the Shelf Registration
Statement, as selling securityholders.
(b) The Issuer shall give written notice to the Initial Purchaser,
the Holders of the Securities and any Participating Broker-Dealer from
whom the Issuer has received prior written notice that it will be a
Participating Broker-Dealer in the Registered Exchange Offer (which notice
pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction
to suspend the use of the prospectus until the requisite changes have been
made):
(i) when the Registration Statement or any amendment
thereto has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose;
(iv) of the receipt by the Issuer or its legal counsel
of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the
Issuer to make changes in the Registration Statement or the
prospectus in order that the Registration Statement or the
prospectus do not contain an untrue statement of a material fact nor
omit to state a material fact required to be stated therein or
necessary in order to make the statements therein (in the case of
the prospectus, in light of the circumstances under which they were
made) not misleading.
(c) The Issuer shall make every reasonable effort to obtain the
withdrawal at the earliest possible time, of any order suspending the
effectiveness of the Registration Statement.
(d) In the case of a Shelf Registration, the Issuer shall furnish to
each Holder of Securities included within the coverage of the Shelf
Registration, without charge, at least one conformed copy of the Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Issuer shall deliver to each Exchanging Dealer and the
Initial Purchaser, and to any other Holder who so requests, without
charge, at least one conformed copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, and, if the Initial Purchaser or any such Holder
requests, all exhibits thereto (including those incorporated by
reference).
(f) In the case of a Shelf Registration, the Issuer shall deliver to
each Holder of Securities included within the coverage of the Shelf
Registration, without charge, as many copies of the prospectus (including
each preliminary prospectus) included in the Shelf Registration Statement
and any amendment or supplement thereto as such person may reasonably
request. The Issuer consents, subject to the provisions of this Agreement
and all applicable laws, to the use of the prospectus or any amendment or
supplement thereto by each of the selling Holders of the Securities in
connection with the offering and sale of the Securities covered by the
prospectus, or any amendment or supplement thereto, included in the Shelf
Registration Statement.
(g) The Issuer shall deliver to the Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other persons
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the
Exchange Offer Registration Statement and any amendment or supplement
thereto as such persons may reasonably request. The Issuer consents,
subject to the provisions of this Agreement, to the use of the prospectus
or any amendment or supplement thereto by the Initial Purchaser, if
necessary, any Participating Broker-Dealer and such other persons required
to deliver a prospectus following the Registered Exchange Offer in
connection with the offering and sale of the Exchange Notes covered by the
prospectus, or any amendment or supplement thereto, included in such
Exchange Offer Registration Statement.
(h) Prior to the effective date of any Registration Statement, the
Issuer shall use reasonable efforts to register or qualify or cooperate
with the Holders of the Securities included therein and one counsel
selected by them in connection with the registration or qualification of
the Securities for offer and sale under the securities or "blue sky" laws
of such states of the United States as any Holder of the Securities
reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions
of the Securities covered by such Registration Statement; PROVIDED,
HOWEVER, that the Issuer shall not be required to (i) qualify generally to
do business or register as a dealer in securities in any jurisdiction
where it is not then so qualified or (ii) take any action which would
subject it to general service of process or to taxation in any
jurisdiction where it is not then so subject.
(i) The Issuer shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates
representing the Securities to be sold pursuant to any Registration
Statement free of any restrictive legends and in such denominations (in
accordance with the provisions of the Indenture) and registered in such
names as the Holders may request a reasonable period of time prior to
sales of the Securities pursuant to such Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the Issuer
is required to maintain an effective Registration Statement, the Issuer
shall use all reasonable efforts to prepare and file a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus and any other required document so that, as thereafter
delivered to Holders of the Notes or purchasers of Securities, the
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If the Issuer notifies the Initial Purchaser, the Holders of
the Securities and any known Participating Broker-Dealer in accordance
with paragraphs (ii) through (v) of Section 3(b) above to suspend the use
of the prospectus until the requisite changes to the prospectus have been
made or any stop order has been lifted, as the case may be, then the
Initial Purchaser, the Holders of the Securities and any such
Participating Broker-Dealers shall suspend use of such prospectus, and the
period of effectiveness of the Shelf Registration Statement provided for
in Section 2(b) above and the Exchange Offer Registration Statement
provided for in Section 1 above shall each be extended by the number of
days from and including the date of the giving of such notice to and
including the date when the Initial Purchaser, the Holders of the
Securities and any known Participating Broker-Dealer shall have received
such amended or supplemented prospectus pursuant to this Section 3(j).
(k) Not later than the effective date of the applicable Registration
Statement, the Issuer will provide a CUSIP number for the Notes, the
Exchange Notes or the Private Exchange Notes, as the case may be, and
provide the applicable trustee with printed certificates for the Notes,
the Exchange Notes or the Private Exchange Notes, as the case may be, in a
form eligible for deposit with The Depository Trust Company.
(l) The Issuer will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make
generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder, no later than 45 days after the end of a 12-month period
(or 90 days, if such period is a fiscal year) beginning with the first
month of the Issuer's first fiscal quarter commencing after the effective
date of the Registration Statement, which statement shall cover such
12-month period.
(m) The Issuer shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner and containing
such changes, if any, as shall be necessary for such qualification. In the
event that such qualification would require the appointment of a new
trustee under the Indenture, the Issuer shall appoint a new trustee
thereunder pursuant to the applicable provisions of the Indenture.
(n) In the case of a Shelf Registration, the Issuer may require each
Holder of Securities to be sold pursuant to the Shelf Registration
Statement to furnish to the Issuer such information regarding the Holder
and the distribution of the Securities as the Issuer may from time to time
reasonably require for inclusion in the Shelf Registration Statement, and
the Issuer may exclude from such registration the Securities of any Holder
that unreasonably fails to furnish such information within a reasonable
time after receiving such request.
(o) In the case of a Shelf Registration, the Issuer shall enter into
such customary agreements (including if requested an underwriting
agreement in customary form) and take all such other action, if any, as
any Holder of the Securities shall reasonably request in order to
facilitate the disposition of the Securities pursuant to any Shelf
Registration.
(p) In the case of a Shelf Registration, upon the execution of a
confidentiality agreement reasonably requested by the Issuer, the Issuer
shall (i) make reasonably available for inspection by the Holders of the
Securities, any underwriter participating in any disposition pursuant to
the Shelf Registration Statement and any attorney, accountant or other
agent retained by the Holders of the Securities or any such underwriter
all relevant financial and other records, pertinent corporate documents
and properties of the Issuer and (ii) cause the Issuer's officers,
directors, employees, accountants and auditors to supply all relevant
information reasonably requested by the Holders of the Securities or any
such underwriter, attorney, accountant or agent in connection with the
Shelf Registration Statement, in each case, as shall be reasonably
necessary, in the judgment of the Holder or any such underwriter,
attorney, accountant or agent referred to in this paragraph, to conduct a
reasonable investigation within the meaning of Section 11 of the
Securities Act; PROVIDED, HOWEVER, that the foregoing inspection and
information gathering shall be coordinated by you and on behalf of the
other parties, by one counsel designated by and on behalf of such other
parties as described in Section 4 hereof.
(q) In the case of any Shelf Registration, the Issuer, if requested
by any Holder of Securities covered thereby, shall cause (i) its counsel
to deliver an opinion and updates thereof relating to the Securities in
customary form addressed to such Holders and the managing underwriters, if
any, thereof and dated, in the case of the initial opinion, the effective
date of such Shelf Registration Statement (it being agreed that the
matters to be covered by such opinion shall be subject to customary
qualifications and exceptions and shall include, without limitation, the
due incorporation and good standing of the Issuer; the qualification of
the Issuer to transact business as foreign corporations; the due
authorization, execution and delivery of the relevant agreement of the
type referred to in Section 3(o) hereof; the due authorization, execution,
authentication and issuance, and the validity and enforceability, of the
applicable Securities; the absence of material legal or governmental
proceedings involving the Issuer; the absence of governmental approvals
required to be obtained in connection with the Shelf Registration
Statement, the offering and sale of the applicable Securities, or any
agreement of the type referred to in Section 3(o) hereof; the compliance
as to form of such Shelf Registration Statement and any documents
incorporated by reference therein and of the Indenture with the
requirements of the Securities Act and the Trust Indenture Act,
respectively; and, as of the date of the opinion and as of the effective
date of the Shelf Registration Statement or most recent post-effective
amendment thereto, as the case may be, the absence from such Shelf
Registration Statement and the prospectus included therein, as then
amended or supplemented, and from any documents incorporated by reference
therein of an untrue statement of a material fact or the omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of any such documents,
in the light of the circumstances existing at the time that such documents
were filed with the Commission under the Exchange Act); (ii) its officers
to execute and deliver all customary documents and certificates and
updates thereof reasonably requested by any underwriters of the applicable
Securities; and (iii) its independent public accountants to provide to the
selling Holders of the applicable Securities and any underwriter therefor
a comfort letter in customary form and covering matters of the type
customarily covered in comfort letters in connection with primary
underwritten offerings, subject to receipt of appropriate documentation as
contemplated, and only if permitted, by Statement of Auditing Standards
No. 72.
(r) In the case of the Registered Exchange Offer, if requested by
the Initial Purchaser or any known Participating Broker-Dealer, the Issuer
shall cause (i) its counsel to deliver to the Initial Purchaser or such
Participating Broker-Dealer a signed opinion in the form set forth in
Section 6(d) of the Purchase Agreement with such changes as are customary
in connection with the preparation of a Registration Statement and (ii)
its independent public accountants to deliver to the Initial Purchaser or
such Participating Broker-Dealer comfort letters, in customary form,
meeting the requirements as to the substance thereof as set forth in
Section 6(a) of the Purchase Agreement, with appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Notes by Holders to the Issuer (or to
such other Person as directed by the Issuer) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, the Issuer shall
mark, or cause to be marked, on the Notes so exchanged that such Notes are
being canceled in exchange for the Exchange Notes or the Private Exchange
Notes, as the case may be, or take such other action as may be necessary
to cancel such Notes; in no event shall the Notes be marked as paid or
otherwise satisfied.
(t) The Issuer will use all reasonable efforts to (i) if the Notes
have been rated prior to the initial sale of such Notes, confirm that such
ratings will apply to the Securities covered by a Registration Statement,
or (b) if the Notes were not previously rated, cause the Securities
covered by a Registration Statement to be rated with the appropriate
rating agencies, if so requested by Holders of a majority in aggregate
principal amount of Securities covered by such Registration Statement, or
by the managing underwriters, if any.
(u) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member of
an underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Rules of Fair Practice (the "Rules") and the
By-Laws (the "ByLaws") of the National Association of Securities Dealers,
Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Issuer will assist such broker-dealer in
complying with the requirements of such Rules and By-Laws, including,
without limitation, by (A) if such Rules or By-Laws, including Schedule E
thereto, shall so require, engaging a "qualified independent underwriter"
(as defined in such Schedule) to participate in the preparation of the
Registration Statement relating to such Securities, to exercise usual
standards of due diligence in respect thereto and, if any portion of the
offering contemplated by such Registration Statement is an underwritten
offering or is made through a placement or sales agent, to recommend the
yield of such Securities, (B) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters provided
in Section 5 hereof and (C) pro viding such information to such
broker-dealer as may be required in order for such broker-dealer to comply
with the requirements of the Rules of Fair Practice of the NASD.
(v) The Issuer shall use all reasonable efforts to take all other
reasonable steps necessary to effect the registration of the Securities
covered by a Registration Statement contemplated hereby.
4. REGISTRATION EXPENSES. The Issuer shall bear all fees and
expenses incurred in connection with the performance of its obligations under
Sections 1 through 3 hereof including (i) all Commission, stock exchange or NASD
registration and filing fees, (ii) all fees and expenses incurred in connection
with compliance with state securities or blue sky laws and compliance with the
rules of the NASD (including reasonable fees and disbursements of one counsel
for Holders in connection with blue sky qualification of any of the Exchange
Notes), (iii) all expenses of preparing, word processing, printing and
distributing any Registration Statement, any prospectus and any amendments or
supplements thereto, (iv) all rating agency fees, (v) the fees and disbursements
of counsel for the Issuer and of the independent public accounts of the Issuer,
including the expenses of any "cold comfort" letters required by or incident to
such performance and compliance, but excluding fees of counsel to the
underwriters or the Holders (unless such fees have been approved in writing by
the Issuer) and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Securities by a Holder, (vi) the
fees and expenses of the Trustee, and any escrow agents or custodians, and (vii)
any fees and disbursements of the underwriters customarily required to be paid
by issuers and sellers of securities and the reasonable fees and expenses of any
special experts retained by the Issuer in connection with any Registration
Statement, but excluding underwriting discounts and commissions and transfer
taxes, if any.
5. INDEMNIFICATION. (a) The Issuer agrees to indemnify and hold
harmless each Holder of the Securities (other than a Holder which acquires
Securities pursuant to the Registered Exchange Offer which are freely
transferable without compliance with the prospectus delivery requirements of the
Securities Act), any Participating Broker-Dealer and each person, if any, who
controls such Holder or such Participating Broker-Dealer within the meaning of
the Securities Act or the Exchange Act (each Holder, any Participating
Broker-Dealer and such controlling persons are referred to collectively as the
"Seller Indemnified Party") from and against any losses, claims, damages or
liabilities, joint or several, or any actions in respect thereof (including, but
not limited to, any losses, claims, damages, liabilities or actions relating to
purchases and sales of the Securities) to which each Seller Indemnified Party
may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement or prospectus included therein or in
any amendment or supplement thereto, or arise out of, or are based upon, the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse, as incurred, each Seller Indemnified Party for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action in respect thereof;
PROVIDED, HOWEVER, that (i) the Issuer shall not be liable in any such case to
the extent that such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in a Registration Statement or prospectus included therein or in
any amendment or supplement thereto or in any preliminary prospectus relating to
a Shelf Registration in reliance upon and in conformity with written information
pertaining to such Holder and furnished to the Issuer by or on behalf of such
Holder specifically for inclusion therein and (ii) with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
preliminary prospectus relating to a Shelf Registration Statement, the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Seller Indemnified Party from whom the person asserting any such losses, claims,
damages or liabilities purchased the Securities concerned, to the extent that a
prospectus relating to such Securities was required to be delivered by such
Holder or Participating Broker-Dealer under the Securities Act in connection
with such purchase and any such loss, claim, damage or liability of such Holder
or Participating Broker-Dealer results from the fact that there was not sent or
given to such person, at or prior to the written confirmation of the sale of
such Securities to such person, a copy of the final prospectus if the Issuer had
previously furnished copies thereof to such Seller Indemnified Party and such
final prospectus corrected such untrue statement or omission; PROVIDED FURTHER,
HOWEVER, that this indemnity agreement will be in addition to any liability
which the Issuer may otherwise have to such Seller Indemnified Party. The Issuer
shall also indemnify underwriters, selling brokers, dealer-managers and similar
securities industry professionals participating in the distribution (as
described in the Registration Statement), their officers and directors and each
person who controls such persons within the meaning of the Securities Act or the
Exchange Act to the same extent as provided above with respect to the
indemnification of the Holders of the Securities if requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Issuer and each person, if any, who controls the
Issuer within the meaning of the Securities Act or the Exchange Act (each, a
"Company Indemnified Party") from and against any losses, claims, damages or
liabilities or any actions in respect thereof, to which each Company Indemnified
Party may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages, liabilities or actions arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement or prospectus or in any
amendment or supplement thereto or in any preliminary prospectus relating to a
Shelf Registration, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary to make the statements
therein not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information pertaining to such
Holder and furnished to the Issuer by or on behalf of such Holder specifically
for inclusion therein; and, subject to the limitation set forth immediately
preceding this clause, shall reimburse, as incurred, the Issuer for any legal or
other expenses reasonably incurred by each Company Indemnified Party in
connection with investigating or defending any loss, claim, damage, liability or
action in respect thereof. This indemnity agreement will be in addition to any
liability which such Holder may otherwise have to each Company Indemnified
Party.
(c) Promptly after receipt by a Seller Indemnified Party or a
Company Indemnified Party (each, an "Indemnified Party") under this Section 5 of
notice of the commencement of any action or proceeding (including a governmental
investigation), such Indemnified Party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 5, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not, in any event, relieve the indemnifying party
from any obligations to any Indemnified Party other than the indemnification
obligation provided in paragraph (a) or (b) above. In case any such action is
brought against any Indemnified Party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such Indemnified Party (who shall not, except with the consent
of the Indemnified Party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such Indemnified Party of its election so
to assume the defense thereof the indemnifying party will not be liable to such
Indemnified Party under this Section 5 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
Indemnified Party in connection with the defense thereof. No indemnifying party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any pending or threatened action in respect of which any
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party unless such settlement includes an
unconditional release of such Indemnified Party from all liability on any claims
that are the subject matter of such action.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an Indemnified Party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the one
hand and the Indemnified Party on the other from the exchange of the Notes,
pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by
the foregoing clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and the Indemnified Party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Issuer on the one hand or
such Holder or such other indemnified person, as the case may be, on the other,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid by
an Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any action or claim which is
the subject of this subsection (d). Notwithstanding any other provision of this
Section 5(d), no Seller Indemnified Party shall be required to contribute any
amount in excess of the amount by which the net proceeds received by such Seller
Indemnified Party from the sale of the Securities pursuant to a Registration
Statement exceeds the amount of damages which such Seller Indemnified Party has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The agreements contained in this Section 5 shall survive the
sale of the Securities pursuant to a Registration Statement and shall remain in
full force and effect, regardless of any termination or cancelation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES. (a) Additional
interest (the "Additional Interest") with respect to the Securities shall be
assessed as follows if any of the following events occur (each such event in
clauses (i) through (iii) below a "Registration Default"):
(i) if by May 27, 1997, neither the Exchange Offer Registration
Statement nor a Shelf Registration Statement has been filed with the
Commission;
(ii) if by August 11, 1997, neither the Registered Exchange Offer is
consummated nor, if required in lieu thereof, the Shelf Registration
Statement is declared effective by the Commission; or
(iii) if after either the Exchange Offer Registration Statement or
the Shelf Registration Statement is declared effective, (A) such
Registration Statement thereafter ceases to be effective; or (B) such
Registration Statement or the related prospectus ceases to be usable
(except as permitted in paragraph (b)) in connection with resales of
Transfer Restricted Notes during the periods specified herein, because
either (1) any event occurs as a result of which the related prospectus
forming part of such Registration Statement would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or (2) it shall be necessary to
amend such Registration Statement or supplement the related prospectus, to
comply with the Securities Act or the Exchange Act or the respective rules
thereunder.
Additional Interest shall accrue on the Notes over and above the interest set
forth in the title of the Notes from and including the date on which any such
Registration Default shall occur to but excluding the date on which all such
Registration Defaults have been cured, at a rate of 0.50% per annum.
(b) A Registration Default referred to in Section 6(a)(iii)(B) shall
be deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited
financial information with respect to the Issuer where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events, with respect
to the Issuer that would need to be described in such Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Issuer is proceeding promptly and in good faith to amend or supplement such
Shelf Registration Statement and related prospectus to describe such events;
PROVIDED, HOWEVER, that in any case if such Registration Default occurs for a
continuous period in excess of 30 days, Additional Interest shall be payable in
accordance with the above paragraph from the day following such 30-day period
until the date on which such Registration Default is cured.
(c) Any amounts of Additional Interest due pursuant to clause
(a)(i), (a)(ii) or (a)(iii) of Section 6 above will be payable in cash on the
regular interest payment dates with respect to the Notes. The amount of
Additional Interest will be determined by multiplying the applicable Additional
Interest rate by the principal amount of the Notes, multiplied by a fraction,
the numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
(d) "Transfer Restricted Notes" means each Security until (i) the
date on which such Transfer Restricted Note has been exchanged by a person other
than a broker-dealer for a freely transferrable Exchange Note in the Registered
Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered
Exchange Offer of a Transfer Restricted Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Transfer Restricted Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Transfer Restricted Note is distributed
to the public pursuant to Rule 144 under the Securities Act or is saleable
pursuant to Rule 144(k) under the Securities Act.
7. RULES 144 AND 144A. For so long as the Issuer is subject to the
reporting requirements of Section 13 or 15 of the Exchange Act, the Issuer shall
use all reasonable efforts to file the reports required to be filed by it under
the Securities Act and Section 13(a) or 15(d) of the Exchange Act in a timely
manner and, if at any time the Issuer is not required to file such reports, it
will, upon the request of any Holder of Transfer Restricted Notes, make publicly
available other information so long as necessary to permit sales of their
securities pursuant to Rules 144 and 144A. The Issuer covenants that it will
take such further action as any Holder of Transfer Restricted Notes may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Transfer Restricted Notes without registration under the
Securities Act within the limitation of the exemptions provided by Rules 144 and
144A (including the requirements of Rule 144A(d)(4)). The Issuer will provide a
copy of this Agreement to prospective purchasers of Notes identified to the
Issuer by the Initial Purchaser upon request. Upon the request of any Holder of
Transfer Restricted Notes, the Issuer shall deliver to such Holder a written
statement as to whether it has complied with such requirements. Notwithstanding
the foregoing, nothing in this Section 7 shall be deemed to require the Issuer
to register any of its securities pursuant to the Exchange Act.
8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted
Notes covered by any Shelf Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering ("Managing Underwriters") will be selected by
the Holders of a majority in aggregate principal amount of such Transfer
Restricted Notes to be included in such offering and shall be reasonably
acceptable to the Issuer.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted Notes on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
9. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Issuer and the written
consent of the Holders of a majority in principal amount of the Securities
affected by such amendment, modification, supplement, waiver or consents.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most current address
given by such Holder to the Issuer in accordance with the provisions of
this Section 9(b), which address initially is, with respect to each
Holder, the address of such Holder to which confirmation of the sale of
the Notes to such Holder was first sent by the Initial Purchaser, with a
copy (which shall not constitute notice) in like manner to you as follows:
Chase Securities Inc.
270 Park Avenue
New York, NY 10017
Fax No.: (212) 270-7429
Attention: Legal Department
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Fax No.: (212) 474-3700
Attention: Timothy G. Massad, Esq.
(2) if to the Initial Purchaser, at the address specified in Section
9(b)(1);
(3) if to the Issuer, at its address as follows:
Texas Petrochemicals Corporation
8707 Katy Freeway, Suite 300
Houston, TX 77024
Fax No.: (713) 461-1029
Attention: President
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged by recipient's facsimile machine operator when
acknowledged during the recipient's normal business hours, and otherwise on the
following business day, if sent by facsimile transmission; and on the day
delivered, if sent by overnight air courier guaranteeing next day delivery.
(c) SUBMISSION TO JURISDICTION. The Issuer hereby submits to the
nonexclusive jurisdiction of the Federal and state courts in the Borough of
Manhattan in the City of New York in any suit or proceeding between the parties
arising out of or relating to this Agreement or the transactions contemplated
hereby.
(d) NO INCONSISTENT AGREEMENTS. The Issuer has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Issuer and its successors and assigns.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
(i) SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(j) SECURITIES HELD BY THE ISSUER. Whenever the consent or approval
of Holders of a specified percentage of principal amount of Securities is
required hereunder, Securities held by the Issuer or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their holdings of such Securities) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Issuer a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchaser and the Issuer in accordance with its terms.
Very truly yours,
TEXAS PETROCHEMICALS
CORPORATION,
by
Name:
Title:
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
CHASE SECURITIES INC.,
by
Name:
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Issuer has agreed that, for a period of 180 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
See "Plan of Distribution".
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account
in exchange for Notes, where such 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 Exchange
Notes. See "Plan of Distribution".
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of market-making activities or other trading activities. The Issuer has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until ________________, 199_,
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.(1)
The Issuer will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
- -----------------
(1) In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
2
For a period of 180 days after the Expiration Date the Issuer 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 Issuer has agreed to pay all expenses incident
to the Exchange Offer (including the expenses approved in writing of one counsel
for the Holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE>
ANNEX D
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND
10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
EXHIBIT 5
April 3, 1997
Texas Petrochemicals Corporation
Three Riverway, Suite 1500
Houston, Texas 77015
Ladies and Gentlemen:
We have acted as counsel to Texas Petrochemicals Corporation (the "Company"), a
Texas corporation, in connection with the offer by the Company to exchange
$1,000 principal amount at final maturity of its 11 1/8% Series B Exchange
Senior Subordinated Notes due 2006 (the "Exchange Notes") for each $1,000
principal amount at final maturity of its 11 1/8% Series B Senior Subordinated
Notes due 2006 (the "Original Series B Notes"), of which an aggregate of
$50,000,000 principal amount is outstanding (the "Exchange Offer"). The Company
has filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-4 with respect to the Exchange Offer (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Securities Act").
We have examined originals or copies certified by officers of the Company of (a)
the Indenture dated as of March 1, 1997 (the "Indenture"), by and between the
Company and Fleet National Bank, as Trustee (the "Trustee"), pursuant to which
the Original Series B Notes were issued and the Exchange Notes will be issued,
(b) the Articles of Incorporation, as amended, of the Company, (c) the Bylaws of
the Company, (d) certified copies of certain resolutions adopted by the Board of
Directors of the Company, and (e) such other documents and records as we have
deemed necessary and relevant for the purposes hereof. In addition, we have
relied on certificates of officers of the Company and of public officials and
others as to certain matters of fact relating to this opinion and have made such
investigations of law as we have deemed necessary and relevant as a basis
hereof. We have assumed the genuineness of all signatures, the authenticity of
all documents and records submitted to us as copies, the conformity to authentic
original documents and records of all documents and records submitted to us as
copies, and the truthfulness of all statements of fact contained therein. We
have also assumed the due execution and delivery of the Indenture by a duly
authorized officer of the Trustee.
<PAGE>
Texas Petrochemicals Corporation
April 3, 1997
Page 2
Based on the foregoing, and subject to the limitations, assumptions and
qualifications set forth herein, and having due regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. the Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Texas; and
2. the Original Series B Notes and the Exchange Notes have been validly
authorized and issued, and (subject to the Registration Statement
becoming effective, the Indenture being qualified under the Trust
Indenture Act of 1939 and any state securities or Blue Sky laws being
complied with) when (i) the Exchange Notes have been duly executed by
duly authorized officers of the Company, (ii) the Exchange Notes have
been duly authenticated by the Trustee under the Indenture, and (iii)
the Original Series B Notes have been validly tendered and not
withdrawn and have been received and accepted by the Company, all in
accordance with the terms of the Exchange Offer as set forth in the
Registration Statement, the Exchange Notes issued in exchange for the
Original Series B Notes in accordance with the terms of the Exchange
Offer will be validly issued and legally binding obligations of the
Company, entitled to the benefits of the Indenture.
We advise you that members of this firm own less than 0.5% of the outstanding
common stock of Texas Petrochemical Holdings, Inc., the parent corporation of
the Company.
We hereby consent to the filing of this opinion with the Commission as Exhibit 5
to the Registration Statement and to the references to our firm under the
heading "Legal Matters" in the Prospectus included in the Registration
Statement. By giving such consent, we do not admit that we are experts with
respect to any part of the Registration Statement, including this Exhibit,
within the meaning of the term "expert" as used in the Securities Act or the
rules and regulations of the Commission issued thereunder.
Very truly yours,
Bracewell & Patterson, L.L.P.
EXHIBIT 8
April 3, 1997
Texas Petrochemicals Corporation
8707 Katy Freeway, Suite 300
Houston, Texas 77024
Ladies and Gentlemen:
We have acted as counsel to Texas Petrochemicals Corporation, a Texas
corporation (the "Company") and an indirect, wholly-owned subsidiary of Texas
Petrochemical Holdings, Inc., a Delaware corporation, in connection with the
offer by the Company to exchange $1,000 principal amount of its 11 1/8% Series B
Exchange Senior Subordinated Notes due 2006 (the "Exchange Notes") for each
outstanding $1,000 principal amount of its 11 1/8% Series B Senior Subordinated
Notes due 2006 (the "Original Series B Notes") of which an aggregate of
$50,000,000 principal amount is outstanding (the "Exchange Offer"). The Company
has filed with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form S-4 with respect to the Exchange Offer (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act").
We have examined originals or copies of the Registration Statement and of (a)
the Indenture dated as of March 1, 1997 (the "Indenture") by and between the
Company and Fleet National Bank, as Trustee (the "Trustee"), pursuant to which
the Original Series B Notes were issued and pursuant to which the Exchange Notes
will be issued, (b) the Articles of Incorporation and Bylaws of the Company,
each as amended to date, (c) certain resolutions of the Board of Directors of
the Company, and (d) such other documents and records as we have deemed
necessary and relevant for the purposes hereof. In addition, we have relied on
certificates of officers of the Company and of public officials and others as to
certain matters of fact relating to this opinion and have made such
investigations of law as we have deemed necessary and relevant as a basis
hereof. We have assumed the genuineness of all signatures, the authenticity of
all documents and records submitted to us as originals, the conformity to
authentic original documents and records of all documents and records submitted
to us as copies and the truthfulness of all statements of fact contained
therein.
<PAGE>
Texas Petrochemicals Corporation
April 3, 1997
Page 2
Based upon and subject to the foregoing, and having regard for legal
considerations which we deem relevant, we hereby confirm, and adopt as our
opinion, the statements of legal matters contained in the Prospectus included in
the Registration Statement under the caption "Certain Federal Income Tax
Considerations."
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as Exhibit 8 to the Registration Statement and to the references to
our firm under the caption "Certain Federal Income Tax Considerations" in the
Prospectus included in the Registration Statement.
Very truly yours,
Bracewell & Patterson, L.L.P.
EXHIBIT 12
TEXAS OLEFINS COMPANY, SUBSIDIARIES AND AFFILIATE
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31, TWELVE ONE MONTH
------------------------------------------ MONTHS ENDED ENDED
1992 1993 1994 1995 MAY 31, 1996 JUNE 30, 1996
--------- --------- --------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes and
minority interest.................. $ 63,498 $ 41,081 $ 52,303 $ 49,268 $24,508 $1,988
Interest expense..................... 1,145 1,087 663 475 2,343 98
Interest portion of rental expense... 1,670 1,630 1,430 1,470 1,600 140
--------- --------- --------- --------- ------------- --------------
Earnings....................... $ 66,313 $ 43,798 $ 54,396 $ 51,213 $28,451 $2,226
========= ========= ========= ========= ============= ==============
Fixed Charges:
Interest expense................... $ 1,145 $ 1,087 $ 663 $ 475 $ 2,343 $ 98
Interest portion of rental
expense.......................... 1,670 1,630 1,430 1,470 1,600 140
--------- --------- --------- --------- ------------- --------------
Total fixed charges............ $ 2,815 $ 2,717 $ 2,093 $ 1,945 $ 3,943 $ 238
========= ========= ========= ========= ============= ==============
Ratio of earnings to fixed
charges.......................... 23.6x 16.1x 26.0x 26.3x 7.2x(2) 9.4x
</TABLE>
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------ ------------------
Income (loss) before income taxes and
minority interest.................. $ 24,342 $ (5,772)
Interest expense..................... 1,565 17,367
Interest portion of rental expense... 800 750
-------- --------
Earnings....................... $ 26,707 $ 12,345
======== ========
Fixed Charges:
Interest expense................... $ 1,565 $ 17,367
Interest portion of rental
expense.......................... 800 750
-------- --------
Total fixed charges............ $ 2,365 $ 18,117
======== ========
Ratio of earnings to fixed
charges.......................... 11.3x -- (1)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
TWELVE ONE MONTH SIX MONTHS
MONTHS ENDED ENDED ENDED
MAY 31, 1996 JUNE 30, 1996 DECEMBER 31, 1996
------------- -------------- ------------------
<S> <C> <C> <C>
Loss before income taxes and minority
interest........................... $ (10,400) $ (1,700) $ (6,100)
Interest expense..................... 32,700 2,700 17,700
Interest portion of rental expense... 1,600 140 750
------------- -------------- ------------------
Earnings...................... $ 23,900 $ 1,140 $ 12,350
============= ============== ==================
Fixed Charges:
Interest expense................... $ 32,700 $ 2,700 $ 17,700
Interest portion of rental
expense......................... 1,600 140 750
------------- -------------- ------------------
Total fixed charges........... $ 34,300 $ 2,840 $ 18,450
============= ============== ==================
Ratio of earnings to fixed
charges......................... -- (1) -- (1) -- (1)
============= ============== ==================
</TABLE>
- ------------
(1) For the six months ended December 31, 1996, the pro forma twelve months
ended May 31, 1996, the pro forma one month ended June 30, 1996 and the pro
forma six months ended December 31, 1996, earnings were insufficient to
cover fixed charges in the amount of $(5.8) million, $(10.4) million, $(1.7)
million and $(6.1) million, respectively.
(2) For the twelve months ended May 31, 1996, income before taxes and minority
interest includes a $12.6 million non-cash provision for the impairment of
certain non-strategic properties which TPC intends to sell.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our reports dated August 16, 1996, on our audits of the financial statements of
TPC Finance Corp. and Texas Olefins Company, subsidiaries and affiliate, which
includes explanatory paragraphs relating to the acquisition of Texas Olefins
Company and changes in accounting principles. We also consent to the reference
to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Houston, Texas
April 3, 1997
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director
of Texas Petrochemicals Corporation, a Texas corporation (the "Company"), hereby
constitutes and appoints Stephen R. Wright and Claude E. Manning, and each of
them (with full power to each of them to act alone), the undersigned's true and
lawful attorney-in-fact and agent, for the undersigned and on the undersigned's
behalf and in the undersigned's name, place and stead, in any and all
capacities, to sign, execute and file with the Securities and Exchange
Commission the Company's Registration Statement on Form S-4 (or other
appropriate form), together with all amendments thereto, with all exhibits and
any and all documents required to be filed with respect thereto with any
regulatory authority, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 27th day of March, 1997.
/s/ WILLIAM A. MCMINN
William A. McMinn
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director
of Texas Petrochemicals Corporation, a Texas corporation (the "Company"), hereby
constitutes and appoints Stephen R. Wright and Claude E. Manning, and each of
them (with full power to each of them to act alone), the undersigned's true and
lawful attorney-in-fact and agent, for the undersigned and on the undersigned's
behalf and in the undersigned's name, place and stead, in any and all
capacities, to sign, execute and file with the Securities and Exchange
Commission the Company's Registration Statement on Form S-4 (or other
appropriate form), together with all amendments thereto, with all exhibits and
any and all documents required to be filed with respect thereto with any
regulatory authority, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 31st day of March, 1997.
/s/ GORDON A. CAIN
Gordon A. Cain
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director
of Texas Petrochemicals Corporation, a Texas corporation (the "Company"), hereby
constitutes and appoints Stephen R. Wright and Claude E. Manning, and each of
them (with full power to each of them to act alone), the undersigned's true and
lawful attorney-in-fact and agent, for the undersigned and on the undersigned's
behalf and in the undersigned's name, place and stead, in any and all
capacities, to sign, execute and file with the Securities and Exchange
Commission the Company's Registration Statement on Form S-4 (or other
appropriate form), together with all amendments thereto, with all exhibits and
any and all documents required to be filed with respect thereto with any
regulatory authority, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 31st day of March, 1997.
/s/ JAMES J. COLLIS
James J. Collis
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director
of Texas Petrochemicals Corporation, a Texas corporation (the "Company"), hereby
constitutes and appoints Stephen R. Wright and Claude E. Manning, and each of
them (with full power to each of them to act alone), the undersigned's true and
lawful attorney-in-fact and agent, for the undersigned and on the undersigned's
behalf and in the undersigned's name, place and stead, in any and all
capacities, to sign, execute and file with the Securities and Exchange
Commission the Company's Registration Statement on Form S-4 (or other
appropriate form), together with all amendments thereto, with all exhibits and
any and all documents required to be filed with respect thereto with any
regulatory authority, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 31st day of March, 1997.
/s/ WILLIAM R. HUFF
William R. Huff
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director
of Texas Petrochemicals Corporation, a Texas corporation (the "Company"), hereby
constitutes and appoints Stephen R. Wright and Claude E. Manning, and each of
them (with full power to each of them to act alone), the undersigned's true and
lawful attorney-in-fact and agent, for the undersigned and on the undersigned's
behalf and in the undersigned's name, place and stead, in any and all
capacities, to sign, execute and file with the Securities and Exchange
Commission the Company's Registration Statement on Form S-4 (or other
appropriate form), together with all amendments thereto, with all exhibits and
any and all documents required to be filed with respect thereto with any
regulatory authority, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 31st day of March, 1997.
/s/ JOHN T. SHELTON
John T. Shelton
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director
of Texas Petrochemicals Corporation, a Texas corporation (the "Company"), hereby
constitutes and appoints Stephen R. Wright and Claude E. Manning, and each of
them (with full power to each of them to act alone), the undersigned's true and
lawful attorney-in-fact and agent, for the undersigned and on the undersigned's
behalf and in the undersigned's name, place and stead, in any and all
capacities, to sign, execute and file with the Securities and Exchange
Commission the Company's Registration Statement on Form S-4 (or other
appropriate form), together with all amendments thereto, with all exhibits and
any and all documents required to be filed with respect thereto with any
regulatory authority, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto signed this power of
attorney this 26th day of March, 1997.
/s/ SUSAN O. RHENEY
Susan O. Rheney
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM T-1
--------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
[ ] CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
FLEET NATIONAL BANK
----------------------------------------------------------
(Exact name of trustee as specified in its charter)
Not applicable 06-0850628
---------------------------- ------------------
(State of incorporation if (I.R.S. Employer
not a national bank) Identification No.)
777 Main Street, Hartford, Connecticut 06115
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Patricia Beaudry, 777 Main Street, Hartford, CT (860) 728-2065
------------------------------------------------------------------
(Name, address and telephone number of agent for service)
TEXAS PETROCHEMICALS CORPORATION
------------------------------------------------------------------
(Exact name of obligor as specified in its charter)
Texas 74-1778313
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Riverway, Suite 1500, Houston, Texas 77056
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
11-1/8% Series B Senior Subordinated Notes due 2006
------------------------------------------------------------------
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject:
The Comptroller of the Currency,
Washington, D.C.
Federal Reserve Bank of Boston
Boston, Massachusetts
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor. If the obligor is an affiliate of
the trustee, describe each such affiliation.
None with respect to the trustee; none with respect to Fleet
Financial Group, Inc. and its affiliates (the "affiliates").
Item 16. List of exhibits. List below all exhibits filed as a part of
this statement of eligibility and qualification.
1. A copy of the Articles of Association of the trustee as
now in effect.
2. A copy of the Certificate of Authority of the trustee
to do Business and the Certification of Fiduciary Powers.
3. A copy of the By-laws of the trustee as now in effect.
4. Consent of the trustee required by Section 321(b) of
the Act.
5. A copy of the latest Consolidated Report of Condition
and Income of the trustee, published pursuant to law or the requirements
of its supervising or examining authority.
<PAGE>
NOTES
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base its answer to Item 2, the answer to said
Item is based upon incomplete information. Said Item may, however, be
considered correct unless amended by an amendment to this Form T-1.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Fleet National Bank, a national banking association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Hartford, and State of
Connecticut, on the 3rd day of April, 1997.
FLEET NATIONAL BANK,
Trustee
By
-------------------------------------
Michael M. Hopkins
Vice President
<PAGE>
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
FLEET NATIONAL BANK
FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Fleet National Bank."
SECOND. The main office of the Association shall be in Springfield, Hampden
County Commonwealth of Massachusetts. The general business of the Association
shall be conducted at its main office and its branches.
THIRD. The board of directors of this Association shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full board of directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
board of directors for any reason, including an increase in the number thereof,
may be filled by action of the board of directors.
FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the board of
directors may designate, on the day of each year specified therefore in the
bylaws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the board of
directors.
FIFTH. The authorized amount of capital stock of this Association shall be
eight million five hundred thousand (8,500,000) shares of which three million
five hundred thousand (3,500,000) shares shall be common stock with a
par value of six and 25/100 dollars ($6.25) each, and of which five million
(5,000,000) shares without par value shall be preferred stock. The capital
stock may be increased or decreased from time to time, in accordance with
the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.
<PAGE>
The board of directors of the Association is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance from time to time in one or more series of any number of the preferred
shares, and to establish the number of shares be included in each series, and
to fix the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the board of
directors with respect to each series shall include, but not be limited to,
determination of the following:
a. The number of shares constituting that series and the distinctive
designation of that series;
b. The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and whether they shall be
payable in preference to, or in another relation to, the dividends payable
to any other class or classes or series of stock;
c. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
d. Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the board of directors shall determine;
e. Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
f. Whether that series shall be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of that series, and, if
so, the terms and amounts of such sinking fund;
g. The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Association or any
subsidiary, upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Association or any subsidiary of
any outstanding stock of the Association;
h. The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Association and
whether such rights shall be in preference to, or in another relation to,
the comparable rights of any other class or classes or series of stock; and
i. Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.
Shares of any series of preferred stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of preferred stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the board of directors or as part of any other series or
preferred stock, all subject to the conditions and the restrictions adopted by
the board of directors providing for the issue of any series of preferred
stock and by the provisions of any applicable law.
Subject to the provisions of any applicable law, or except as otherwise
provided by the resolution or resolutions providing for the issue of any series
of preferred stock, the holders of outstanding shares of common stock shall
exclusively possess voting power for the election of directors and for all
purposes, each holder of record of shares of common stock being entitled to one
vote for each share of common stock standing in his name on the books of the
Association.
Except as otherwise provided by the resolution or resolutions providing for the
issue of any series of preferred stock, after payment shall have been made to
the holders of preferred stock of the full amount of dividends to which they
shall be entitled pursuant to the resolution or resolutions providing for the
issue of any other series of preferred stock, the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to receive such dividends as from time to time may be declared by the
board of directors.
Except as otherwise provided by the resolution or resolutions for the issue
of any series of preferred stock, in the event of any liquidation, dissolution
or winding up of the Association, whether voluntary or involuntary, after
payment shall have been made to the holders of preferred stock of the full
amount to which they shall be entitled pursuant to the resolution or
resolutions providing for the issue of any series of preferred stock the
holders of common stock shall be entitled, to the exclusion of the holders of
preferred stock of any and all series, to share, ratable according to the
number of shares of common stock held by them, in all remaining assets of the
Association available for distribution to its shareholders.
The number of authorized shares of any class may be increased or decreased by
the affirmative vote of the holders of a majority of the stock of the
Association entitled to vote.
<PAGE>
SIXTH. The board of directors shall appoint one of its members president of
this Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the
power to appoint one or more vice presidents; and to appoint a secretary and
such other officers and employees as may be required to transact the business
of this Association.
The board of directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.
SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association
to any other location, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.
TENTH. (a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director, officer or employee of the Association or is or was
serving at the request of the Association as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust, or other enterprise, including service with respect
to an employee benefit plan, shall be indemnified and held harmless by the
Association to the fullest extent authorized by the law of the state in which
the Association's ultimate parent company is incorporated, except as provided
in subsection (b). The aforesaid indemnity shall protect the indemnified
person against all expense, liability and loss (including attorney's fees,
judgements, fines ERISA excise taxes or penalties, and amounts paid in
settlement) reasonably incurred by such person in connection with such a
proceeding. Such indemnification shall continue as to a person who has ceased
to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors, and administrators, but shall only cover such person's
period of service with the Association. The Association may, by action of its
Board of Directors, grant rights to indemnification to agents of the
Association and to any director, officer, employee or agent of any of its
subsidiaries with the same scope and effect as the foregoing indemnification
of directors and officers.
(b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no
person shall be indemnified hereunder by the Association against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties against that person,
requiring affirmative action by that person in the form of payments to the
Association, or removing or prohibiting that person from service with the
Association, and any advancement of expenses to that person in that proceeding
must be repaid; and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person
hereunder to the extent such indemnification or advancement of expenses would
violate or conflict with any applicable federal statute now or hereafter in
force or any applicable final regulation or interpretation now or hereafter
adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal
Deposit Insurance Corporation ("FDIC"). The Association shall comply with any
requirements imposed on it by any such statue or regulation in connection with
any indemnification or advancement of expenses hereunder by the Association.
With respect to proceedings to enforce a claimant's rights to indemnification,
the Association shall indemnify any such claimant in connection with such a
proceeding only as provided in subsection (d) hereof.
(c) Advancement of Expenses. The conditional right to indemnification
conferred in this section shall be a contract right and shall include the
right to be paid by the Association the reasonable expenses (including
attorney's fees) incurred in defending a proceeding in advance of its final
disposition (an "advancement of expenses"); provided, however, that an
advancement of expenses shall be made only upon (i) delivery to the Association
of a binding written undertaking by or on behalf of the person receiving the
advancement to repay all amounts so advanced if it is ultimately determined
that such person is not entitled to be indemnified in such proceeding,
including if such proceeding results in a final order assessing civil money
penalties against that person, requiring affirmative action by that person
in the form of payments to the Association, or removing or prohibiting that
person from service with the Association, and (ii) compliance with any other
actions or determinations required by applicable law, regulation or OCC or FDIC
interpretation to be taken or made by the Board of Directors of the Association
<PAGE>
or other persons prior to an advancement of expenses. The Association shall
cease advancing expenses at any time its Board of Directors believes that any
of the prerequisites for advancement of expenses are no longer being met.
(d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the
section is not paid in full by the Association within thirty (30) days after
written claim has been received by the Association, the claimant may at any time
thereafter bring suit against the Association to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Association to recover an advancement of expenses pursuant
to the terms of an undertaking, the claimant shall be entitled to be paid also
the expense of prosecuting or defending such claim. It shall be a defense to
any such action brought by the claimant to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for an advancement
of expenses where the required undertaking, if any, has been tendered to the
Association) that the claimant has not met any applicable standard for
indemnification under the law of the state in which the Association's ultimate
parent company is incorporated. In any suit brought by the Association to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Association shall be entitled to recover such expenses upon a final
adjudication that the claimant has not met any applicable standard for
indemnification standard for indemnification under the law of the state in
which the Association's ultimate parent company is incorporated.
(e) Non-Exclusivity of Rights. The rights to indemnification and the
advancement of expenses conferred in this section shall not be exclusive of any
other right which any person may have or hereafter acquired under any statute,
agreement, vote of stockholders or disinterested directors or otherwise.
(f) Insurance. The Association may purchase, maintain, and make payment or
reimbursement for reasonable premiums on, insurance to protect itself and any
director, officer, employee or agent of the Association or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Association would have the power to
indemnify such person against such expense, liability or loss under the law of
the state in which the Association's ultimate parent company is incorporated;
provided however, that such insurance shall explicitly exclude insurance
coverage for a final order of a federal bank regulatory agency assessing civil
money penalties against an Association director, officer, employee or agent.
ELEVENTH. These articles of association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount. The notice of any shareholders' meeting at
which an amendment to the articles of association of this Association is to be
considered shall be given as hereinabove set forth.
I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.
Secretary/Assistant Secretary
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Dated at , as of .
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Revision of February 15, 1996
<PAGE>
EXHIBIT 2
AMENDED AND RESTATED BY-LAWS OF
FLEET NATIONAL BANK
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The regular annual meeting of the shareholders for
the election of Directors and the transaction of any other business that may
properly come before the meeting shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, on
the fourth Thursday of April in each year at 1:15 o'clock in the afternoon
unless some other hour of such day is fixed by the Board of Directors.
If, from any cause, an election of Directors is not made on such day, the Board
of Directors shall order the election to be held on some subsequent day, of
which special notice shall be given in accordance with the provisions of law,
and of these bylaws.
Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board of Directors, the President, or any shareholders
owning not less than twenty-five percent (25%) of the stock of the Association.
Section 3. Notice of Meetings of Shareholders. Except as otherwise provided
by law, notice of the time and place of annual or special meetings of the
shareholders shall be mailed, postage prepaid, at least ten (10) days before
the date of the meeting to each shareholder of record entitled to vote thereat
at his address as shown upon the books of the Association; but any failure to
mail such notice to any shareholder or any irregularity therein, shall not
affect the validity of such meeting or of any of the proceedings thereat.
Notice of a special meeting shall also state the purpose of the meeting.
Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a
quorum for the transaction of business at every meeting of the shareholders
shall consist of not less than two-fifths (2/5) of the outstanding capital
stock represented in person or by proxy; less than such quorum may adjourn the
meeting to a future time. No notice need be given of an adjourned annual or
special meeting of the shareholders if the adjournment be to a definite place
and time.
Section 5. Votes and Proxies. At every meeting of the shareholders, each
share of the capital stock shall be entitled to one vote except as otherwise
provided by law. A majority of the votes cast shall decide every question
or matter submitted to the shareholder at any meeting, unless otherwise
provided by law or by the Articles of Association or these By-laws. Share-
holders may vote by proxies duly authorized in writing and filed with the
Cashier, but no officer, clerk, teller or bookkeeper of the Association may act
as a proxy.
<PAGE>
Section 6. Nominations to Board of Directors. At any meeting of shareholders
held for the election of Directors, nominations for election to the Board of
Directors may be made, subject to the provisions of this section, by any share-
holder of record of any outstanding class of stock of the Association entitled
to vote for the election of Directors. No person other than those whose names
are stated as proposed nominees in the proxy statement accompanying the notice
of the meeting may be nominated as such meeting unless a shareholder shall have
given to the President of the Association and to the Comptroller of the
Currency, Washington, DC written notice of intention to nominate such other
person mailed by certified mail or delivered not less than fourteen (14) days
nor more than fifty (50) days prior to the meeting of shareholders at which
such nomination is to be made; provided, however, that if less than twenty-one
(21) days' notice of such meeting is given to shareholders, such notice of
intention to nominate shall be mailed by certified mail or delivered to said
President and said Comptroller on or before the seventh day following the day
on which the notice of such meeting was mailed. Such notice of intention to
nominate shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Association that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Association owned by the
notifying shareholder. In the event such notice is given, the proposed nominee
may be nominated either by the shareholder giving such notice or by any other
shareholder present at the meeting at which such nomination is to be made.
Such notice may contain the names of more than one proposed nominee, and if
more than one is named, any one or more of those named may be nominated.
Section 7. Action Taken Without a Shareholder Meeting. Any action requiring
shareholder approval or consent may be taken without a meeting and without
notice of such meeting by written consent of the shareholders.
ARTICLE II
DIRECTORS
Section 1. Number. The Board of Directors shall consist of such number of
shareholders, not less than five (5) nor more than twenty-five (25), as from
time to time shall be determined by a majority of the votes to which all of its
shareholders are at the time entitled, or by the Board of Directors as
hereinafter provided.
Section 2. Mandatory Retirement for Directors. No person shall be elected a
director who has attained the age of 68 and no person shall continue to serve
as a director after the date of the first meeting of the stockholders of the
Association held on or after the date on which such person attains the age of
68; provided, however, that any director serving on the Board as of December
15, 1995 who has attained the age of 65 on or prior to such date shall be
permitted to continue to serve as a director until the date of the first
meeting of the stockholders of the Association held on or after the date on
which such person attains the age of 70.
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<PAGE>
Section 3. General Powers. The Board of Directors shall exercise all the
corporate powers of the Association, except as expressly limited by law, and
shall have the control, management, direction and disposition of all its
property and affairs.
Section 4. Annual Meeting. Immediately following a meeting of shareholders
held for the election of Directors, the Cashier shall notify the directors-
elect who may be present of their election and they shall then hold a meeting
at the Main Office of the Association, or such other place as the Board of
Directors may designate, for the purpose of taking their oaths, organizing the
new Board, electing officers and transacting any other business that may come
before such meeting.
Section 5. Regular Meeting. Regular meetings of the Board of Directors shall
be held without notice at the Main Office of the Association, or such other
place as the Board of Directors may designate, at such dates and times as the
Board shall determine. If the day designated for a regular meeting falls on a
legal holiday, the meeting shall be held on the next business day.
Section 6. Special Meetings. A special meeting of the Board of Directors may
be called at anytime upon the written request of the Chairman of the Board, the
President, or of two Directors, stating the purpose of the meeting. Notice of
the time and place shall be given not later than the day before the date of the
meeting, by mailing a notice to each Director at his last known address, by
delivering such notice to him personally, or by telephoning.
Section 7. Quorum; Votes. A majority of the Board of Directors at the time
holding office shall constitute a quorum for the transaction of all business,
except when otherwise provided by law, but less than a quorum may adjourn
a meeting from time to time, and the meeting may be held, as adjourned, without
further notice. If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors.
Section 8. Action by Directors Without a Meeting. Any action requiring
Director approval or consent may be taken without a meeting and without notice
of such meeting by written consent of all the Directors.
Section 9. Telephonic Participation in Directors' Meetings. A Director or
member of a Committee of the Board of Directors may participate in a meeting of
the Board or of such Committee may participate in a meeting of the Board or of
such Committee by means of a conference telephone or similar communications
equipment enabling all Directors participating in the meeting to hear one
another, and participation in such a meeting shall constitute presence in person
at such a meeting.
Section 10. Vacancies. Vacancies in the Board of Directors may be filled by
the remaining members of the Board at any regular or special meeting of the
Board.
Section 11. Interim Appointments. The Board of Directors shall, if the share-
holders at any meeting for the election of Directors have determined a number
of Directors less than twenty-five (25), have the power, by affirmative vote of
the majority of all the Directors, to increase such number of Directors to not
more than twenty-five (25) and to elect Directors to fill the resulting
vacancies and to serve until the next annual meeting of shareholders or the
next election of Directors; provided, however, that the number of Directors
shall not be so increased by more than two (2) if the number last determined
by shareholders was fifteen (15) or less, or increased by more than four (4) if
the number last determined by shareholders was sixteen (16) or more.
Section 12. Fees. The Board of Directors shall fix the amount and direct the
payment of fees which shall be paid to each Director for attendance at any
meeting of the Board of Directors or of any Committees of the Board.
ARTICLE III
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The Board of Directors shall appoint from its
members an Executive Committee which shall consist of such number of persons as
the Board of Directors shall determine; the Chairman of the Board and the
President shall be members ex-officio of the Executive Committee with full
voting power. The Chairman of the Board or the President may from time to time
appoint from the Board of Directors as temporary additional members of the
Executive Committee, with full voting powers, not more than two members to serve
for such periods as the Chairman of the Board or the President may determine.
The Board of Directors shall designate a member of the Executive Committee to
serve as Chairman thereof. A meeting of the Executive Committee may be called
at any time upon the written request of the Chairman of the Board, the President
or the Chairman of the Executive Committee, stating the purpose of the meeting.
Not less than twenty four hours' notice of said meeting shall be given to each
member of the Committee personally, by telephoning, or by mail. The Chairman of
the Executive Committee or, in his absence, a member of the Committee chosen by
a majority of the members present shall preside at meetings of the Executive
Committee.
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<PAGE>
The Executive Committee shall possess and may exercise all the powers of the
Board when the Board is not in session except such as the Board, only, by law,
is authorized to exercise; it shall keep minutes of its acts and proceedings
and cause same to be presented and reported at every regular meeting and at any
special meeting of the Board including specifically, all its actions relating
to loans and discounts.
All acts done and powers and authority conferred by the Executive Committee,
from time to time, within the scope of its authority, shall be deemed to be,
and may be certified as being, the acts of and under the authority of the
Board.
Section 2. Risk Management Committee. The Board shall appoint from its
members a Risk Management Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Risk
Management Committee to serve as Chairman thereof. It shall be the duty of the
Risk Management Committee to (a) serve as the channel of communication with
management and the Board of Directors of Fleet Financial Group, Inc. to assure
that formal processes supported by management information systems are in place
for the identification, evaluation and management of significant risks inherent
in or associated with lending activities, the loan portfolio, asset-liability
management, the investment portfolio, trust and investment advisory activities,
the sale of nondeposit investment products and new products and services and
such additional activities or functions as the Board may determine from time
to time; (b) assure the formulation and adoption of policies approved by the
Risk Management Committee or Board governing lending activities, management of
the loan portfolio, the maintenance of an adequate allowance for loan and lease
losses, asset-liability management, the investment portfolio, the retail
sale of non-deposit investment products, new products and services and such
additional activities or functions as the Board may determine from time to time
(c) assure that a comprehensive independent loan review program is in place for
the early detection of problem loans and review significant reports of the loan
review department, management's responses to those reports and the risk
attributed to unresolved issues; (d) subject to control of the Board, exercise
general supervision over trust activities, the investment of trust funds, the
disposition of trust investments and the acceptance of new trusts and the terms
of such acceptance, and (e) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 3. Audit Committee. The Board shall appoint from its members and
Audit Committee which shall consist of such number as the Board shall determine
no one of whom shall be an active officer or employee of the Association or
Fleet Financial Group, Inc. or any of its affiliates. In addition, members of
the Audit Committee must not (i) have served as an officer or employee of the
Association or any of its affiliates at any time during the year prior to their
appointment; or (ii) own, control, or have owned or controlled at any time
during the year prior to appointment, ten percent (10%) or more of any
outstanding class of voting securities of the Association. At least two (2)
members of the Audit Committee must have significant executive, professional,
educational or regulatory experience in financial, auditing, accounting,
or banking matters. No member of the Audit Committee may have significant
direct or indirect credit or other relationships with the Association, the
termination of which would materially adversely affect the Association's
financial condition or results of operations.
The Board shall designate a member of the Audit Committee to serve as Chairman
thereof. It shall be the duty of the Audit Committee to (a) cause a continuous
audit and examination to be made on its behalf into the affairs of the
Association and to review the results of such examination; (b) review
significant reports of the internal auditing department, management's responses
to those reports and the risk attributed to unresolved issues; (c) review the
basis for the reports issued under Section 112 of The Federal Deposit Insurance
Corporation Improvement Act of 1991; (d) consider, in consultation with the
independent auditor and an internal auditing executive, the adequacy of the
Association's internal controls, including the resolution of identified material
weakness and reportable conditions; (e) review regulatory communications
received from any federal or state agency with supervisory jurisdiction or
other examining authority and monitor any needed corrective action by
management; (f) ensure that a formal system of internal controls is in place
for maintaining compliance with laws and regulations; (g) cause an audit of the
Trust Department at least once during each calendar year and within 15 months
of the last such audit or, in lieu thereof, adopt a continuous audit system and
report to the Board each calendar year and within 15 months of the previous
report on the performance of such audit function; and (h) perform such
additional duties and exercise such additional powers of the Board as the Board
may determine from time to time.
The Audit Committee may consult with internal counsel and retain its own
outside counsel without approval (prior or otherwise) from the Board or
management and obligate the Association to pay the fees of such counsel.
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<PAGE>
Section 4. Community Affairs Committee. The Board shall appoint from its
members a Community Affairs Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Community
Affairs Committee to serve as Chairman thereof. It shall be the duty of the
Community Affairs Committee to (a) oversee compliance by the Association with
the Community Reinvestment Act of 1977, as amended, and the regulations
promulgated thereunder; and (b) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 5. Regular Meetings. Except for the Executive Committee which shall
meet on an ad hoc basis as set forth in Section 1 of this Article, regular
meetings of the Committees of the Board of Directors shall be held, without
notice, at such time and place as the Committee or the Board of Directors may
appoint and as often as the business of the Association may require.
Section 6. Special Meetings. A Special Meeting of any of the Committees of
the Board of Directors may be called upon the written request of the Chairman
of the Board or the President, or of any two members of the respective
Committee, stating the purpose of the meeting. Not less than twenty-four
hours' notice of such special meeting shall be given to each member of the
Committee personally, by telephoning, or by mail.
Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees
of the Board of Directors may be called at the request of the Chairman of the
Board or the President, who shall state that an emergency exists, upon not
less than one hour's notice to each member of the Committee personally or by
telephoning.
Section 8. Action Taken Without a Committee Meeting. Any Committee of the
Board of Directors may take action without a meeting and without notice of such
meeting by resolution assented to in writing by all members of such Committee.
Section 9. Quorum. A majority of a Committee of the Board of Directors shall
constitute a quorum for the transaction of any business at any meeting of such
Committee. If a quorum is not available, the Chairman of the Board or the
President shall have power to make temporary appointments to a Committee of-
members of the Board of Directors, to act in the place and stead of members who
temporarily cannot attend any such meeting; provided, however, that any
temporary appointment to the Audit Committee must meet the requirements for
members of that Committee set forth in Section 3 of this Article.
Section 10. Record. The committees of the Board of Directors shall keep a
record of their respective meetings and proceedings which shall be presented
at the regular meeting of the Board of Directors held in the calendar month
next following the meetings of the Committees. If there is no regular Board
of Directors meeting held in the calendar month next following the meeting of
a Committee, then such Committee's records shall be presented at the next
regular Board of Directors meeting held in a month subsequent to such Committee
meeting.
Section 11. Changes and Vacancies. The Board of Directors shall have power
to change the members of any Committee at any time and to fill vacancies on any
Committee; provided, however, that any newly appointed member of the Audit
Committee must meet the requirements for members of that Committee set forth in
Section 3 of this Article.
Section 12. Other Committees. The Board of Directors may appoint, from time
to time, other committees of one or more persons, for such purposes and with
such powers as the Board may determine.
ARTICLE IV
WAIVER OF NOTICE OF MEETINGS
Section 1. Waiver. Whenever notice is required to be given to any shareholder,
Director, or member of a Committee of the Board of Directors, such notice may
be waived in writing either before or after such meeting by any shareholder,
Director or Committee member respectively, as the case may be, who may be
entitled to such notice; and such notice will be deemed to be waived by
attendance at any such meeting.
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<PAGE>
ARTICLE V
OFFICERS AND AGENTS
Section 1. Officers. The Board shall appoint a Chairman of the Board and a
President, and shall have the power to appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers and-
such other officers as are deemed necessary or desirable for the proper
transaction of business of the Association. The Chairman of the Board and the
President shall be appointed from members of the Board of Directors. Any two
or more offices, except those of President and Cashier, or Secretary, may be
held by the same person. The Board may, from time to time, by resolution
passed by a majority of the entire Board, designate one or more officers of the
Association or of an affiliate or of Fleet Financial Group, Inc. with power to
appoint one or more Vice Presidents and such other officers of the Association
below the level of Vice President as the officer or officers designated in such
resolution deem necessary or desirable for the proper transaction of the
business of the Association.
Section 2. Chairman of the Board. The chairman of the Board shall preside at
all meetings of the Board of Directors. Subject to definition by the Board of
Directors, he shall have general executive powers and such specific powers and
duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.
Section 3. President. The President shall preside at all meetings of the
Board of Directors if there be no Chairman or if the Chairman be absent.
Subject to definition by the Board of Directors, he shall have general
executive powers and such specific powers and duties as from time to time may
be conferred upon or assigned to him by the Board of Directors.
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<PAGE>
Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the
Board and of the Executive Committee, and shall keep accurate minutes of their
meetings and of all meetings of the shareholders. He shall attend to the
giving of all notices required by these By-laws. He shall be custodian of the
corporate seal, records, documents and papers of the Association. He shall
have such powers and perform such duties as pertain by law or regulation to the
office of Cashier, or as are imposed by these By-laws, or as may be delegated
to him from time to time by the Board of Directors, the Chairman of the Board
or the President.
Section 5. Auditor. The Auditor shall be the chief auditing officer of the
Association. He shall continuously examine the affairs of the Association and
from time to time shall report to the Board of Directors. He shall have such
powers and perform such duties as are conferred upon, or assigned to him by
these By-laws, or as may be delegated to him from time to time by the Board
of Directors.
Section 6. Officers Seriatim. The Board of Directors shall designate from
time to time not less than two officers who shall in the absence or disability
of the Chairman or President or both, succeed seriatim to the duties and
responsibilities of the Chairman and President respectively.
Section 7. Clerks and Agents. The Board of Directors may appoint, from time
to time, such clerks, agents and employees as it may deem advisable for the
prompt and orderly transaction of the business of the Association, define
their duties, fix the salaries to be paid them and dismiss them. Subject to
the authority of the Board of Directors, the Chairman of the Board or the
President, or any other officer of the Association authorized by either of them
may appoint and dismiss all or any clerks, agents and employees and prescribe
their duties and the conditions of their employment, and from time to time
fix their compensation.
Section 8. Tenure. The Chairman of the Board of Directors and the President
shall, except in the case of death, resignation, retirement or disqualification
under these By-laws, or unless removed by the affirmative vote of at least two-
thirds of all of the members of the Board of Directors, hold office for the
term of one year or until their respective successors are appointed. Either
of such officers appointed to fill a vacancy occurring in an unexpired term
shall serve for such unexpired term of such vacancy. All other officers,
clerks, agents, attorneys-in-fact and employees of the Association shall hold
office during the pleasure of the Board of Directors or of the officer or
committee appointing them respectively.
ARTICLE VI
TRUST DEPARTMENT
Section 1. General Powers and Duties. All fiduciary powers of the Association
shall be exercised through the Trust Department, subject to such regulations as
the Comptroller of the Currency shall from time to time establish. The Trust
Department shall be to placed under the management and immediate supervision
of an officer or officers appointed by the Board of Directors. The duties of
all officers of the Trust Department shall be to cause the policies and
instructions of the Board and the Risk Management Committee with respect to the
trusts under their supervision to be carried out, and to supervise the due
performance of the trusts and agencies entrusted to the Association and under
their supervision, in accordance with law and in accordance with the terms of
such trusts and agencies.
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<PAGE>
ARTICLE VII
BRANCH OFFICES
Section 1. Establishment. The Board of Directors shall have full power to
establish, to discontinue, or, from time to time, to change the location of any
branch office, subject to such limitations as may be provided by law.
Section 2. Supervision and Control. Subject to the general supervision and
control of the Board of Directors, the affairs of branch offices shall be
under the immediate supervision and control of the President or of such other
officer or officers, employee or employees, or other individuals as the Board
of Directors may from time to time determine, with such powers and duties as
the Board of Directors may confer upon or assign to him or them.
ARTICLE VIII
SIGNATURE POWERS
Section 1. Authorization. The power of officers, employees, agents and
attorneys to sign on behalf of and to affix the seal of the Association shall
be prescribed by the Board of Directors or by the Executive Committee or by
both; provided that the President is authorized to restrict such power of any
officer, employee, agent or attorney to the business of a specific department
or departments, or to a specific branch office or branch offices. Facsimile
signatures may be authorized.
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<PAGE>
ARTICLE IX
STOCK CERTIFICATES AND TRANSFERS
Section 1. Stock Records. The Trust Department shall have custody of the
stock certificate books and stock ledgers of the Association, and shall make
all transfers of stock, issue certificates thereof and disburse dividends
declared thereon.
Section 2. Form of Certificate. Every shareholder shall be entitled to a
certificate conforming to the requirements of law and otherwise in such form
as the Board of Directors may approve. The certificates shall state on the
face thereof that the stock is transferable only on the books of the
Association and shall be signed by such officers as may be prescribed from time
to time by the Board of Directors or Executive Committee. Facsimile signatures
may be authorized.
Section 3. Transfers of Stock. Transfers of stock shall be made only on the
books of the Association by the holder in person, or by attorney duly
authorized in writing, upon surrender of the certificate therefor properly
endorsed, or upon the surrender of such certificate accompanied by a properly
executed written assignment of the same, or a written power of attorney to
sell, assign or transfer the same or the shares represented thereby.
Section 4. Lost Certificate. The Board of Directors or Executive Committee
may order a new certificate to be issued in place of a certificate lost or
destroyed, upon proof of such loss or destruction and upon tender to the
Association by the shareholder, of a bond in such amount and with or without
surety, as may be ordered, indemnifying the Association against all liability,
loss, cost and damage by reason of such loss or destruction and the issuance
of a new certificate.
Section 5. Closing Transfer Books. The Board of Directors may close the
transfer books for a period not exceeding thirty days preceding any regular
or special meeting of the shareholders, or the day designated for the payment
of a dividend or the allotment of rights. In lieu of closing the transfer
books the Board of Directors may fix a day and hour not more than thirty days
prior to the day of holding any meeting of the shareholders, or the day
designated for the payment of a dividend, or the day designated for the
allotment of rights, or the day when any change of conversion or exchange of
capital stock is to go into effect, as the day as of which shareholders
entitled to notice of and to vote at such meetings or entitled to such dividend
or to such allotment of rights or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, shall be determined, and
only such shareholders as shall be shareholders of record on the day and hour
so fixed shall be entitled to notice of and to vote at such meeting or to
receive payment of such dividend or to receive such allotment of rights or to
exercise such rights, as the case may be.
ARTICLE X
THE CORPORATE SEAL
Section 1. Seal. The following is an impression of the seal of the
Association adopted by the Board of Directors.
ARTICLE XI
BUSINESS HOURS
Section 1. Business Hours. The main office of this Association and each
branch office thereof shall be open for business on such days, and for such
hours as the Chairman, or the President, or any Executive Vice President, or
such other officer as the Board of Directors shall from time to time
designate, may determine as to each office to conform to local custom and
convenience, provided that any one or more of the main and branch offices or
certain departments thereof may be open for such hours as the President, or
such other officer as the Board of Directors shall from time to time designate,
may determine as to each office or department on any legal holiday on which
work is not prohibited by law, and provided further that any one or more of
the main and branch offices or certain departments thereof may be ordered
closed or open on any day for such hours as to each office or department as
the President, or such other officer as the Board of Directors shall from time
to time designate, subject to applicable laws regulations, may determine when
such action may be required by reason of disaster or other emergency condition.
ARTICLE IX
CHANGES IN BY-LAWS
Section 1. Amendments. These By-laws may be amended upon vote of a majority
of the entire Board of Directors at any meeting of the Board, provided ten (10)
day's notice of the proposed amendment has been given to each member of the
Board of Directors. No amendment may be made unless the By-law, as amended, is
consistent with the requirements of law and of the Articles of Association.
These By-laws may also be amended by the Association's shareholders.
A true copy
Attest:
Secretary/Assistant Secretary
- ---------------------------------------
Dated at , as of .
--------------------------------------- ----------------------
Revision of January 11, 1993
-9-
<PAGE>
[LOGO] Exhibit 3
- -------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- -------------------------------------------------------------------------------
Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that:
1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et
seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and
control of all records pertaining to the chartering of all National Banking
Associations.
2. "Fleet National Bank," (Charter No. 1338) is a National Banking
Association formed under the laws of the United States and is authorized
thereunder to transact the business of banking and exercise Fiduciary Powers on
the date of this Certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of office
to be affixed to these presents at the Treasury
Department in the City of Washington and
[SEAL]
District of Columbia, this 23rd day of
December, 1996.
/s/
----------------------
Comptroller of the Currency
<PAGE>
EXHIBIT 4
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
The undersigned, as Trustee under an Indenture to be entered into
between Texas Petrochemicals Corporation and Fleet National Bank, Trustee, does
hereby consent that, pursuant to Section 321(b) of the Trust Indenture Act of
1939, reports of examinations with respect to the undersigned by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
FLEET NATIONAL BANK,
Trustee
By _____________________
Michael M. Hopkins
Vice President
Dated: April 3, 1997
<PAGE>
[FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL LETTERHEAD]
- -------------------------------------------------------------------------------
Please refer to page i,
[LOGO] Table of Contents, for 1
the required disclosure
of estimated burden.
- -------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND
FOREIGN OFFICES - FFIEC 031
(961231)
REPORT AT THE CLOSE OF BUSINESS DECEMBER 31, 1996 -----------
(RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State member banks); 12
U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
- ------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.
I, Giro S. DeRosa, Vice President
- -----------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with
the instructions issued by the appropriate Federal regulatory authority and are
true to the best of my knowledge and belief.
/s/ Giro DeRosa
- ----------------------------------------------
Signature of Officer Authorized to Sign Report
January 23, 1997
- -----------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in
some cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it
has been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/
- ------------------
Director (Trustee)
/s/
- ------------------
Director (Trustee)
/s/
- -------------------
Director (Trustee)
- -----------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Reserve District Bank.
STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return
address envelope, return the original only to the FDIC, c/o Quality Data
Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- -------------------------------------------------------------------------------
FDIC Certificate Number [02499] Banks should affix the address label in
----------- this space.
(RCRI 9050)
Fleet National Bank
---------------------------------------
Legal Title of Bank (TEXT 9010)
One Monarch Place
---------------------------------------
City (TEXT 9131)
Springfield, MA 01102
---------------------------------------
State Abbrev. Zip Code
(TEXT 9200) (TEXT 9220)
<PAGE>
FFIEC 031
Consolidated Reports of Condition and Income for a Bank With Page i
Domestic and Foreign Offices 2
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
SIGNATURE PAGE Cover
REPORT OF INCOME
Schedule RI--Income Statement.....................RI-1, 2, 3
Schedule RI-A--Changes in Equity Capital................RI-4
Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance For Loan and Lease Losses.............RI-4, 5
Schedule RI-C--Applicable Income Taxes by Taxing
Authority.............................................RI-5
Schedule RI-D--Income from International Operations.....RI-6
Schedule RI-E--Explanations..........................RI-7, 8
REPORT OF CONDITION
Schedule RC--Balance Sheet...........................RC-1, 2
Schedule RC-A--Cash and Balances Due from Depository
Institutions..........................................RC-3
Schedule RC-B--Securities.........................RC-3, 4, 5
Schedule RC-C--Loans and Lease Financing
Receivables:
Part I. Loans and Leases..........................RC-6, 7
Part II. Loans to Small Businesses and Small
Farms (included in the forms for June 30
only).........................................RC-7a, 7b
Schedule RC-D--Trading Assets and Liabilities (to
be completed only be selected banks)..................RC-8
Schedule RC-E--Deposit Liabilities..............RC-9, 10, 11
Schedule RC-F--Other Assets............................RC-11
Schedule RC-G--Other Liabilities.......................RC-11
Schedule RC-H--Selected Balance Sheet Items for
Domestic Offices.....................................RC-12
Schedule RC-I--Selected Assets and Liabilities of
IBFs.................................................RC-13
Schedule RC-K--Quarterly Averages......................RC-13
Schedule RC-L--Off-Balance Sheet Items.........RC-14, 15, 16
Schedule RC-M--Memoranda...........................RC-17, 18
Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets.........................RC-19, 20
Schedule RC-O--Other Data for Deposit Insurance
Assessments......................................RC-21, 22
Schedule RC-R--Regulatory Capital..................RC-23, 24
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of Condition
and Income...........................................RC-25
Special Report (TO BE COMPLETED BY ALL BANKS)
Schedule RC-J--Repricing Opportunities (sent only
to and to be completed by savings banks)
DISCLOSURE OF ESTIMATED BURDEN
The estimated average burden associated with this information collection is
32.2 hours per respondent and is estimated to vary from 15 to 230 hours per
response, depending on individual circumstances. Burden estimates include the
time for reviewing instructions, gathering and maintaining data in the
required form, and completing the information collection, but exclude the time
for compiling and maintaining business records in the normal course of a
respondent's activities. Comments concerning the accuracy of this burden
estimate and suggestions for reducing this burden should be directed to the
Office of Information and Regulatory Affairs, Office of Management and Budget,
Washington, D.C. 20503, and to one of the following:
Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219
Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429
For Information or assistance, National and State nonmember banks should
contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington,
D.C. 20429, toll free on (800) 688-FDIC(3342), Monday through Friday between
8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-1
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
CONSOLIDATED REPORT OF INCOME
FOR THE PERIOD JANUARY 1, 1996-DECEMBER 31, 1996
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI--INCOME STATEMENT
I480 <-
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income: //////////////////
a. Interest and fee income on loans: //////////////////
(1) In domestic offices: //////////////////
(a) Loans secured by real estate................................................. 4011 1,092,992 1.a.(1)(a)
(b) Loans to depository institutions............................................. 4019 1,482 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers.......... 4024 501 1.a.(1)(c)
(d) Commercial and industrial loans.............................................. 4012 1,132,500 1.a.(1)(d)
(e) Acceptances of other banks................................................... 4026 264 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expeditures: //////////////////
(1) Credit cards and related plans............................................ 4054 16,485 1.a.(1)(f)(1)
(2) Other.................................................................... 4055 189,926 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions....................... 4056 0 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political //////////////////
subdivisions in the U.S.: //////////////////
(1) Taxable obligations...................................................... 4503 0 1.a.(1)(h)(1)
(2) Tax-exempt obligations................................................... 4504 10,381 1.a.(1)(h)(2)
(i) All other loans in domestic offices.......................................... 4058 147,087 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs.................... 4059 4,161 1.a.(2)
b. Income from lease financing receivables: //////////////////
(1) Taxable leases................................................................... 4505 152,848 1.b.(1)
(2) Tax-exempt leases................................................................ 4307 1,511 1.b.(2)
c. Interest income on balances due from depository instituions: (1) //////////////////
(1) In domestic offices.............................................................. 4105 1,644 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs.................... 4106 142 1.c.(2)
d. Interest and dividend income on securities: //////////////////
(1) U.S. Treasury securities and U.S. Government agency and corporation obligations.. 4027 422,212 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: //////////////////
(a) Taxable securities........................................................... 4506 0 1.d.(2)(a)
(b) Tax-Exempt securities........................................................ 4507 6,495 1.d.(2)(b)
(3) Other domestic debt securities................................................... 3657 12,976 1.d.(3)
(4) Foreign debt securities.......................................................... 3658 6,621 1.d.(4)
(5) Equity securities (including investments in mutual funds)........................ 3659 17,504 1.d.(5)
e. Interest income from trading assets.................................................. 4069 479 1.e.
------------------
</TABLE>
- ----------
(1) Includes interest income on time certificates of deposit not held for
trading.
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-2
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI--CONTINUED
Dollar Amounts in Thousands Year-to-date
RIAD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income (continued)
f. Interest income on federal funds sold and securities purchased under //////////////////
agreements to resell in domestic offices of the bank and of its Edge //////////////////
and Agreement subsidiaries, and in IBFs ............................. 4020 25,839 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ 4107 3,244,050 1.g.
2. Interest expense: //////////////////
a. Interest on deposits: //////////////////
(1) Interest on deposits in domestic offices: //////////////////
(a) Transaction accounts (NOW accounts, ATS accounts, and //////////////////
telephone and preauthorized transfer accounts) .............. 4508 13,070 2.a.(1)(a)
(b) Nontransaction accounts: //////////////////
(1) Money market deposit accounts (MMDAs) ................... 4509 257,330 2.a.(1)(b)(1)
(2) Other savings deposits .................................. 4511 48,169 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more ........ 4174 170,575 2.a.(1)(b)(3)
(4) All other time deposits ................................. 4512 403,831 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement //////////////////
subsidiaries, and IBFs .......................................... 4172 100,766 2.a.(2)
b. Expense of federal funds purchased and securities sold under //////////////////
agreements to repurchase in domestic offices of the bank and of its //////////////////
Edge and Agreement subsidiaries, and in IBFs ........................ 4180 282,599 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading //////////////////
liabilities, and other borrowed money ............................... 4185 161,582 2.c.
d. Interest on mortgage indebtedness and obligations under capitalized //////////////////
leases .............................................................. 4072 859 2.d.
e. Interest on subordinated notes and debentures ....................... 4200 69,434 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... 4073 1,508,215 2.f.
3. Net interest income (item 1.g minus 2.f) .............................. ////////////////// RIAD 4074 1,735,835 3.
4. Provisions: //////////////////
a. Provision for loan and lease losses ................................. ////////////////// RIAD 4230 (6,834) 4.a.
b. Provision for allocated transfer risk ............................... ////////////////// RIAD 4243 0 4.b.
5. Noninterest income: //////////////////
a. Income from fiduciary activities .................................... 4070 295,272 5.a.
b. Service charges on deposit accounts in domestic offices ............. 4080 222,313 5.b.
c. TRADING REVENUE (MUST EQUAL SCHEDULE RI, SUM OF MEMORANDUM //////////////////
ITEMS 8.a THROUGH 8.d) .............................................. A220 25,253 5.c.
d. Other foreign transaction gains (losses) ............................ 4076 346 5.d.
e. Not applicable //////////////////
f. Other noninterest income: //////////////////
(1) Other fee income ................................................ 5407 797,631 5.f.(1)
(2) All other noninterest income* ................................... 5408 350,869 5.f.(2)
g. Total noninterest income (sum of items 5.a through 5.f) ............. ////////////////// RIAD 4079 1,691,684 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. ////////////////// RIAD 3521 52 6.a.
b. Realized gains (losses) on available-for-sale securities ............ ////////////////// RIAD 3196 12,071 6.b.
7. Noninterest expense: //////////////////
a. Salaries and employee benefits ...................................... 4135 645,873 7.a.
b. Expenses of premises and fixed assets (net of rental income) //////////////////
(excluding salaries and employee benefits and mortgage interest ..... 4217 211,199 7.b.
c. Other noninterest expense* .......................................... 4092 1,243,839 7.c.
d. Total noninterest expense (sum of items 7.a through 7.c) ............ ////////////////// RIAD 4093 2,100,911 7.d.
8. Income (loss) before income taxes and extraordinary items and other //////////////////
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d) ////////////////// RIAD 4301 1,345,565 8.
9. Applicable income taxes (on item 8) .................................... ////////////////// RIAD 4302 548,252 9.
10. Income (loss) before extraordinary items and other adjustments (item 8 //////////////////
minus 9) ............................................................... ////////////////// RIAD 4300 797,313 10.
- ------------
*Describe on Schedule RI-E--Explanations.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-3
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI--CONTINUED
Year-to-date
------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11. Extraordinary items and other adjustments: //////////////////
a. Extraordinary items and other adjustments, //////////////////
gross of income taxes*..................................... 4310 0 11.a.
b. Applicable income taxes (on item 11.a)*.................... 4315 0 11.b.
c. Extraordinary items and other adjustments, //////////////////
net of income taxes (item 11.a minus 11.b)................. ////////////////// RIAD 4320 0 11.c.
12. Net income (loss) (sum of items 10 and 11.c)................... ////////////////// RIAD 4340 797,313 12.
----------------------------------------------------
</TABLE>
<TABLE>
I481 <-
------------
Memoranda Year-to-date
------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after //////////////////
August 7, 1986, that is not deductible for federal income tax purposes....................... 4513 2,891 M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices //////////////////
(included in Schedule RI, item 8)............................................................ 8431 46,475 M.2.
3.-4. Not applicable //////////////////
5. Number of full-time equivalent employees on payroll at end of current period (round to //// Number
nearest whole number)........................................................................ 4150 12,425 M.5.
6. Not applicable //////////////////
7. If the reporting bank has restated its balance sheet as a result of applying push down //// MM DD YY
accounting this calendar year, report the date of the bank's acquisition..................... 9106 00/00/00 M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) //////////////////
(SUM OF MEMORANDUM ITEMS 8.a THROUGH 8.d MUST EQUAL SCHEDULE RI, ITEM 5.c): //// Bil Mil Thou
a. Interest rate exposures.................................................................. 8757 5,738 M.8.a.
b. Foreign exchange exposures............................................................... 8758 19,515 M.8.b.
c. Equity security and index exposures...................................................... 8759 0 M.8.c.
d. Commodity and other exposures............................................................ 8760 0 M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: //////////////////
a. Net increase (decrease) to interest income............................................... 8761 2,698 M.9.a.
b. Net (increase) decrease to interest expense.............................................. 8762 (4,902) M.9.b.
c. Other (noninterest) allocations.......................................................... 8763 12 M.9.c.
10. CREDIT LOSSES ON OFF-BALANCE SHEET DERIVATIVES (SEE INSTRUCTIONS)............................ A251 0 M.10.
</TABLE>
- -----------------
*Describe on Schedule RI-E--Explanations.
5
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-4
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-A--CHANGES IN EQUITY CAPITAL
Indicate decreases and losses in parentheses.
I483 <-
-----------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total equity capital originally reported in the December 31, 1995, Reports of Condition //////////////////
and Income............................................................................... 3215 1,342,473 1.
2. Equity capital adjustments from amended Reports of Income, net*.......................... 3216 0 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2)..................... 3217 1,342,473 3.
4. Net income (loss) (must equal Schedule RI, item 12)...................................... 4340 797,313 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net....................... 4346 0 5.
6. Changes incident to business combinations, net........................................... 4356 4,161,079 6.
7. LESS: Cash dividends declared on preferred stock......................................... 4470 11,688 7.
8. LESS: Cash dividends declared on common stock............................................ 4460 761,473 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions //////////////////
for this schedule)....................................................................... 4411 0 9.
10. Corrections of material accounting errors from prior years* (see instructions for this
schedule)................................................................................ 4412 0 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities......... 8433 (4,870) 11.
12. Foreign currency translation adjustments................................................. 4414 0 12.
13. Other transactions with parent holding company* (not included in items 5,7, or 8 above).. 4415 (1,003,722) 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal //////////////////
Schedule RC, item 28).................................................................... 3210 4,519,112 14.
-------------------
</TABLE>
- ---------------
*Describe on Schedule RI-E--Explanations.
<TABLE>
<CAPTION>
SCHEDULE RI-B--CHARGE-OFFS AND RECOVERIES AND CHANGES
IN ALLOWANCE FOR LOAN AND LEASE LOSSES
PART I. CHARGE-OFFS AND RECOVERIES ON LOANS AND LEASES
PART I EXCLUDES CHARGE-OFFS AND RECOVERIES THROUGH
THE ALLOCATED TRANSFER RISK RESERVE.
I486 <-
--------
(Column A) (Column B)
Charge-offs Recoveries
----------------------------------------
Calendar year-to-date
----------------------------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Loans secured by real estate: ////////////////// //////////////////
a. To U.S. addressees (domicile)................................... 4651 65,946 4661 16,055 1.a.
b. To non-U.S. addressees (domicile)............................... 4652 0 4662 0 1.b.
2. Loans to depository institutions and acceptances of other banks: ////////////////// //////////////////
a. To U.S. banks and other U.S. depository institutions............ 4653 0 4663 0 2.a.
b. To foreign banks................................................ 4654 0 4664 0 2.b.
3. Loans to finance agricultural production and other loans to farmers. 4655 69 4665 105 3.
4. Commercial and industrial loans: ////////////////// //////////////////
a. To U.S. addressees (domicile)................................... 4645 73,869 4617 43,048 4.a.
b. To non-U.S. addressees (domicile)............................... 4646 0 4618 102 4.b.
5. Loans to individuals for household, family, and other personal ////////////////// //////////////////
expenditures: ////////////////// //////////////////
a. Credit cards and related plans.................................. 4656 2,356 4666 1,468 5.a.
b. Other (includes single payment, installment, and all student
loans).............................................................. 4657 29,089 4667 5,303 5.b.
6. Loans to foreign governments and official institutions.............. 4643 0 4627 0 6.
7. All other loans..................................................... 4644 5,253 4628 965 7.
8. Lease financing receivables: ////////////////// //////////////////
a. Of U.S. addressees (domicile)................................... 4658 12,926 4668 4,622 8.a.
b. Of non-U.S. addressees (domicile)............................... 4659 0 4669 0 8.b.
9. Total (sum of items 1 through 8).................................... 4635 189,508 4605 71,668 9.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-5
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-B--CONTINUED
PART I. CONTINUED
(Column A) (Column B)
Charge-offs Recoveries
-------------------------------------
Calendar-year-to-date
-------------------------------------
Memoranda
Dollar Amounts in Thousands RIAD BIL MIL THOU RIAD BIL MIL THOU
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1-3. Not applicable ////////////////// //////////////////
4. Loans to finance commercial real estate, construction, and land ////////////////// //////////////////
development activities (NOT SECURED BY REAL ESTATE) included in ////////////////// //////////////////
Schedule RI-B, part I, items 4 and 7, above.......................... 5409 714 5410 1,374 M.4.
5. Loans secured by real estate in domestic offices (included in ////////////////// //////////////////
Schedule RI-B, part I, item 1, above): ////////////////// //////////////////
a. Construction and land development................................. 3582 266 3583 337 M.5.a.
b. Secured by farmland............................................... 3584 145 3585 304 M.5.b.
c. Secured by 1-4 family residential properties: ////////////////// //////////////////
(1) Revolving, open-end loans secured by 1-4 family residential ////////////////// //////////////////
properties and extended under lines of credit................. 5411 4,428 5412 619 M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties.. 5413 31,124 5414 3,602 M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties.......... 3588 5,579 3589 590 M.5.d.
e. Secured by nonfarm nonresidential properties...................... 3590 24,404 3591 10,603 M.5.e.
--------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PART II. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
Dollar Amounts in Thousands RIAD BIL MIL THOU
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income....... 3124 266,943 1.
2. Recoveries (must equal part I, item 9, column B above)...................................... 4605 71,668 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above)................................ 4635 189,508 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)...................... 4230 (6,834) 4.
5. Adjustments* (see instructions for this schedule)........................................... 4815 634,542 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, //////////////////
item 4.b)................................................................................... 3123 776,811 6.
------------------
- ------------
*Describe on Schedule RI-E--Explanations.
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE RI-C--APPLICABLE INCOME TAXES BY TAXING AUTHORITY
SCHEDULE RI-C IS TO BE REPORTED WITH THE DECEMBER REPORT OF INCOME.
I489
-----------------
Dollar Amounts in Thousands RIAD BIL MIL THOU
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Federal................................................................................... 4780 461,184 1.
2. State and local........................................................................... 4790 87,068 2.
3. Foreign................................................................................... 4795 0 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b)........ 4770 548,252 4.
5. Deferred portion of item 4............................................ RIAD 4772 274,648 ////////////////// 5.
------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-6
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-D--INCOME FROM INTERNATIONAL OPERATIONS
FOR ALL BANKS WITH FOREIGN OFFICES, EDGE OR AGREEMENT SUBSIDIARIES, OR IBFs WHERE INTERNATIONAL OPERATIONS ACCOUNT FOR MORE THAN
10 PERCENT OF TOTAL REVENUES, TOTAL ASSETS, OR NET INCOME.
PART I. ESTIMATED INCOME FROM INTERNATIONAL OPERATIONS
I492
-------------------
Year-to-date
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, //////////////////
and IBFs //////////////////
a. Interest income booked............................................................... 4837 N/A 1.a.
b. Interest expense booked.............................................................. 4038 N/A 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and //////////////////
IBFs (item 1.a minus 1.b)............................................................ 4839 N/A 1.c.
2. Adjustments for booking location of international operations: //////////////////
a. Net interest income attributable to international operations booked at domestic //////////////////
offices.............................................................................. 4840 N/A 2.a.
b. Net interest income attributable to domestic business booked at foreign offices...... 4841 N/A 2.b.
c. Net booking location adjustment (item 2.a minus 2.b)................................. 4842 N/A 2.c.
3. Noninterest income and expense attributable to international operations: //////////////////
a. Noninterest income attributable to international operations.......................... 4097 N/A 3.a.
b. Provision for loan and lease losses attributable to international operations......... 4235 N/A 3.b.
c. Other noninterest expense attributable to international operations................... 4239 N/A 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a //////////////////
minus 3.b and 3.c).................................................................. 4843 N/A 3.d.
4. Estimated pretax income attributable to international operations before capital //////////////////
allocation adjustment (sum of items 1.c, 2.c, and 3.d)................................. 4844 N/A 4.
5. Adjustment to pretax income for internal allocations to international operations to //////////////////
reflect the effects of equity capital on overall bank funding costs.................... 4845 N/A 5.
6. Estimated pretax income attributable to international operations after //////////////////
capital allocation adjustment (sum of items 4 and 5)................................... 4846 N/A 6.
7. Income taxes attributable to income from international operations as estimated in //////////////////
item 6................................................................................. 4797 N/A 7.
8. Estimated net income attributable to international operations (item 6 minus 7)......... 4341 N/A 8.
</TABLE>
<TABLE>
<CAPTION>
memoranda Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Intracompany interest income included in item 1.a above................................ 4847 N/A M.1.
2. Intracompany interest expense included in item 1.b above............................... 4848 N/A M.2.
</TABLE>
PART II. SUPPLEMENTARY DETAILS ON INCOME FROM INTERNATIONAL OPERATIONS REQUIRED
BY THE DEPARTMENTS OF COMMERCE AND TREASURY FOR PURPOSES OF THE U.S.
INTERNATIONAL ACCOUNTS AND THE U.S. NATIONAL INCOME AND PRODUCT ACCOUNTS
<TABLE>
<CAPTION>
Year-to-date
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income booked at IBFs......................................................... 4849 N/A 1.
2. Interest expense booked at IBFs........................................................ 4850 N/A 2.
3. Noninterest income attributable to international operations booked at domestic //////////////////
offices (excluding IBFs): //////////////////
a. Gains (losses) and extraordinary items.............................................. 5491 N/A 3.a.
b. Fees and other noninterest income................................................... 5492 N/A 3.b.
4. Provision for loan and lease losses attributable to international operations booked at //////////////////
domestic offices (excluding IBFs)...................................................... 4852 N/A 4.
5. Other noninterest expense attributable to international operations booked at domestic //////////////////
offices (excluding IBFs)............................................................... 4853 N/A 5.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-7
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-E--EXPLANATIONS
SCHEDULE RI-E IS TO BE COMPLETED EACH QUARTER ON A CALENDER YEAR-TO-DATE BASIS.
Detail all adjustments in Schedule RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all
significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
I495 <-
-------------------
Year-to-date
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) //////////////////
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): //////////////////
a. Net gains on other real estate owned................................................ 5415 0 1.a.
b. Net gains on sales of loans......................................................... 5416 0 1.b.
c. Net gains on sales of premises and fixed assets..................................... 5417 0 1.c.
Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, //////////////////
item 5.f.(2): //////////////////
d. TEXT 4461 INCOME ON MORTGAGES HELD FOR RESALE 4461 147,813 1.d.
e. TEXT 4462 GAIN FROM BRANCH DIVESTITURES 4462 77,976 1.e.
f. TEXT 4463 4463 1.f.
2. Other noninterest expense (from Schedule RI, item 7.c): //////////////////
a. Amortization expense of intangible assets........................................... 4531 278,276 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: //////////////////
b. Net losses on other real estate owned............................................... 5418 0 2.b.
c. Net losses on sales of loans........................................................ 5419 0 2.c.
d. Net losses on sales of premises and fixed assets.................................... 5420 0 2.d.
Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, //////////////////
item 7.c: //////////////////
e. TEXT 4464 INTERCOMPANY CORPORATE SUPPORT FUNCTION CHARGES 4464 296,172 2.e.
f. TEXT 4467 INTERCOMPANY DATA PROCESSING & PROGRAMMING CHARGES 4467 315,897 2.f.
g. TEXT 4468 4468 2.g.
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and applicable //////////////////
income tax effect (from Schedule RI, item 11.b) (itemize and describe all extraordinary //////////////////
items and other adjustments): //////////////////
a. (1) TEXT 4469 4469 3.a.(1)
(2) Applicable income tax effect RIAD 4486 ////////////////// 3.a.(2)
b. (1) TEXT 4487 4487 3.b.(1)
(2) Applicable income tax effect RIAD 4488 ////////////////// 3.b.(2)
c. (1) TEXT 4489 4489 3.c.(1)
(2) Applicable income tax effect RIAD 4491 ////////////////// 3.c.(2)
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, item 2) //////////////////
(itemize and describe all adjustments): //////////////////
a. TEXT 4492 4492 4.a.
b. TEXT 4493 4493 4.b.
5. Cumulative effect of changes in accounting principles from prior years (from Schedule //////////////////
RI-A, item 9) (itemize and describe all changes in accounting principles): //////////////////
a. TEXT 4494 4494 5.a.
b. TEXT 4495 4495 5.b.
6. Corrections of material accounting errors from prior years (from Schedule RI-A, item 10) //////////////////
(itemize and describe all corrections): //////////////////
a. TEXT 4496 4496 6.a.
b. TEXT 4497 4497 6.b.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-8
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-E--CONTINUED
-------------------
Year-to-date
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) //////////////////
(itemize and describe all such transactions): //////////////////
a. TEXT 4498 FLEET NATIONAL BANK SURPLUS DISTRIBUTION TO FFG .......................... 4498 (1,003,722) 7.a.
b. TEXT 4499 ........................................................................... 4499 7.b.
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, item 5) //////////////////
(itemize and describe all adjustments): //////////////////
a. TEXT 4521 12/31/95 ENDING BALANCE OF POOLED ENTITIES ............................... 4521 636,497 8.a.
b. TEXT 4522 DIVESTED ALLOWANCE RELATED TO SOLD LOANS ................................. 4522 (1,955) 8.b.
9. Other explanations (the space below is provided for the bank to briefly describe, at its -------------------
option, any other significant items affecting the Report of Income): I498 | I499 <-
No comment [X] (RIAD 4769) -------------------
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-1
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
report the amount outstanding as of the last business day of the quarter.
SCHEDULE RC -- BALANCE SHEET
C400
------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS //////////////////
1. Cash and balances due from depository institutions (from Schedule RC-A): //////////////////
a. Noninterest-bearing balances and currency and coin (1) ........................... 0081 3,923,408 1.a.
b. Interest-bearing balances(2) ..................................................... 0071 68,691 1.b.
2. Securities: //////////////////
a. Held-to-maturity securities (from Schedule RC-B, column A) ....................... 1754 261,390 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ..................... 1773 4,958,338 2.b.
3. Federal funds sold and securities purchased under agreements to resell in domestic //////////////////
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: //////////////////
a. Federal funds sold .............................................................. 0276 25,709 3.a.
b. Securities purchased under agreements to resell .................................. 0277 0 3.b.
4. Loans and lease financing receivables: //////////////////
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 31,260,436 ////////////////// 4.a.
b. LESS: Allowance for loan and lease losses ................... RCFD 3123 776,811 ////////////////// 4.b.
c. LESS: Allocated transfer risk reserve ....................... RCFD 3128 0 ////////////////// 4.c.
d. Loans and leases, net of unearned income, //////////////////
allowance, and reserve (item 4.a minus 4.b and 4.c) .............................. 2125 30,483,625 4.d.
5. Trading assets (from Schedule RC-D) ................................................. 3545 73,333 5.
6. Premises and fixed assets (including capitalized leases) ............................ 2145 536,686 6.
7. Other real estate owned (from Schedule RC-M) ........................................ 2145 18,911 7.
8. Investments in unconsolidated subsidiaries and associated companies //////////////////
(from Schedule RC-M) ................................................................ 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding......................... 2155 6,380 9.
10. Intangible assets (from Schedule RC-M) .............................................. 2143 2,316,633 10.
11. Other assets (from Schedule RC-F) ................................................... 2160 3,907,689 11.
12. Total assets (sum of items 1 through 11) ............................................ 2170 46,580,793 12.
------------------
</TABLE>
- ------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
11
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-2
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC--CONTINUED
-----------------------
Dollar Amounts in Thousands ///////// Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES ///////////////////////
13. Deposits: ///////////////////////
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, ///////////////////////
part I) ........................................................................... RCON 2200 32,792,158 13.a.
(1) Noninterest-bearing(1) .............................. RCON 6631 10,359,674 /////////////////////// 13.a.(1)
(2) Interest-bearing .................................... RCON 6636 22,432,484 /////////////////////// 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from ///////////////////////
Schedule RC-E, part II ............................................................ RCFN 2200 2,414,427 13.b.
(1) Noninterest-bearing ................................. RCFN 6631 51,133 /////////////////////// 13.b.(1)
(2) Interest-bearing .................................... RCFN 6636 2,363,294 /////////////////////// 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase in domestic ///////////////////////
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: ///////////////////////
a. Federal funds purchased ........................................................... RCFD 0278 2,999,129 14.a.
b. Securities sold under agreements to repurchase .................................... RCFD 0279 119,013 14.b.
15. a. Demand notes issued to the U.S. Treasury .......................................... RCON 2840 2,393 15.a.
b. Trading liabilities (from Schedule RC-D) .......................................... RCFD 3548 60,855 15.b.
16. Other borrowed money: ///////////////////////
a. WITH A REMAINING MATURITY OF ONE YEAR OR LESS ..................................... RCFD 2332 304,551 16.a.
b. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR ................................... RCFD 2333 631,435 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ....................... RCFD 2910 11,267 17.
18. Bank's liability on acceptances executed and outstanding ............................. RCFD 2920 6,380 18.
19. Subordinated notes and debentures .................................................... RCFD 3200 1,213,219 19.
20. Other liabilities (from Schedule RC-G) ............................................... RCFD 2930 1,506,854 20.
21. Total liabilities (sum of items 13 through 20) ....................................... RCFD 2948 42,061,681 21.
///////////////////////
22. Limited-life preferred stock and related surplus ..................................... RCFD 3282 0 22.
EQUITY CAPITAL ///////////////////////
23. Perpetual preferred stock and related surplus ........................................ RCFD 3838 125,000 23.
24. Common stock ......................................................................... RCFD 3230 19,487 24.
25. Surplus (exclude all surplus related to preferred stock) ............................. RCFD 3839 2,551,927 25.
26. a. Undivided profits and capital reserves ............................................ RCFD 3632 1,813,664 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ............ RCFD 8434 9,034 26.b.
27. Cumulative foreign currency translation adjustments .................................. RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27) .................................... RCFD 3210 4,519,112 28.
29. Total liabilities, limited-life preferred stock, and equity capital ///////////////////////
(sum of items 21, 22, and 28)......................................................... RCFD 3300 46,580,793 29.
Memorandum
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external ---------------------
auditors as of any date during 1995 .................................................. RCFD 6724 N/A M.1.
---------------------
</TABLE>
1 - Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 - Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 - Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 - Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 - Review of the bank's financial statements by external auditors
6 - Compilation of the bank's financial statements by external auditors
7 - Other audit procedures (excluding tax preparation work)
8 - No external audit work
- ------------
(1) Includes total demand deposits and noninterest-bearing time and
savings deposits.
12
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-3
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-A--CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS
Exclude assets held for trading.
--------
C405 <-
--------------------------------------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
--------------------------------------
Dollar Amounts in Thousands RCFD BIL MIL THOU RCFD BIL MIL THOU
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency and ////////////////// //////////////////
coin ................................................................... 0022 3,548,380 ////////////////// 1.
a. Cash items in process of collection and unposted debits.............. ////////////////// 0020 2,693,954 1.a.
b. Currency and coin ................................................... ////////////////// 0080 854,426 1.b.
2. Balances due from depository institutions in the U.S.................... ////////////////// 0082 87,601 2.
a. U.S. branches and agencies of foreign banks (including their IBFs)... 0083 0 ////////////////// 2.a.
b. Other commercial banks in the U.S. and other depository ////////////////// //////////////////
institutions in the U.S. (including their IBFs)...................... 0085 87,676 ////////////////// 2.b.
3. Balances due from banks in foreign countries and foreign central banks.. ////////////////// 0070 12,440 3.
a. Foreign branches of other U.S. banks................................. 0073 208 ////////////////// 3.a.
b. Other banks in foreign countries and foreign central banks........... 0074 12,491 ////////////////// 3.b.
4. Balances due from Federal Reserve Banks................................. 0090 343,344 0090 343,344 4.
5. Total (sum of items 1 through 4) (total of column A must equal ////////////////// //////////////////
Schedule RC, sum of items 1.a and 1.b).................................. 0010 3,992,099 0010 3,991,765 5.
--------------------------------------
-----------------
Memorandum Dollar Amounts in Thousands RCON BIL MIL THOU
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Non interest-bearing balances due from commercial banks in the U.S. (included in item 2, //////////////////
column B above) ............................................................................ 0050 71,678 M.1.
------------------
SCHEDULE RC-B--SECURITIES
Exclude assets held for trading.
--------
C410 <-
------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Amortized Cost Amortized Cost Amortized Cost
------------------------------------------------------------------------------
Dollar Amounts in Thousands RCFD BIL MIL THOU RCFD BIL MIL THOU RCFD BIL MIL THOU RCFD BIL MIL THOU
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. U.S. Treasury securities......... 0211 250 0213 250 1286 715,535 1287 718,580 1.
2. U.S. Government agency ////////////////// ////////////////// ////////////////// //////////////////
and corporation obligations ////////////////// ////////////////// ////////////////// //////////////////
(exclude mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities): ////////////////// ////////////////// ////////////////// //////////////////
a. Issued by U.S. Govern- ////////////////// ////////////////// ////////////////// //////////////////
ment agencies(2).............. 1289 0 1290 0 1291 0 1293 0 2.a.
b. Issued by U.S. ////////////////// ////////////////// ////////////////// //////////////////
Government-sponsored ////////////////// ////////////////// ////////////////// //////////////////
agencies(3)................... 1294 0 1295 0 1297 500 1298 500 2.b.
------------------------------------------------------------------------------
- ------------
(1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home
Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing
Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-4
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-B--Continued
Held-to-maturity Available-for-sale
--------------------------------------- ---------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
------------------ ------------------ ------------------ ------------------
Dollar Amounts in Thousands RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3. Securities issued by states ////////////////// ////////////////// ////////////////// //////////////////
and political subdivisions in the ////////////////// ////////////////// ////////////////// //////////////////
U.S.: ////////////////// ////////////////// ////////////////// //////////////////
a. General obligations........... 1676 151,418 1677 151,394 1678 0 1679 0 3.a.
b. Revenue obligations........... 1681 12,415 1686 12,419 1690 0 1691 0 3.b.
c. Industrial development ////////////////// ////////////////// ////////////////// //////////////////
and similar obligations....... 1694 0 1695 0 1696 0 1697 0 3.c.
4. Mortage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities (MBS): ////////////////// ////////////////// ////////////////// //////////////////
a. Pass-through securities ////////////////// ////////////////// ////////////////// //////////////////
(1) Guaranteed by ////////////////// ////////////////// ////////////////// //////////////////
GNMA..................... 1698 0 1699 0 1701 792,519 1702 790,901 4.a.(1)
(2) Issued by FNMA ////////////////// ////////////////// ////////////////// //////////////////
and FHLMC................ 1703 0 1705 0 1706 3,163,278 1707 3,176,341 4.a.(2)
(3) Other pass-through ////////////////// ////////////////// ////////////////// //////////////////
securities............... 1709 0 1710 0 1711 1 1713 1 4.a.(3)
b. Other mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities (include CMOs, ////////////////// ////////////////// ////////////////// //////////////////
REMICs, and stripped ////////////////// ////////////////// ////////////////// //////////////////
MBS): ////////////////// ////////////////// ////////////////// //////////////////
(1.) Issued or guaranteed ////////////////// ////////////////// ////////////////// //////////////////
by FNMA, FHLMC ////////////////// ////////////////// ////////////////// //////////////////
or GNMA................. 1714 0 1715 0 1716 0 1717 0 4.b.(1)
(2.) Collateralized ////////////////// ////////////////// ////////////////// //////////////////
by MBS issued or ////////////////// ////////////////// ////////////////// //////////////////
guaranteed by FNMA, ////////////////// ////////////////// ////////////////// //////////////////
FHLMC, or GNMA.......... 1718 0 1719 0 1731 0 1732 0 4.b.(2)
(3.) All other mortgage- ////////////////// ////////////////// ////////////////// //////////////////
backed securities....... 1733 0 1734 0 1735 453 1736 453 4.b.(3)
5. Other debt securities: ////////////////// ////////////////// ////////////////// //////////////////
a. Other domestic debt ////////////////// ////////////////// ////////////////// //////////////////
securities................... 1737 0 1738 0 1739 629 1741 621 5.a.
b. Foreign debt ////////////////// ////////////////// ////////////////// //////////////////
securities................... 1742 97,307 1743 87,332 1744 0 1746 0 5.b.
6. Equity securities: ////////////////// ////////////////// ////////////////// //////////////////
a. Investments in mutual ////////////////// ////////////////// ////////////////// //////////////////
funds........................ ////////////////// ////////////////// 1747 52,843 1748 52,843 6.a.
b. Other equity securities ////////////////// ////////////////// ////////////////// //////////////////
with readily determinable ////////////////// ////////////////// ////////////////// //////////////////
fair values.................. ////////////////// ////////////////// 1749 0 1751 0 6.b.
c. All other equity ////////////////// ////////////////// ////////////////// //////////////////
securities(1)................ ////////////////// ////////////////// 1752 218,098 1753 218,098 6.c.
7. Total (sum of items 1 ////////////////// ////////////////// ////////////////// //////////////////
through 6) (total of ////////////////// ////////////////// ////////////////// //////////////////
column A must equal ////////////////// ////////////////// ////////////////// //////////////////
Schedule RC, item 2.a) ////////////////// ////////////////// ////////////////// //////////////////
(total of column D must ////////////////// ////////////////// ////////////////// //////////////////
equal Schedule RC, ////////////////// ////////////////// ////////////////// //////////////////
item 2.b)....................... 1754 261,390 1771 251,395 1772 4,943,856 1773 4,958,338 7.
----------------------------------------------------------------------------------
</TABLE>
- -----------
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
14
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-5
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-B--CONTINUED
--------
C412 <-
------------------
Memoranda Dollar Amounts in Thousands RCFD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Pledged securities(2).......................................................................... 0416 2,436,831 M.1.
2. Maturity and repricing data for debt securities(2), (3), (4) (excluding those in //////////////////
nonaccrual status): //////////////////
a. Fixed rate debt securities with a remaining maturity of: //////////////////
(1) Three months or less.................................................................... 0343 44,985 M.2.a.(1)
(2) Over three months through 12 months..................................................... 0344 105,214 M.2.a.(2)
(3) Over one year through five years........................................................ 0345 1,418,544 M.2.a.(3)
(4) Over five years ........................................................................ 0346 2,274,468 M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a(1) through 2.a.(4)........ 0347 3,843,211 M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: //////////////////
(1) Quarterly or more frequently............................................................ 4544 302,855 M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly......................... 4545 802,642 M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually.................. 4551 79 M.2.b.(3)
(4) Less frequently than every five years................................................... 4552 0 M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4))... 4553 1,105,576 M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total //////////////////
debt securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus //////////////////
nonaccrual debt securities included in Schedule RC-N, item 9, column C)..................... 0393 4,948,787 M.2.c.
3. Not applicable //////////////////
4. Held-to-maturity debt securities restructured and in compliance with modified terms (included //////////////////
in Schedule RC-B, items 3 through 5, column A, above).......................................... 5365 0 M.4.
5. Not applicable //////////////////
6. Floating rate debt securities with a remaining maturity of one year or less(2), (4) (included in //////////////////
Memorandum items 2.b.(1) through 2.b.(4) above)................................................. 5519 4,000 M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or //////////////////
trading securities during the calendar year-to-date (report the amortized cost at date of sale //////////////////
or transfer)................................................................................... //////////////////
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale //////////////////
accounts in Schedule RC-B, item 4.b): //////////////////
a. Amortized cost.............................................................................. 8780 0 M.8.a.
b. Fair value.................................................................................. 8781 0 M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale account in //////////////////
Schedule RC-B, items 2, 3, and 5): //////////////////
a. Amortized cost.............................................................................. 8782 0 M.9.a.
b. Fair value.................................................................................. 8783 0 M.9.b.
- ----------------
(2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-6
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-C--LOANS AND LEASE FINANCING RECEIVABLES
PART I. LOANS AND LEASES
Do not deduct the allowance for loan and lease losses from amounts ------------
reported in this schedule. Report total loans and leases, net of unearned C415 <-
income. Exclude assets held for trading. --------------------------------------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
--------------------------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RFCD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Loans secured by real estate............................................ 1410 11,606,306 ////////////////// 1.
a. Construction and land development.................................... ////////////////// 1415 599,823 1.a.
b. Secured by farmland (including farm residential and other ////////////////// //////////////////
improvements)........................................................ ////////////////// 1420 1,990 1.b.
c. Secured by 1-4 family residential properties: ////////////////// //////////////////
(1) Revolving, open-end loans secured by 1-4 family residential ////////////////// //////////////////
properties and extended under lines of credit.................... ////////////////// 1797 1,906,776 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: ////////////////// //////////////////
(a) Secured by first liens....................................... ////////////////// 5367 4,239,378 1.c.(2)(a)
(b) Secured by junior liens...................................... ////////////////// 5368 616,562 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties............ ////////////////// 1460 473,710 1.d.
e. Secured by nonfarm nonresidential properties......................... ////////////////// 1480 3,768,067 1.e.
2. Loans to depository institutions: ////////////////// //////////////////
a. To commercial banks in the U.S. ..................................... ////////////////// 1505 76,227 2.a.
(1) To U.S. branches and agencies of foreign banks................... 1506 0 ////////////////// 2.a.(1)
(2) To other commercial banks in the U.S. ........................... 1507 76,227 ////////////////// 2.a.(2)
b. To other depository institutions in the U.S. ........................ 1517 13,345 1517 13,345 2.b.
c. To banks in foreign countries........................................ ////////////////// 1510 928 2.c.
(1) To foreign branches of other U.S. banks.......................... 1513 160 ////////////////// 2.c.(1)
(2) To other banks in foreign countries.............................. 1516 768 ////////////////// 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers..... 1590 4,351 1590 4,351 3.
4. Commercial and industrial loans: ////////////////// //////////////////
a. To U.S. addressees (domicile)........................................ 1763 12,626,132 1763 12,574,435 4.a.
b. To non-U.S. addressees (domicile).................................... 1764 78,513 1764 31,092 4.b.
5. Acceptances of other banks: ////////////////// //////////////////
a. Of U.S. banks........................................................ 1756 0 1756 0 5.a.
b. Of foreign banks..................................................... 1757 0 1757 0 5.b.
6. Loans to individuals for household, family, and other personal ////////////////// //////////////////
expenditures (i.e., consumer loans) (includes purchased paper).......... ////////////////// 1975 2,101,041 6.
a. Credit cards and related plans (includes check credit and other ////////////////// //////////////////
revolving credit plans).............................................. 2008 94,750 ////////////////// 6.a.
b. Other (includes single payment, installment, and all student loans).. 2011 2,006,291 ////////////////// 6.b.
7. Loans to foreign governments and official institutions (including ////////////////// //////////////////
foreign central banks).................................................. 2081 0 2081 0 7.
8. Obligations (other than securities and leases) of states and political ////////////////// //////////////////
subdivisions in the U.S. (includes nonrated industrial development ////////////////// //////////////////
obligations)............................................................ 2107 149,176 2107 149,176 8.
9. Other loans ............................................................ 1563 2,018,484 ////////////////// 9.
a. Loans for purchasing or carrying securities (secured and unsecured).. ////////////////// 1545 179,603 9.a.
b. All other loans (exclude consumer loans)............................. ////////////////// 1564 1,838,881 9.b.
10. Lease financing receivables (net of unearned income).................... ////////////////// 2165 2,585,933 10.
a. Of U.S. addressees (domicile) ....................................... 2182 2,585,933 ////////////////// 10.a.
b. Of non-U.S. addressees (domicile).................................... 2183 0 ////////////////// 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above......... 2123 0 2123 0 11.
12. Total loans and leases, net of unearned income (sum of items 1 ////////////////// //////////////////
through 10 minus item 11) (total of column A must equal ////////////////// //////////////////
Schedule RC, item 4.a) ................................................. 2122 31,260,436 2122 31,161,318 12.
--------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-7
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-C--CONTINUED
PART I. CONTINUED
(Column A) (Column B)
Consolidated Domestic
Bank Offices
Memoranda ------------------ ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above........................ 1496 0 1496 0 M.1.
2. Loans and leases restructured and in compliance with modified terms ////////////////// //////////////////
(included in Schedule RC-C, part I, above and not reported as past due ////////////////// //////////////////
or nonaccrual in Schedule RC-N, Memorandum item 1): ////////////////// //////////////////
a. Loans secured by real estate: ////////////////// //////////////////
(1) To U.S. addressees (domicile)............................................. 1687 1,681 M.2.a.(1)
(2) To non-U.S. addressees (domicile)......................................... 1689 0 M.2.a.(2)
b. All other loans and lease financing receivable (exclude loans to //////////////////
individuals for household, family, and other personal expenditures)........... 8691 0 M.2.b.
c. Commercial and industrial loans to and lease financing receivables //////////////////
of non-U.S. addressees (domicile) included in Memorandum item 2.b //////////////////
above......................................................................... 8692 0 M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those in //////////////////
nonaccrual status): //////////////////
a. Fixed rate loans with a remaining maturity of: //////////////////
(1) Three months or less...................................................... 0348 690,294 M.3.a.(1)
(2) Over three months through 12 months....................................... 0349 566,523 M.3.a.(2)
(3) Over one year through five years.......................................... 0356 2,658,468 M.3.a.(3)
(4) Over five years........................................................... 0357 5,501,645 M.3.a.(4)
(5) Total fixed rate loans and leases (sum of Memorandum //////////////////
items 3.a.(1) through 3.a.(4))............................................ 0358 9,416,930 M.3.a.(5)
b. Floating rate loans with a repricing frequency of: //////////////////
(1) Quarterly or more frequently.............................................. 4554 17,235,629 M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly........... 4555 3,186,865 M.3.b.(2)
(3) Every five years or more frequently, but less frequently than //////////////////
annually.................................................................. 4561 977,978 M.3.b.(3)
(4) Less frequently than every five years..................................... 4564 129,282 M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) //////////////////
through 3.b.(4)........................................................... 4567 21,529,754 M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and //////////////////
3.b.(5)) (must equal the sum of total loans and leases, net, from //////////////////
Schedule RC-C, part I, item 12, plus unearned income from //////////////////
Schedule RC-C, part I, item 11, minus total nonaccrual loans and //////////////////
leases from Schedule RC-N, sum of items 1 through 8, column C)................ 1479 30,946,684 M.3.c.
d. FLOATING RATE LOANS WITH A REMAINING MATURITY OF ONE YEAR OR LESS //////////////////
(INCLUDED IN MEMORANDUM ITEMS 3.b.(1) THROUGH 3.b.(4) ABOVE).................. A246 0 M.3.d.
4. Loans to finance commercial real estate, construction, and land //////////////////
development activities (NOT SECURED BY REAL ESTATE) included in //////////////////
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2)..................... 2746 335,734 M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, //////////////////
above)........................................................................... 5369 0 M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family //////////////////
residential properties (included in Schedule RC-C, part I, item 1.c.(2)(a), ////////////////// RCON Bil Mil Thou
column B, page RC-6)............................................................. ////////////////// 5370 1,841,822 M.6.
</TABLE>
(1) Memorandum item 3 is not applicable to savings banks that must complete
supplemental Schedule RC-J.
(2) Exclude loans secured by real estate that are included in RC-C, part I,
item 1, column A.
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-8
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-D--TRADING ASSETS AND LIABILITIES
Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional
amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D).
---------
C420 <-
----------------------
Dollar Amounts in Thousands //////// Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS //////////////////////
1. U.S. Treasury securities in domestic offices............................................. RCON 3531 0 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- //////////////////////
backed securities)....................................................................... RCON 3532 0 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices... RCON 3533 0 3.
4. Mortgage-backed securities (MBS) in domestic offices: //////////////////////
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA.................. RCON 3534 0 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA //////////////////////
(include CMOs, REMICs, and stripped MBS).............................................. RCON 3535 0 4.b.
c. All other mortgage-backed securities.................................................. RCON 3536 0 4.c.
5. Other debt securities in domestic offices................................................ RCON 3537 0 5.
6. Certificates of deposit in domestic offices.............................................. RCON 3538 0 6.
7. Commercial paper in domestic offices..................................................... RCON 3539 0 7.
8. Bankers acceptances in domestic offices.................................................. RCON 3540 0 8.
9. Other trading assets in domestic offices................................................. RCON 3541 0 9.
10. Trading assets in foreign offices........................................................ RCFN 3542 0 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity //////////////////////
contracts: //////////////////////
a. In domestic offices................................................................... RCON 3543 64,043 11.a.
b. In foreign offices.................................................................... RCFN 3544 9,290 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5)........ RCFD 3545 73,333 12.
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES //////// Bil Mil Thou
----------------------
<S> <C> <C> <C>
13. Liability for short positions............................................................ RFCD 3546 0 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and //////////////////////
equity contracts......................................................................... RFCD 3547 60,855 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b)... RCFD 3548 60,855 15.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-9
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-E--DEPOSIT LIABILITIES
PART I. DEPOSITS IN DOMESTIC OFFICES
--------------
C425
--------------
Nontransaction
Transactions Accounts Accounts
---------------------------------------------------------------
(Column A) (Column B) (Column C)
Total transaction Memo: Total Total
accounts (including demand deposits nontransaction
total demand (included in accounts
deposits) column A) (including MMDAs)
----------------------------------------------------------------
Dollar Amounts in Thousands RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Deposits of: ////////////////// ////////////////// //////////////////
1. Individuals, partnerships, and corporations..... 2201 8,925,633 2240 8,417,538 2346 21,118,482 1.
2. U.S. Government................................. 2202 170,644 2280 170,617 2520 5,680 2.
3. States and political subdivisions in the U.S.... 2203 531,934 2290 508,362 2530 777,806 3.
4. Commercial banks in the U.S..................... 2206 836,406 2310 836,406 2550 397 4.
5. Other depository institutions in the U.S........ 2207 223,383 2312 223,383 2349 2,868 5.
6. Banks in foreign countries...................... 2213 23,850 2320 23,850 2236 0 6.
7. Foreign governments and official institutions ////////////////// ////////////////// //////////////////
(including foreign central banks)............... 2216 0 2300 0 2377 0 7.
8. Certified and official checks................... 2330 175,075 2330 175,075 ////////////////// 8.
9. Total (sum of items 1 through 8) (sum of columns ////////////////// ////////////////// //////////////////
A and C must equal Schedule RC, item 13.a....... 2215 10,886,925 2210 10,355,231 2385 21,905,233 9.
----------------------------------------------------------------
</TABLE>
Memoranda
<TABLE>
Dollar Amounts in Thousands RCON Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): //////////////////
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts.................... 6835 2,607,397 M.1.a.
b. Total brokered deposits................................................................ 2365 1,415,235 M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): //////////////////
(1) Issued in denominations of less than $100,,000.................................... 2343 2,240 M.1.c.(1)
(2) Issued EITHER in denominations of $100,000 OR in denominations greater than //////////////////
$100,000 and participated out by the broker in shares of $100,000 or less......... 2344 1,412,995 M.1.c.(2)
D. MATURITY DATA FOR BROKERED DEPOSITS: //////////////////
(1) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF LESS THAN $100,000 WITH A REMAINING //////////////////
MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.C.(1) ABOVE).......... A243 20 M.1.d.(1)
(2) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF $100,000 OR MORE WITH A REMAINING //////////////////
MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.B ABOVE).............. A244 584,547 M.1.d.(2)
e. Preferred deposits (uninsured deposits of states and political subdivisions in the //////////////////
U.S. reported in item 3 above which are secured or collateralized as required under //////////////////
state law)............................................................................. 5590 346,573 M.1.e.
2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.d //////////////////
must equal item 9, column C above): //////////////////
a. Savings deposits: //////////////////
(1) Money market deposit accounts (MMDAs)............................................. 6810 10,252,364 M.2.a.(1)
(2) Other savings deposits (excludes MMDAs).......................................... 0352 2,397,861 M.2.a.(2)
b. Total time deposits of less than $100,000.............................................. 6648 6,781,917 M.2.b.
c. Time certificates of deposit of $100,000 or more....................................... 6645 2,473,091 M.2.c.
d. Open-account time deposits of $100,000 or more......................................... 6646 0 M.2.d.
3. All NOW accounts (included in column A above).............................................. 2398 531,694 M.3.
4. Not applicable
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-10
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-E--CONTINUED
PART I. CONTINUED
Memoranda (continued)
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of //////////////////
Memorandum items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above):(1) //////////////////
a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: //////////////////
(1) Three months or less .............................................................. A225 1,722,551 M.5.a.(1)
(2) Over three months through 12 months ............................................... A226 3,024,143 M.5.a.(2)
(3) Over one year ..................................................................... A227 1,975,207 M.5.a.(3)
b. Floating rate time deposits of less than $100,000 with a repricing frequency of: //////////////////
(1) Quarterly or more frequently ...................................................... A228 60,016 M.5.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ................... A229 0 M.5.b.(2)
(3) Les frequently than annually ...................................................... A230 0 M.5.b.(3)
c. Floating rate time deposits of less than $100,000 with a remaining maturity of //////////////////
one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above) ......... A231 39,531 M.5.c.
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates //////////////////
of deposit of $100,000 or more and open-account time deposits of $100,000 or more) //////////////////
(sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum //////////////////
items 2.c and 2.d above): (1) //////////////////
a. Fixed rate time deposits of $100,000 or more with a remaining maturity of: //////////////////
(1) Three months or less .............................................................. A232 720,549 M.6.a.(1)
(2) Over three months through 12 months ............................................... A233 695,947 M.6.a.(2)
(3) Over one year through five years .................................................. A234 1,014,722 M.6.a.(3)
(4) Over five years ................................................................... A235 8,868 M.6.a.(4)
b. Floating rate time deposits of $100,000 or more with a repricing frequency of: //////////////////
(1) Quarterly or more frequently ...................................................... A236 33,005 M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ................... A237 0 M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually ............ A238 0 M.6.b.(3)
(4) Less frequently than every five years ............................................. A239 0 M.6.b.(4)
c. Floating rate time deposits of $100,000 or more with a remaining maturity of //////////////////
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above).......... A240 1,896 M.6.c.
------------------
</TABLE>
- ------------
(1) Memorandum items 5 and 6 are not applicable to savings banks that
must complete supplemental Schedule RC-J.
20
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-11
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-E--CONTINUED
PART II. DEPOSITS IN FOREIGN OFFICES (INCLUDING EDGE AND
AGREEMENT SUBSIDIARIES AND IBFS)
------------------
Dollar Amounts in Thousands RCFN Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits of: //////////////////
1. Individuals, partnerships, and corporations.......................................... 2621 2,410,097 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks)....................... 2623 0 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including
their IBFs).......................................................................... 2625 0 3.
4. Foreign governments and official institutions (including foreign central banks)...... 2650 0 4.
5. Certified and official checks........................................................ 2330 0 5.
6. All other deposits................................................................... 2668 4,330 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b)................. 2200 2,414,427 7.
</TABLE>
<TABLE>
<CAPTION>
------------------
Memorandum Dollar Amounts in Thousands RCFN Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. TIME DEPOSITS WITH A REMAINING MATURITY OF ONE YEAR OR LESS (INCLUDED IN PART II, //////////////////
ITEM 7 ABOVE)........................................................................ A245 2,414,425 M.1.
</TABLE>
SCHEDULE RC-F--OTHER ASSETS
<TABLE>
<CAPTION>
---------
C430
-----------------------
Dollar Amounts in Thousands ////////// Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Income earned, not collected on loans................................................ RCFD 2164 243,319 1.
2. Net deferred tax assets (1).......................................................... RCFD 2148 0 2.
3. Excess residential mortgage servicing fees receivable................................ RCFD 5371 173,148 3.
4. Other (itemize and describe amounts that exceed 25% of this item).................... RCFD 2168 3,491,222 4.
--------- --------------------
a. TEXT 3549 MORTGAGE HELD FOR RESALE RCFD 3549 1,517,133 /////////////////////// 4.a.
-------------------------------------------------------------
b. TEXT 3550 RCFD 3550 /////////////////////// 4.b.
-------------------------------------------------------------
c. TEXT 3551 RCFD 3551 /////////////////////// 4.c.
-------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11)................... RCFD 2160 3,907,689 5.
-----------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------
Memorandum Dollar Amounts in Thousands //////////// Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes.................. RFCD 5610 0 M.1.
</TABLE>
SCHEDULE RC-G--OTHER LIABILITIES
<TABLE>
<CAPTION>
-----------
C435
------------------------
Dollar Amounts in thousands ////////// Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices (2).................... RCON 3645 50,636 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable)......... RCFD 3646 509,357 1.b.
2. Net deferred tax liabilities(1)....................................................... RCFD 3049 434,426 2.
3. Minority interest in consolidated subsidiaries........................................ RCFD 3000 0 3.
4. Other (itemize and describe amounts that exceed 25% of this item)..................... RCFD 2938 512,435 4.
---------
a. TEXT 3552 RCFD 3552 /////////////////////// 4.a.
-------------------------------------------------------------
b. TEXT 3553 RCFD 3553 /////////////////////// 4.b.
-------------------------------------------------------------
c. TEXT 3554 RCFD 3554 /////////////////////// 4.c.
-------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20).................... RCFD 2930 1,506,854 5.
</TABLE>
- ----------------
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
21
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-12
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
---------------
SCHEDULE RC-H--SELECTED BALANCE SHEET ITEMS FOR DOMESTIC OFFICES
C440
------------------
Domestic Offices
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Customers' liability to this bank on acceptances outstanding......................... 2155 6,380 1.
2. Bank's liability on acceptances executed and outstanding............................. 2920 6,380 2.
3. Federal funds sold and securities purchased under agreements to resell............... 1350 25,709 3.
4. Federal funds purchased and securities sold under agreements to repurchase........... 2800 3,118,142 4.
5. Other borrowed money................................................................. 3190 935,986 5.
EITHER //////////////////
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs.......... 2163 N/A 6.
OR //////////////////
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs............ 2941 2,311,663 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, //////////////////
and IBFs)............................................................................ 2192 46,468,505 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement //////////////////
subsidiaries, and IBFs).............................................................. 3129 39,637,730 9.
ITEMS 10-17 INCLUDE HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES IN DOMESTIC OFFICES.
</TABLE>
<TABLE>
<CAPTION>
------------------
RCON Bil Mil Thou
------------------
<S> <C> <C> <C>
10. U.S. Treasury securities............................................................. 1779 718,830 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed //////////////////
securities).......................................................................... 1785 500 11.
12. Securities issued by states and political subdivisions in the U.S.................... 1786 163,833 12.
13. Mortgage-backed securities (MBS): //////////////////
a. Pass-through securities: //////////////////
(1) Issued or guaranteed by FNMA, FHLMC, OR GNMA................................ 1787 3,967,242 13.a.(1)
(2) Other pass-through securities............................................... 1869 1 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): //////////////////
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA................................ 1877 0 13.b.(1)
(2) All other mortgage-backed securities........................................ 2253 453 13.b.(2)
14. Other domestic debt securities....................................................... 3159 621 14.
15. Foreign debt securities.............................................................. 3160 97,307 15.
16. Equity securities: //////////////////
a. Investments in mutual funds...................................................... 3161 52,843 16.a.
b. Other equity securities with readily determinable fair values.................... 3162 0 16.b.
c. All other equity securities...................................................... 3169 218,098 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) 3170 5,219,728 17.
</TABLE>
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
<TABLE>
<CAPTION>
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EITHER //////////////////
1. Net due from the IBF of the domestic offices of the reporting bank................... 3051 0 M.1.
OR //////////////////
2. Net due to the IBF of the domestic offices of the reporting bank..................... 3059 N/A M.2.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-13
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-I--SELECTED ASSETS AND LIABILITIES OF IBFs
C445
------------------
Dollar Amounts in Thousands RCFN Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12)........ 2133 0 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, //////////////////
item 12, column A)................................................................... 2076 0 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, //////////////////
item 4, column A).................................................................... 2077 0 3.
4. Total IBF liabilities (component of Schedule RC, item 21)............................ 2898 0 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule //////////////////
RC-E, part II, items 2 and 3)........................................................ 2379 0 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, //////////////////
items 1,4,5, and 6................................................................... 2381 0 6.
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE RC-K--QUARTERLY AVERAGES (1)
C455
------------------
Dollar Amounts in Thousands ///////// Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
ASSETS ///////////////////////
<S> <C> <C> <C>
1. Interest-bearing balances due from depository institutions...................... RCFD 3381 28,972 1.
2. U.S. Treasury securities and U.S. Government agency and corporation
obligations (2)................................................................. RCFD 3382 5,849,801 2.
3. Securities issued by states and political subdivisions in the U.S. (2).......... RCFD 3383 171,480 3.
4. a. Other debt securities (2)................................................... RCFD 3647 98,635 4.a.
b. Equity securities (3) (includes investments in mutual funds and Federal ///////////////////////
Reserve stock).................................................................. RCFD 3648 290,211 4.b.
5. Federal funds sold and securities purchased under agreements to resell in ///////////////////////
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in ///////////////////////
IBFs............................................................................ RCFD 3365 34,073 5.
6. Loans:
a. Loans in domestic offices:
(1) Total loans............................................................ RCON 3360 28,772,871 6.a.(1)
(2) Loans secured by real estate........................................... RCON 3385 11,782,561 6.a.(2)
(3) Loans to finance agricultural production and other loans to ///////////////////////
farmers................................................................ RCON 3386 4,568 6.a.(3)
(4) Commercial and industrial loans........................................ RCON 3387 12,208,378 6.a.(4)
(5) Loans to individuals for household, family, and other personal ///////////////////////
expenditures........................................................... RCON 3388 2,106,517 6.a.(5)
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs... RCFN 3360 93,116 6.b.
7. Trading assets.................................................................. RCFD 3401 70,398 7.
8. Lease financing receivables (net of unearned income)............................ RCFD 3484 2,414,362 8.
9. Total assets(4)................................................................. RCFD 3368 47,043,625 9.
LIABILITIES
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS ///////////////////////
accounts, and telephone and preauthorized transfer accounts) (exclude demand ///////////////////////
deposits)....................................................................... RCON 3485 554,831 10.
11. Nontransaction accounts in domestic offices: ///////////////////////
a. Money market deposit accounts (MMDAs)....................................... RCON 3486 10,212,141 11.a.
b. Other savings deposits...................................................... RCON 3487 2,477,260 11.b.
c. Time certificates of deposit of $100,000 or more............................ RCON 3345 2,533,067 11.c.
d. All other time deposits..................................................... RCON 3469 6,982,619 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, ///////////////////////
and IBFs........................................................................ RCFN 3404 2,117,139 12.
13. Federal funds purchased and securities sold under agreements to repurchase in ///////////////////////
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in ///////////////////////
IBFs............................................................................ RCFD 3353 4,817,518 13.
14. Other borrowed money............................................................ RCFD 3355 985,125 14.
- ---------------
(1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or
(2) an average of weekly figures (i.e., the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized cost.
(3) Quarterly averages for all equity securities should be based on historical cost.
(4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized
cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-14
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-L--OFF BALANCE SHEET ITEMS
Please read carefully the instructions for the preparation of Schedule RC-L.
Some of the amounts reported in Schedule RC-L are regarded as volume indicators
and not necessarily as measures of risk.
C460
Dollar Amounts in Thousands RCFD BIL MIL THOU
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Unused commitments: //////////////////
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home equity //////////////////
lines....................................................................................... 3814 2,159,101 1.a.
b. Credit card lines........................................................................... 3815 37,038 1.b.
c. Commercial real estate, construction, and land development: //////////////////
(1) Commitments to fund loans secured by real estate........................................ 3816 538,163 1.c.(1)
(2) Commitments to fund loans not secured by real estate.................................... 6550 513,346 1.c.(2)
d. Securities underwriting..................................................................... 3817 0 1.d.
e. Other unused commitments.................................................................... 3818 20,572,462 1.e.
2. Financial standby letters of credit and foreign office guarantees.............................. 3819 2,322,445 2.
--------------------
a. Amount of financial standby letters of credit conveyed to others RCFD 3820 89,650 ////////////////// 2.a.
--------------------
3. Performance standby letters of credit and foreign office guarantees............................ 3821 179,230 3.
--------------------
a. Amount of performance standby letters of credit conveyed to others RCFD 3822 6,004 ////////////////// 3.a.
--------------------
4. Commercial and similar letters of credit....................................................... 3411 137,503 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by the //////////////////
reporting bank................................................................................. 3428 112 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting //////////////////
(nonaccepting) bank............................................................................ 3429 12,837 6.
7. Securities borrowed............................................................................ 3432 0 7.
8. Securities lent (including customers' securities lent where the customer is indemnified against //////////////////
loss by the reporting bank).................................................................... 3433 965,792 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for //////////////////
Call Report purposes: //////////////////
a. FNMA and FHLMC residential mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as or the report date............ 3650 298,423 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date.................... 3651 298,423 9.a.(2)
b. Private (nongovernment-issued or guaranteed) residential mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date............ 3652 289,942 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date.................... 3653 289,942 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date............ 3654 0 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date.................... 3655 0 9.c.(2)
d. Small business obligations transferred with recourse under Section 208 of the //////////////////
Riegle Community Development and Regulatory improvement Act of 1994: //////////////////
(1) Outstanding principal balance of small business obligations transferred //////////////////
as of the report date................................................................... A249 0 9.d.(1)
(2) Amount of retained recourse on these obligations as of the report date.................. A250 0 9.d.(2)
10. When-issued securities: //////////////////
a. Gross commitments to purchase............................................................... 3434 0 10.a
b. Gross commitments to sell................................................................... 3435 0 10.b.
11. Spot foreign exchange contracts................................................................ 8765 487,442 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and //////////////////
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") 3430 0 12.
------------------------------------------------------------------------------------------- //////////////////
a. TEXT 3555 ........................................................ RCFD 3555 ////////////////// 12.a.
b. TEXT 3556 ........................................................ RCFD 3556 ////////////////// 12.b.
c. TEXT 3557 ........................................................ RCFD 3557 ////////////////// 12.c.
d. TEXT 3558 ........................................................ RCFD 3558 ////////////////// 12.d.
---------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-15
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-L--CONTINUED
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and //////////////////
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") 5591 0 13.
--------- ------------------------------ //////////////////
a. TEXT 5592 RCFD 5592 ////////////////// 13.a.
b. TEXT 5593 RCFD 5593 ////////////////// 13.b.
c. TEXT 5594 RCFD 5594 ////////////////// 13.c.
d. TEXT 5595 RCFD 5595 ////////////////// 13.d.
--------------------------------------------------------------------------------------------------------------
C461 <-
----------------- ----------------- ----------------- ------------------
(Column A) (Column B) (Column C) (Column D)
Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and
- ---------------------------------------- Contracts Contracts Contracts Other Contracts
Off-balance Sheet Derivatives ----------------- ----------------- ----------------- ------------------
Position Indicators Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou
---------------------------------------- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> C> <C>
14. Gross amounts (e.g., notional ///////////////// ///////////////// ///////////////// /////////////////
amounts) (for each column, sum of ///////////////// ///////////////// ///////////////// /////////////////
items 14.a through 14.e must equal ///////////////// ///////////////// ///////////////// /////////////////
sum of items 15, 16.a, and 16.b): ///////////////// ///////////////// ///////////////// /////////////////
----------------- ----------------- ----------------- -----------------
a. Futures contracts ................ 0 0 0 39,037 14.a
----------------- ----------------- ----------------- -----------------
RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696
----------------- ----------------- ----------------- -----------------
b. Forward contracts ................ 2,684,800 2,284,466 0 45,604 14.b
----------------- ----------------- ----------------- -----------------
RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700
----------------- ----------------- ----------------- -----------------
c. Exchange-traded option contracts: ///////////////// ///////////////// ///////////////// /////////////////
----------------- ----------------- ----------------- -----------------
(1) Written options .............. 225,000 0 0 0 14.c.(1)
----------------- ----------------- ----------------- -----------------
RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704
----------------- ----------------- ----------------- -----------------
(2) Purchased options ............ 1,276,400 0 0 1,245 14.c.(2)
----------------- ----------------- ----------------- -----------------
RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708
----------------- ----------------- ----------------- -----------------
d. Over-the-counter option contracts: ///////////////// ///////////////// ///////////////// /////////////////
----------------- ----------------- ----------------- -----------------
(1) Written options .............. 5,051,792 5,200 0 0 14.d.(1)
----------------- ----------------- ----------------- -----------------
RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712
----------------- ----------------- ----------------- -----------------
(2) Purchased options ............ 19,427,829 5,200 0 0 14.d.(2)
----------------- ----------------- ----------------- -----------------
RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716
----------------- ----------------- ----------------- -----------------
e. Swaps ............................ 24,549,614 0 0 0 14.e
----------------- ----------------- ----------------- -----------------
RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720
----------------- ----------------- ----------------- -----------------
15. Total gross notional amount of ///////////////// ///////////////// ///////////////// /////////////////
derivative contracts held for trading. 5,289,505 2,294,866 0 l,245 15
----------------- ----------------- ----------------- -----------------
RCFD A126 RCFD A127 RCFD 8723 RCFD 8724
----------------- ----------------- ----------------- -----------------
l6. Total gross notional amount of ///////////////// ///////////////// ///////////////// /////////////////
derivative contracts held for ///////////////// ///////////////// ///////////////// /////////////////
purposes other than trading: ///////////////// ///////////////// ///////////////// /////////////////
----------------- ----------------- ----------------- -----------------
a. Contracts marked to market ...... 4,239,800 0 0 39,037 16.a.
----------------- ----------------- ----------------- -----------------
RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728
----------------- ----------------- ----------------- -----------------
b. Contracts not marked to market .. 43,686,130 0 0 45,604 16.b.
----------------- ----------------- ----------------- -----------------
RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732
----------------- ----------------- ----------------- -----------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-16
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-L--CONTINUED
(Column A) (Column B) (Column C) (Column D)
Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and
Off-balance Sheet Derivatives Contracts Contracts Contracts Other Contracts
Position Indicators ------------------ ------------------ ------------------ ------------------
RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
17. Gross fair values of ////////////////// ////////////////// ////////////////// //////////////////
derivative contracts: ////////////////// ////////////////// ////////////////// //////////////////
a. Contracts held for ////////////////// ////////////////// ////////////////// //////////////////
trading: ////////////////// ////////////////// ////////////////// //////////////////
(1) Gross positive ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8733 31,626 8734 41,468 8736 0 8736 59 17.a.(1)
(2) Gross negative ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8737 22,099 8738 38,756 8739 0 8740 0 17.a.(2)
b. Contracts held for ////////////////// ////////////////// ////////////////// //////////////////
purposes other than ////////////////// ////////////////// ////////////////// //////////////////
trading that are marked ////////////////// ////////////////// ////////////////// //////////////////
to market: ////////////////// ////////////////// ////////////////// //////////////////
(1) Gross positive ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8741 2,258 8742 0 8743 0 8744 1,698 17.b.(1)
(2) Gross negative ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8745 1,417 8746 0 8747 0 8748 0 17.b.(2)
c. Contracts held for ////////////////// ////////////////// ////////////////// //////////////////
purposes other than ////////////////// ////////////////// ////////////////// //////////////////
trading that are not ////////////////// ////////////////// ////////////////// //////////////////
marked to market: ////////////////// ////////////////// ////////////////// //////////////////
(1) Gross positive ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8749 165,643 8750 0 8751 0 8752 169 17.c.(1)
(2) Gross negative ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8737 76,308 8754 0 8755 0 8756 0 17.c.(2)
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memoranda Dollar Amounts in Thousands RFCD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.-2. Not applicable //////////////////
3. Unused commitments with an original maturity exceeding one year that are reported in //////////////////
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments //////////////////
that are fee paid or otherwise legally binding).................................................. 3833 18,552,873 M.3.
a. Participations in commitments with an original maturity //////////////////
exceeding one year to be conveyed to others......................... RCFD 3834 | 1,789,549 ////////////////// M.3.a.
4. To be completed only by banks with $1 billion or more in total assets: //////////////////
Standby letters of credit and foreign office guarantees (both financial and performance) issued //////////////////
to non-U.S. addresses (domicile) included in Schedule RC-L, items 2 and 3, above................. 3377 360,019 M.4.
5. Installment loans to individuals for household, family, and other personal expenditures that //////////////////
have been securitized and sold without recourse (with servicing retained), amounts outstanding //////////////////
by type of loan: //////////////////
a. Loans to purchase private passenger automobiles (TO BE COMPLETED FOR THE //////////////////
SEPTEMBER REPORT ONLY)........................................................................ 2741 N/A M.5.a.
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY).................................... 2742 0 M.5.b.
c. All other consumer installment credit (including mobile home loans)(TO BE COMPLETED FOR THE //////////////////
SEPTEMBER REPORT ONLY)........................................................................ 2743 N/A M.5.c.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-17
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-M--MEMORANDA
--------
C465 <-
------------------
Dollar Amounts in Thousands RFCD Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal //////////////////
shareholders, and their related interests as of the report date: //////////////////
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal //////////////////
shareholders, and their related interests...................................................... 6164 552,349 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of //////////////////
all extensions of credit by the reporting bank (including extensions of credit to //////////////////
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number //////////////////
of total capital as defined for this purpose in agency regulations. RFCD 6165 | 20 ////////////////// 1.b.
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches //////////////////
and agencies of FOREIGN BANKS(1) (included in Schedule RC, items 3.a and 3.b)..................... 3405 0 2.
3. Not applicable. //////////////////
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others //////////////////
(include both retained servicing and purchased servicing): //////////////////
a. Mortgages serviced under a GNMA contract....................................................... 5500 25,732,152 4.a.
b. Mortgages services under a FHLMC contract: //////////////////
(1) Serviced with recourse to servicer......................................................... 5501 48,720 4.b.(1)
(2) Serviced without recourse to servicer...................................................... 5502 34,857,978 4.b.(2)
c. Mortgages serviced under a FNMA contract: //////////////////
(1) Serviced under a regular option contract................................................... 5503 249,703 4.c.(1)
(2) Serviced under a special option contract................................................... 5504 41,105,444 4.c.(2)
d. Mortgages serviced under other servicing contracts............................................. 5505 11,267,486 4.d.
5. To be completed only by banks with $1 billion or more in total assets: //////////////////
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must //////////////////
equal Schedule RC, item 9): //////////////////
a. U.S. addresses (domicile)...................................................................... 2103 6,244 5.a.
b. Non-U.S. addresses (domicile).................................................................. 2104 136 5.b.
6. Intangible assets: //////////////////
a. Mortgage servicing rights...................................................................... 3164 1,563,176 6.a.
b. Other identifiable intangible assets //////////////////
(1) Purchased credit card relationships........................................................ 5506 0 6.b.(1)
(2) All other identifiable intangible assets................................................... 5507 105,984 6.b.(2)
c. Goodwill....................................................................................... 3163 647,473 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10)......................... 2143 2,316,633 6.d.
e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or //////////////////
are otherwise qualifying for regulatory capital purposes....................................... 6442 0 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to //////////////////
redeem the debt................................................................................... 3295 75,000 7.
</TABLE>
- -----------------
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this time.
27
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-18
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-M--CONTINUED
------------------
Dollar Amounts in Thousands BIL MIL THOU
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8. a. Other real estate owned: /////////////////////////
(1) Direct and indirect investments in real estate ventures......................... RCFD 5372 0 8.a.(1)
(2) All other real estate owned: /////////////////////////
(a) Construction and land development in domestic offices........................ RCON 5508 332 8.a.(2)(a)
(b) Farmland in domestic offices................................................. RCON 5509 0 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices........................ RCON 5510 9,789 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices........... RCON 5511 347 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices........................ RCON 5512 8,443 8.a.(2)(e)
(f) In foreign offices........................................................... RCFN 5513 0 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7)........ RCFD 2150 18,911 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: /////////////////////////
(1) Direct and indirect investments in real estate ventures.......................... RCFD 5374 0 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies.... RCFD 5375 0 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8)........ RCFD 2130 0 8.b.(3)
c. TOTAL ASSETS of unconsolidated subsidiaries and associated companies................. RCFD 5376 0 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, /////////////////////////
item 23, "Perpetual preferred stock and related surplus"................................ RCFD 3778 125,000 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include /////////////////////////
proprietary, private label, and third party products): /////////////////////////
a. Money market funds................................................................... RCON 6441 204,326 10.a.
b. Equity securities funds.............................................................. RCON 8427 116,418 10.b.
c. Debt securities funds................................................................ RCON 8428 12,837 10.c.
d. Other mutual funds................................................................... RCON 8429 0 10.d.
e. Annuities............................................................................ RCON 8430 103,868 10.e.
f. Sales of proprietary mutual funds and annuities (included in items 10.a. through /////////////////////////
10.e. above)......................................................................... RCON 8784 302,177 10.f.
-------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Memorandum Dollar Amounts in Thousands RCFD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Interbank holdings of capital instruments (TO BE COMPLETED FOR THE DECEMBER REPORT ONLY): //////////////////
a. Reciprocal holdings of banking organizations' capital instruments........................... 3836 0 M.1.a.
b. Nonreciprocal holdings of banking organizations' capital instruments........................ 3837 0 M.1.b.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-19
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-N--PAST DUE AND NONACCRUAL LOANS, LEASES,
AND OTHER ASSETS
The FFIEC regards the information reported in
all of Memorandum item 1, in items 1 through 10,
column A, and in Memorandum items 2 through 4,
column A, as confidential.
--------
C470
------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
accruing accruing
------------------ ------------------ ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Loans secured by real estate: ////////////////// ////////////////// //////////////////
a. To U.S. addressees (domicile) .................... 1245 1246 65,607 1247 215,496 1.a.
b. To non-U.S. addressees (domicile) ................ 1248 1249 0 1250 0 1.b.
2. Loans to depository institutions and acceptances ////////////////// ////////////////// //////////////////
of other banks: ////////////////// ////////////////// //////////////////
a. To U.S. banks and other U.S. depository ////////////////// ////////////////// //////////////////
institutions ..................................... 5377 5378 0 5379 0 2.a.
b. To foreign banks ................................. 5380 5381 0 5382 0 2.b.
3. Loans to finance agricultural production and ////////////////// ////////////////// //////////////////
other loans to farmers ............................... 1594 1597 0 1583 625 3.
4. Commercial and industrial loans: ////////////////// ////////////////// //////////////////
a. To U.S. addressees (domicile) .................... 1251 1252 12,042 1253 76,393 4.a.
b. To non-U.S. addressees (domicile) ................ 1254 1255 0 1256 0 4.b.
5. Loans to individuals for household, family, and ////////////////// ////////////////// //////////////////
other personal expenditures: ////////////////// ////////////////// //////////////////
a. Credit cards and related plans ................... 5383 5384 1,574 5385 370 5.a.
b. Other (includes single payment, installment, ////////////////// ////////////////// //////////////////
and all student loans) ........................... 5386 5387 24,812 5388 7,184 5.b.
6. Loans to foreign governments and official ////////////////// ////////////////// //////////////////
institutions ......................................... 5389 5390 0 5391 0 6.
7. All other loans ...................................... 5459 5460 11,122 5461 9,921 7.
8. Lease financing receivables: ////////////////// ////////////////// //////////////////
a. Of U.S. addressees (domicile) .................... 1257 1258 21 1259 3,763 8.a
b. Of non-U.S. addressees (domicile) ................ 1271 1272 0 1791 0 8.b.
9. Debt securities and other assets (exclude other ////////////////// ////////////////// //////////////////
real estate owned and other repossessed assets) ...... 3506 3506 0 3507 32,566 9.
- ---------------------------------------------------------------------------------------------------------------------------------
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and
leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in
items 1 through 8.
------------------ ------------------ ------------------
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
10. Loans and leases reported in items 1 ------------------------------------------------------------
through 8 above which are wholly or partially ////////////////// ////////////////// //////////////////
guaranteed by the U.S. Government .................... 5612 5613 17,347 5614 14,395 10.
a. Guaranteed portion of loans and leases ////////////////// ////////////////// //////////////////
included in item 10 above ........................ 5615 5616 17,056 5617 11,954 10.a.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-20
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-N--CONTINUED
--------
C473
------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
and still and still
accruing accruing
Memoranda ------------------ ------------------ ------------------
Dollar Amounts in Thousands RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Restructured loans and leases included in ////////////////// ////////////////// //////////////////
Schedule RC-N, items 1 through 8, above (and not ////////////////// ////////////////// //////////////////
reported in Schedule RC-C, part I, Memorandum ////////////////// ////////////////// //////////////////
item 2)................................................ 1658 1659 1661 M.1.
2. Loans to finance commercial real estate, ////////////////// ////////////////// //////////////////
construction, and land development activities ////////////////// ////////////////// //////////////////
(NOT SECURED BY REAL ESTATE) included in ////////////////// ////////////////// //////////////////
Schedule RC-N, items 4 and 7 above..................... 6558 6559 105 6560 1,919 M.2.
3. Loans secured by real estate in domestic offices RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou
(included in Schedule RC-N, item 1, above): ////////////////// ////////////////// //////////////////
a. Construction and land development................... 2759 2769 0 3492 19,990 M.3.a.
b. Secured by farmland................................. 3493 3494 0 3495 144 M.3.b.
c. Secured by 1-4 family residential properties: ////////////////// ////////////////// //////////////////
(1) Revolving, open-end loans secured by ////////////////// ////////////////// //////////////////
1-4 family residential properties and ////////////////// ////////////////// //////////////////
extended under lines of credit.................. 5398 5399 5,009 5400 10,700 M.3.c.(1)
(2) All other loans secured by 1-4 residential ////////////////// ////////////////// //////////////////
properties...................................... 5401 5402 49,978 5403 100,900 M.3.c.(2)
d. Secured by multifamily (5 or more) residential ////////////////// ////////////////// //////////////////
properties.......................................... 3499 3500 934 3501 9,456 M.3.d.
e. Secured by nonfarm nonresidential properties........ 3502 3503 9,886 3504 74,306 M.3.e.
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------
(Column A) (Column B)
Past due 30 Past due 90
through 89 days days or more
---------------------------------------
RFCD Bil Mil Thou RFCD Bil Mil Thou
---------------------------------------
<S> <C> <C> <C> <C>
4. Interest rate, foreign exchange rate, and other ////////////////// //////////////////
commodity and equity contracts: ////////////////// //////////////////
a. Book value of amounts carried as assets............. 3522 3528 0 M.4.a.
b. Replacement cost of contracts with a ////////////////// //////////////////
positive replacement cost........................... 3529 3530 0 M.4.b.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-21
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-O--OTHER DATA FOR DEPOSIT INSURANCE ASSESSMENTS
--------
C475 <-
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Unposted debits (see instructions): //////////////////
a. Actual amount of all unposted debits........................................................ 0030 0 1.a
OR //////////////////
b. Separate amount of unposted debits: //////////////////
(1) Actual amount of unposted debits to demand deposits..................................... 0031 N/A 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1)........................ 0032 N/A 1.b.(2)
2. Unposted credits (see instructions): //////////////////
a. Actual amount of all unposted credits....................................................... 3510 0 2.a.
OR //////////////////
b. Separate amount of unposted credits: //////////////////
(1) Actual amount of unposted credits to demand deposits.................................... 3512 N/A 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1)....................... 3514 N/A 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total //////////////////
deposits in domestic offices).................................................................. 3520 142,277 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in Puerto //////////////////
Rico and U.S. territories and possessions (not included in total deposits): //////////////////
a. Demand deposits of consolidated subsidiaries................................................ 2211 196,951 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries................................... 2351 15,807 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries........................ 5514 0 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: //////////////////
a. Demand deposits in insured branches (included in Schedule RC-E, Part II).................... 2229 0 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II)....... 2383 0 5.b.
c. Interest accrued and unpaid on deposits in insured branches //////////////////
(included in Schedule RC-G, item 1.b)....................................................... 5515 0 5.c.
------------------
------------------
Item 6 is not applicable to state nonmember banks that have not been authorized by the //////////////////
Federal Reserve to act as pass-through correspondents. //////////////////
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on //////////////////
behalf of its respondent depository institutions that are also reflected as deposit liabilities //////////////////
of the reporting bank: //////////////////
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, item 4 or 5, //////////////////
column B)................................................................................... 2314 0 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, //////////////////
item 4 or 5, column A or C, but not column B)............................................... 2315 0 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) //////////////////
a. Unamortized premiums........................................................................ 5516 748 7.a.
b. Unamortized discounts....................................................................... 5517 0 7.b.
------------------
- -----------------------------------------------------------------------------------------------------------------------
8. TO BE COMPLETED BY BANKS WITH "OAKAR DEPOSITS." ------------------
Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of //////////////////
the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s))....... 5518 1,395,996 8.
------------------
- -----------------------------------------------------------------------------------------------------------------------
------------------
9. Deposits in lifeline accounts.................................................................. 5596 ///////////// 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total //////////////////
deposits in domestic offices).................................................................. 8432 0 10.
- ----------------
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction accounts
and all transaction accounts other than demand deposits.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-22
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-O--CONTINUED
-------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for //////////////////
certain reciprocal demand balances: //////////////////
a. Amount by which demand deposits will be reduced if reciprocal demand balances //////////////////
between the reporting bank and savings associations were reported on a net basis //////////////////
rather than a gross basis in Schedule RC-E........................................ 8785 0 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances //////////////////
between the reporting bank and U.S. branches and agencies of foreign banks were //////////////////
reported on a gross basis rather than a net basis in Schedule RC-E................ A181 0 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of //////////////////
collection were included in the calculation of net reciprocal demand balances //////////////////
between the reporting bank and the domestic offices of U.S. banks and savings //////////////////
associations in Schedule RC-E..................................................... A182 0 11.c.
-------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and //////////////////
1.b.(1) must equal Schedule RC, item 13.a): //////////////////
a. Deposit accounts of $100,000 or less: //////////////////
(1) Amount of deposit accounts of $100,000 or less.................................. 2702 18,219,759 M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (TO BE Number //////////////////
COMPLETED FOR THE JUNE REPORT ONLY)........................... RCON 3779 N/A ////////////////// M.1.a.(2)
b. Deposit accounts of more than $100,000: //////////////////
(1) Amount of deposit accounts of more than $100,000................................ 2710 14,572,399 M.1.b.(1)
Number //////////////////
(2) Number of deposit accounts of more than $100,000 ............. RCON 2772 28,722 ////////////////// M.1.b.(2)
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by multiplying the
number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
above by $100,000 and subtracting the result from the amount of deposit accounts of
more than $100,000 reported in Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a method or
procedure for determining a better estimate of uninsured deposits than the YES NO
estimate described above.............................................................. 6861 /// X M.2.a.
b. If the box marked YES has been checked, report the estimate of uninsured deposits RCON Bil Mil Thou
determined by using your bank's method or procedure................................. 5597 N/A M.2.b.
</TABLE>
- -------------------------------------------------------------------------------
Person to whom questions about the Reports of Condition and Income should be
directed: C477
PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194
- ------------------------------- ----------------------
Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)
32
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-23
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-R--REGULATORY CAPITAL
This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC,
item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. BANKS WITH ASSETS OF LESS THAN $1 BILLION
MUST COMPLETE ITEMS 1 THROUGH 3 BELOW OR SCHEDULE RC-R IN ITS ENTIRETY, DEPENDING ON THEIR RESPONSE TO ITEM 1 BELOW.
<S> <C> <C> <C>
---------------
C480
1. TEST FOR DETERMINING THE EXTENT TO WHICH SCHEDULE RC-R MUST BE COMPLETED. TO BE --------------------------------
COMPLETED ONLY BY BANKS WITH TOTAL ASSETS OF LESS THAN $1 BILLION. Indicate in the YES NO
appropriate box at the right whether the bank has total capital greater than or --------------------------------
equal to eight percent of adjusted total assets............................................ RCFD 6056 //// 1.
--------------------------------
</TABLE>
For purposes of this test, adjusted total assets equals total assets less
cash, U.S. Treasuries, U.S. Government agency obligations, and 80 percent of
U.S. Government-sponsored agency obligations plus the allowance for loan and
lease losses and selected off-balance sheet items as reported on Schedule
RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete
items 2 and 3 below. If the box marked NO has been checked, the bank must
complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual
risk-based capital ratio is less than eight percent or that the bank is not
in compliance with the risk-based capital guidelines.
<TABLE>
- -------------------------------------------------------------------
NOTE: ALL BANKS ARE REQUIRED TO COMPLETE ITEMS 2 AND 3 BELOW.
SEE OPTIONAL WORKSHEET FOR ITEMS 3.a THROUGH 3.f. -----------------------------------------
- ----------------------------------------------------------------------------- (Column A) (Column B)
Dollar Amounts in Thousands Subordinated Debt(1) Other
- ----------------------------------------------------------------------------- and Intermediate Limited-Life
2. Subordinated debt(1) and other limited-life capital instruments (original Term Preferred Stock Capital Instruments
weighted average maturity of at least five years) with a remaining -----------------------------------------
maturity of: RCFD Bil Mil Thou RCFD Bil Mil Thou
-----------------------------------------
<S> <C> <C> <C> <C> <C>
a. One year or less....................................................... 3780 25,737 3786 0 2.a.
b. Over one year through two years........................................ 3781 737 3787 0 2.b.
c. Over two years through three years..................................... 3782 10,745 3788 0 2.c.
d. Over three years through four years.................................... 3783 0 3789 0 2.d.
e. Over four years through five years..................................... 3784 341,000 3790 0 2.e.
f. Over five years........................................................ 3785 760,000 3791 0 2.f.
3. AMOUNTS USED IN CALCULATING REGULATORY CAPITAL RATIOS (REPORT AMOUNTS //////////////////
DETERMINED BY THE BANK FOR ITS OWN INTERNAL REGULATORY CAPITAL ANALYSES //////////////////
CONSISTENT WITH APPLICABLE CAPITAL STANDARDS):
-------------------------
RCFD Bil Mil Thou
-------------------------
a. TIER 1 CAPITAL................................................................................ 8274 3,756,621 3.a.
b. TIER 2 CAPITAL................................................................................ 8275 1,688,820 3.b.
c. TOTAL RISK-BASED CAPITAL...................................................................... 3792 5,445,441 3.c.
d. EXCESS ALLOWANCE FOR LOAN AND LEASE LOSSES.................................................... A222 200,236 3.d.
e. RISK-WEIGHTED ASSETS (NET OF ALL DEDUCTIONS, INCLUDING EXCESS ALLOWANCE)...................... A223 45,925,732 3.e.
f. "AVERAGE TOTAL ASSETS" (NET OF ALL ASSETS DEDUCTED FROM TIER 1 CAPITAL)(2).................... A224 46,290,168 3.f.
------------------
</TABLE>
<TABLE>
-----------------------------------------
(Column A) (Column B)
ITEMS 4-9 AND MEMORANDA ITEMS 1 AND 2 ARE TO BE COMPLETED Assets Credit Equiv-
BY BANKS THAT ANSWERED NO TO ITEM 1 ABOVE AND Recorded alent Amount
BY BANKS WITH TOTAL ASSETS OF $1 BILLION OR MORE. on the of Off-Balance
Balance Sheet Sheet Items(3)
-----------------------------------------
RCFD Bil Mil Thou RCFD Bil Mil Thou
-----------------------------------------
<S> <C> <C> <C> <C> <C>
4. Assets and credit equivalent amounts of off-balance sheet items
assigned to the Zero percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet: ////////////////// //////////////////
(1) Securities issued by, other claims on, and claims unconditionally ////////////////// //////////////////
guaranteed by, the U.S. Government and its agencies and ////////////////// //////////////////
other OECD central governments..................................... 3794 1,519,575 ////////////////// 4.a.(1)
(2) All other.......................................................... 3795 1,316,143 ////////////////// 4.a.(2)
b. Credit equivalent amount of off-balance sheet items.................... ////////////////// 3796 1,079,527 4.b
</TABLE>
- -------------
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not deduct excess allowance for loan and lease losses.
(3) Do not report in column B the risk-weighted amount of assets reported in
column A.
33
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-24
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-R--CONTINUED
Column A) (Column B)
Assets Credit Equiv-
Recorded alent Amount
on the of Off-Balance
Balance Sheet Sheet Items(1)
--------------------------------------
Dollar Amounts in Thousands RCFD BIL MIL THOU RCFD BIL MIL THOU
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 20 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet: ////////////////// //////////////////
(1) Claims conditionally guaranteed by the U.S. Government and ////////////////// //////////////////
its agencies and other OECD central governments.................... 3798 726,530 ////////////////// 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. Government ////////////////// //////////////////
and its agencies and other OECD central governments; by ////////////////// //////////////////
securities issued by U.S. Government-sponsored agencies; and ////////////////// //////////////////
by cash on deposit................................................. 3799 0 ////////////////// 5.a.(2)
(3) All other.......................................................... 3800 7,055,416 ////////////////// 5.a.(3)
b. Credit equivalent amount of off-balance sheet items.................... ////////////////// 3801 1,058,252 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 50 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet................................... 3802 5,371,795 ////////////////// 6.a.
b. Credit equivalent amount of off-balance sheet items.................... ////////////////// 3803 866,687 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 100 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet................................... 3804 31,276,374 ////////////////// 7.a.
b. Credit equivalent amount of off-balance sheet items.................... ////////////////// 3805 10,715,771 7.b.
8. On-balance sheet asset values excluded from the calculation of the ////////////////// //////////////////
risk-based capital ratio (2).............................................. 3806 91,771 ////////////////// 8.
9. Total assets recorded on the balance sheet (sum of ////////////////// //////////////////
items 4.a, 5.a, 6.a, 7.a, and 8, column A) (must equal Schedule RC, ////////////////// //////////////////
item 12 plus items 4.b and 4.c)........................................... 3807 47,357,604 ////////////////// 9.
--------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memoranda ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Current credit exposure across all off-balance sheet derivative contracts covered by the //////////////////
risk-based capital standards.................................................................. 8764 236,389 M.1.
------------------
----------------------------------------------------------------------
With a remaining maturity of
----------------------------------------------------------------------
(Column A) (Column B) (Column C)
One year or less Over one year Over five years
through five years
2. Notional principal amounts of ----------------------------------------------------------------------
off-balance sheet derivative contracts(3): RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou
----------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
a. Interest rate contracts................ 3809 7,502,891 8766 33,994,382 8767 779,970 M.2.a.
b. Foreign exchange contracts............. 3812 1,366,429 8769 84,993 8770 0 M.2.b.
c. Gold contracts......................... 8771 33,478 8772 0 8773 0 M.2.c.
d. Other precious metals contracts........ 8774 13,371 8775 0 8776 0 M.2.d.
e. Other commodity contracts.............. 8777 0 8778 0 8779 0 M.2.e.
f. Equity derivative contracts............ A000 0 A001 0 A002 0 M.2.f.
----------------------------------------------------------------------
- -----------------
(1) Do not report in column B the risk-weighted amount of assets reported in column A.
(2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report
the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or
portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g.,
futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables not included
in the calculation of credit equivalent amounts of off-balance sheet derivatives as well as any portion of the allowance for
loan and lease losses in excess of the amount that may be included in Tier 2 capital.
(3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts.
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-25
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
</TABLE>
OPTIONAL NARRATIVE STATEMENT CONCERNING THE AMOUNTS
REPORTED IN THE REPORTS OF CONDITION AND INCOME
at close of business on December 31, 1996
Fleet National Bank Springfield , Massachusetts
- -----------------------------------------------------------------------------
Legal Title of Bank City State
The management of the reporting bank may, if it wishes, submit a brief
narrative statement on the amounts reported in the Reports of Condition and
Income. This optional statement will be made available to the public, along
with the publicly available data in the Reports of Condition and Income, in
response to any request for individual bank report data. However, the
information reported in column A and in all of Memorandum item 1 of Schedule
RC-N is regarded as confidential and will not be released to the public. BANKS
CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT
DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK
CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN
SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE
PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing
not to make a statement may check the "No comment" box below and should make no
entries of any kind in the space provided for the narrative statement; i.e., DO
NOT enter in this space such phrases as "No statement," "Not applicable,"
"N/A," "No comment," and "None."
The optional statement must be entered on this sheet. The statement should not
exceed 100 words. Further, regardless of the number of words, the statement
must not exceed 750 characters, including punctuation, indentation, and
standard spacing between words and sentences. If any submission should exceed
750 characters, as defined, it will be truncated at 750 characters with no
notice to the submitting bank and the truncated statement will appear as the
bank's statement both on agency computerized records and in computer-file
releases to the public.
All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who
thereby attests to its accuracy.
If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing
narrative statement will be deleted from the files, and from disclosure; the
bank, at its option, may replace it with a statement, under signature,
appropriate to the amended data.
The optional narrative statement will appear in agency records and in release
to the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
- --------------------------------------------------------------------------------
No comment [X] (RCON 6979) C471 C472
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BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)
/s/ Jan 23, 1997
------------------------ ------------------------
Signature of Executive Date of Signature
Officer of Bank
35
