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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997
REGISTRATION NO. 333-14913
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ASTOR CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
DELAWARE 2999 13-3550228
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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CO-REGISTRANT
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<CAPTION>
(EXACT NAME OF
CO-REGISTRANT (STATE OR OTHER JURISDICTION
AS SPECIFIED IN ITS OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CHARTER) INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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ASTOR HOLDINGS II, INC. Delaware 2999 25-1766332
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8521 SIX FORKS ROAD
RALEIGH, NORTH CAROLINA 27615
(919) 846-8011
(Address, including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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<S> <C>
BOYD D. WAINSCOTT WITH A COPY TO:
Chief Executive Officer BRUCE D. MEYER, ESQ.
ASTOR CORPORATION CLAY A. HALVORSEN, ESQ.
8521 Six Forks Road Gibson, Dunn & Crutcher
Raleigh, North Carolina 27615 333 S. Grand Avenue
(919) 846-8011 Los Angeles, California 90071
(Name, Address, Including Zip Code, (213) 229-7000
and Telephone Number,
Including Area Code, of Agent for
Service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
THE REGISTRANT AND THE CO-REGISTRANT HEREBY AMEND THIS REGISTRATION
STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT AND THE CO-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, AS
AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED JANUARY 10, 1997
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.
<PAGE>
ASTOR CORPORATION
OFFER FOR ALL OUTSTANDING
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR
10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
Astor Corporation, a Delaware corporation, hereby offers (the "Offer"), upon
the terms and subject to the conditions set forth herein and in the related
Letter of Transmittal, to exchange up to $110.0 million aggregate principal
amount of 10 1/2% Series B Senior Subordinated Notes Due 2006 (the "Notes") of
Astor Corporation for a like amount of the privately placed 10 1/2% Senior
Subordinated Notes Due 2006 (the "Old Notes") of Astor Corporation issued on
October 8, 1996, from the holders thereof (together with the holders of Notes,
"Holders").
The Notes are being offered hereunder in order to satisfy the obligations of
Astor Corporation under an Exchange and Registration Rights Agreement dated
October 8, 1996 (the "Registration Rights Agreement") by and among Astor
Corporation and Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc. (the "Initial Purchasers"). The Offer is designed to provide to
Holders an opportunity to acquire Notes which, unlike the Old Notes, are
expected to be freely transferable at all times, subject to state "blue sky" law
restrictions, PROVIDED that the Holder is not an "affiliate" of Astor
Corporation within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and represents that the Notes are being acquired in the
ordinary course of such Holder's business and the Holder is not engaged in, and
does not intend to engage in, a distribution of the Notes. With the exception of
the freely transferable nature of the Notes, the Notes are substantially
identical to the Old Notes. See "The Offer -- Purpose of the Offer."
Astor Corporation will accept for exchange any and all validly tendered Old
Notes on or prior to 5:00 P.M., New York time, on , 1997, unless
extended (the "Expiration Date"). Tenders of Old Notes made pursuant to the
Offer may be withdrawn at any time prior to the Expiration Date. In the event
Astor Corporation terminates the Offer and does not accept any Notes with
respect to the Offer, Astor Corporation will promptly return such Old Notes to
the Holders thereof. Astor Corporation will not receive any proceeds from the
Offer.
Interest on the Notes will be payable semi-annually on October 15 and April
15 of each year, commencing on April 15, 1997. The Notes will mature on October
15, 2006. Except as described below, the Notes will not be redeemable prior to
October 15, 2001. On or after October 15, 2001, the Notes may be redeemed at the
option of Astor Corporation, in whole or in part, at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior to October 15, 1999, Astor
Corporation may, subject to certain requirements, redeem up to $35.0 million of
the aggregate principal amount of the Notes with the net cash proceeds of one or
more Public Equity Offerings (as defined herein), at a price equal to 109.5% of
the principal amount to be redeemed, together with accrued and unpaid interest,
if any, to the date of redemption. The Notes will not be subject to any sinking
fund requirement. Upon the occurrence of a Change of Control (as defined
herein), Astor Corporation will be required to make an offer to repurchase the
Notes at a price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of repurchase. See "Description
of Notes."
(CONTINUED ON FOLLOWING PAGE)
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN
CONNECTION WITH THE OFFER.
---------------------
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 JANUARY , 1997.
<PAGE>
The Notes will be general unsecured obligations of Astor Corporation,
subordinated in right of payment to all Senior Debt (as defined herein) of Astor
Corporation. The Notes will be fully and unconditionally guaranteed on a senior
subordinated basis (the "Guarantee") by Astor Corporation's parent, Astor
Holdings II, Inc. ("Astor Holdings II"). The Guarantee will be a general
obligation of Astor Holding II subordinated in right of payment to all Senior
Debt of Astor Holding II. The Notes will not be guaranteed by Astor
Corporation's existing subsidiaries, but will be fully and unconditionally
guaranteed on a senior subordinated basis by any future U.S. subsidiaries of
Astor Corporation. Consequently, indebtedness of Astor Corporation's existing
subsidiaries and any future foreign subsidiaries would be structurally senior to
the Notes. The Indenture (as defined herein) permits Astor Corporation, Astor
Corporation's subsidiaries and Astor Holdings II to incur additional
indebtedness, including $50 million of Senior Debt under Astor Corporation's
Senior Bank Facility (as defined herein), subject to certain limitations. See
"Description of Notes." As of September 30, 1996, on a pro forma basis after
giving effect to the Transactions (as defined herein), the aggregate amount of
outstanding Senior Debt of Astor Corporation and its subsidiaries would have
been $22.3 million.
The Old Notes were sold by Astor Corporation on October 8, 1996 to the
Initial Purchasers in a transaction not registered under the Securities Act in
reliance upon an exemption under the Securities Act. The Initial Purchasers
subsequently placed the Old Notes with qualified institutional buyers in
reliance upon Rule 144A under the Securities Act and with a limited number of
institutional accredited investors that agreed to comply with certain transfer
restrictions and other conditions. Accordingly, the Old Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available.
Based on certain interpretive letters issued by the staff of the Securities
and Exchange Commission to third parties, the Company believes that a Holder of
Notes (other than (i) a broker-dealer who purchases such Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person who is an affiliate of the Company within
the meaning of Rule 405 under the Securities Act) who exchanges Old Notes for
Notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the Notes, will be allowed to resell the
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the Notes a prospectus that satisfies
the requirements of the Securities Act. See "The Offer--Purpose of the Offer"
and "-- Resales of Notes." However, a broker-dealer who holds Old Notes that
were acquired for its own account as a result of market-making or other trading
activities may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act. If any other Holder is deemed to be an
"underwriter" within the meaning of the Securities Act or acquires Notes in the
Offer for the purpose of distributing or participating in a distribution of the
Notes, such holder must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. For a
period of 180 days from the Expiration Date, the Company will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution."
There has been no public market for the Old Notes and no active public
market for the Notes is currently anticipated. Astor Corporation currently does
not intend to apply for the listing of the Notes on any securities exchange or
to seek approval for quotation through any automated quotation system. The
Initial Purchasers have advised Astor Corporation that each of the Initial
Purchasers currently intends to make a market in the Notes; however, neither is
obligated to do so and any market making may be discontinued by either Initial
Purchaser at any time without notice. Accordingly, no assurance can be given as
to the liquidity or the trading market for the Notes.
The Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Offer is subject to certain customary
conditions. See "The Offer." Old Notes may be tendered only in integral
multiples of $1,000.
2
<PAGE>
AVAILABLE INFORMATION
Astor Corporation has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Notes offered hereby
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. 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 made to such exhibit
for a more complete description thereof, and each such statement shall be deemed
qualifed in its entirety by such reference. The Registration Statement and the
exhibits and schedules thereto may be inspected without charge and copied at
prescribed rates at the Public Reference Section of the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Commission maintains a website that contains reports, proxy
and information statements and other information filed electronically with the
Commission at http:\\www.sec.gov.
Astor Holdings II is required under the terms of the indenture governing the
Notes and the Old Notes (the "Indenture") to file with the Commission and
furnish, without cost, to the Holders of the Notes and Old Notes the annual,
quarterly and current reports that Astor Holdings II would be required to file
with the Commission pursuant to Section 13(a), 13(c) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if Astor Holdings II had
equity securities registered under the Exchange Act. Such information includes
annual reports containing consolidated financial statements and notes thereto,
together with an opinion thereon expressed by an independent public accounting
firm, management's discussion and analysis of financial condition and results of
operations, as well as quarterly reports containing unaudited consolidated
financial statements for the first three quarters of each calendar year. The
Company is also required to make such reports available to prospective
purchasers of the Notes and the Old Notes and to securities analysts upon their
request. In addition, the Company and Astor Holdings II have agreed to furnish
to Holders of the Notes and Old Notes and prospective purchasers and securities
analysts, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company and Astor Holdings II incorporate herein by reference, the
following documents filed with the Commission under the Exchange Act:
(a) Astor Holdings II's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1996; and
(b) All documents and reports subsequently filed by the Company or Astor
Holdings II with the Commission pursuant to Sections 13(a), 13(c) or 15(d) of
the Exchange Act after the date of this Prospectus and prior to the termination
of the transactions to which this Prospectus relates, shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded, except as so modified or superseded, shall
not be deemed to constitute a part of this Prospectus.
The Company and Astor Holdings II will provide without charge to each person
to whom a copy of this Prospectus has been delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference, other than exhibits to such documents unless they are
specifically incorporated by reference into such documents. Requests for such
copies should be directed to: John F. Gottshall, Vice President and Chief
Financial Officer, Astor Corporation, 8521 Six Forks Road, Raleigh, North
Carolina 27615, (919) 846-8011.
3
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TABLE OF CONTENTS
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AVAILABLE INFORMATION........................................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................. 3
SUMMARY......................................................................................... 5
RISK FACTORS.................................................................................... 15
THE OFFER....................................................................................... 20
PRO FORMA CAPITALIZATION........................................................................ 27
PRO FORMA FINANCIAL INFORMATION................................................................. 28
SELECTED CONSOLIDATED FINANCIAL DATA............................................................ 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 41
BUSINESS........................................................................................ 50
ACQUISITION OF ADCO............................................................................. 66
MANAGEMENT...................................................................................... 68
OWNERSHIP OF VOTING SECURITIES.................................................................. 77
CERTAIN TRANSACTIONS............................................................................ 82
PRIOR REORGANIZATION............................................................................ 83
SENIOR BANK FACILITY............................................................................ 86
DESCRIPTION OF NOTES............................................................................ 88
PLAN OF DISTRIBUTION............................................................................ 118
LEGAL MATTERS................................................................................... 118
INDEPENDENT AUDITORS............................................................................ 118
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................................... F-1
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4
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. THE ISSUANCE AND SALE OF THE
OLD NOTES (THE "OFFERING"), THE CONSUMMATION OF THE ADCO ACQUISITION (AS DEFINED
HEREIN), THE FUNDING OF THE SENIOR BANK FACILITY AND THE REPAYMENT OF THE UBS
CREDIT FACILITY (AS DEFINED HEREIN) ARE COLLECTIVELY REFERRED TO IN THIS
MEMORANDUM AS THE "TRANSACTIONS." THROUGHOUT THIS PROSPECTUS, EXCEPT WHERE THE
CONTEXT OTHERWISE REQUIRES, "ASTOR" REFERS TO ASTOR CORPORATION AND ITS
SUBSIDIARIES, "ADCO" REFERS TO ADCO TECHNOLOGIES, INC. AND ITS SUBSIDIARY PRIOR
TO THE ADCO ACQUISITION, THE "PARENT" REFERS TO ASTOR HOLDINGS, INC., THE SOLE
STOCKHOLDER OF ASTOR HOLDINGS II, AND THE "COMPANY" REFERS COLLECTIVELY TO ASTOR
AND ADCO ON A COMBINED BASIS AFTER GIVING EFFECT TO THE TRANSACTIONS. REFERENCES
HEREIN TO A PARTICULAR FISCAL YEAR ARE TO THE TWELVE MONTH PERIOD ENDING MARCH
31 OF SUCH YEAR.
THE COMPANY
The Company is a leading global developer, producer and marketer of a wide
variety of value-added specialty chemical products. Its principal products are
(i) a broad range of specialty waxes, which represented approximately 70% of pro
forma sales for the 1996 fiscal year, and (ii) an extensive line of
technologically advanced adhesives and sealants, which represented approximately
30% of pro forma sales for the 1996 fiscal year. These products are sold to a
diverse base of over 4,000 customers in more than 50 countries worldwide, with
35.4% of 1996 pro forma sales made to customers outside of the U.S., and are
used in numerous industrial and commercial applications. In the 1996 fiscal
year, no single customer of the Company accounted for more than 5% of the
Company's pro forma sales, and the top ten customers accounted for approximately
21% of the Company's pro forma sales. During the twelve months ended September
30, 1996, the Company had pro forma revenues, EBITDA (as defined herein) and net
income before extraordinary items of $219.9 million, $30.4 million and $11.1
million, respectively. The Company's sales of specialty waxes and adhesives and
sealants grew on a pro forma basis from $159.4 million in fiscal year 1994 to
$206.2 million in fiscal year 1996, or at a compound annual rate of 13.7%.
The Company focuses on developing value-added products to satisfy customers'
unique product demands and exacting specifications by conducting extensive
applied research and product development, often in conjunction with its
customers. The Company's product development has led to a variety of new
products and patented technologies for the Company. The Company's position is
further strengthened by its numerous technical customer approvals and the
value-added nature of its products, which generally represent a relatively small
percentage of an end-use product's total cost. These factors contributed to the
high contribution margins (defined as sales less raw material costs) which have
been achieved by the Company in recent periods. In fiscal 1996, pro forma
contribution margins for specialty waxes and for adhesives and sealants were
approximately 38.8% and 48.6%, respectively.
In 1994, Mr. Boyd Wainscott, an experienced multinational chemical company
manager, joined Astor to lead it in developing and implementing a strategic
business plan. This plan included improving marketing functions and product
distribution, developing more higher-margin, value-added products, improving
manufacturing operations and increasing manufacturing capacity, and pursuing
acquisition opportunities in the consolidating specialty chemicals industry. As
part of this strategic plan, in June 1995, the current business and structure of
Astor were created through the combination of Astor Corporation and Associated
British Industries Limited ("ABI"), a manufacturer of specialty waxes and
adhesives and sealants based in the U.K. (the "ABI Acquisition"). The ABI
Acquisition improved Astor's in-house marketing and packaging capabilities,
resulting in improved product distribution, and improved Astor's product
development capabilities, allowing for the development of higher-valued
products. Concurrent with the consummation of the Offering, Astor acquired ADCO,
a leading U.S. manufacturer and marketer of adhesives and sealants. Through the
acquisition of ADCO, Astor added significant depth to its product lines, global
marketing and manufacturing networks and product development capabilities.
SPECIALTY WAXES. Management of the Company believes that the Company is the
largest developer, producer and marketer of specialty waxes in North America,
and one of the largest producers of specialty waxes in the world, based on
sales. During 1993, the most recent year for which statistics are available,
approximately two billion pounds of specialty and other waxes were consumed in
the U.S., representing over $500 million in revenues, and over seven billion
pounds of specialty and other waxes were consumed worldwide, according to Wax
Data, an industry publication, and a study by Kline & Company, a leading
5
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industry consultant. During the last ten years, wax demand has grown at
approximately 3.3% per annum in the U.S., according to Wax Data. However,
certain end-use products have experienced significantly higher growth rates,
such as the polyvinyl chloride ("PVC") pipe market which grew at a rate of 10.0%
from 1993 to 1994, according to Modern Plastics, an industry publication. Due to
the lack of cost-effective wax substitutes, management believes that wax demand
will be driven by the growth of its end-use products. Specialty waxes, like the
Company's products, are distinguished by their melt point, hardness, color and
other performance characteristics, as well as their consistent qualities and
custom specifications, and are used as an essential, value-added component in
hundreds of products and applications. The primary applications of the Company's
products include use as a protective component in packaging and tires, as a fuel
in candles and synthetic firelogs, and as a lubricant in PVC extrusion. The
Company produces one of the most extensive lines of customized waxes in the
industry and currently has over 3,000 different wax formulations in its
proprietary database.
The Company had $143.7 million of pro forma sales of specialty waxes in
fiscal 1996. Over the past three fiscal years, the Company's sales of specialty
waxes have grown on a pro forma basis at a compound annual rate of 10.9%, well
in excess of the wax industry's growth rate, primarily due to the Company's
focus on high-growth niche markets. The Company's specialty wax products are
manufactured in the U.S., the U.K. and Belgium, and are sold both directly and
through independent agents to customers worldwide. During the 1996 fiscal year,
40.0%, or $57.5 million, of the Company's pro forma specialty wax sales were in
non-U.S. markets.
ADHESIVES AND SEALANTS. The Company is a leading developer, producer and
marketer of an extensive line of adhesives and sealants for a variety of
specialized niche applications. According to Chemical Week, an industry
publication, in 1995, sales of adhesives and sealants reached approximately
$15.4 billion worldwide and $9.4 billion in North America. Adhesives are used to
bond various materials under numerous temperature and moisture conditions, and
sealants are used to prevent the passage of air, water and noise between two
surfaces. The primary markets for the Company's adhesives and sealants are new
and replacement commercial roofing, transportation aftermarket, transportation
original equipment market ("OEM"), insulated window manufacturing for new and
replacement construction, concrete pipe and vaults, and new and rehab building
construction. The Company currently offers more than 1,650 proprietary adhesives
and sealants to its customers.
The Company had $62.5 million of pro forma sales of adhesives and sealants
in fiscal 1996. Over the past three fiscal years, the Company's sales of
adhesives and sealants have grown on a pro forma basis at a compound annual rate
of 21.3%, well in excess of the adhesives and sealants industry's growth rate of
5.0%-6.0% as reported by Chemical Week, primarily due to the Company's
aggressive development of and the commercial acceptance of its new products. The
Company's adhesives and sealants are manufactured in both the U.S. and the U.K.,
and are sold both directly and through independent agents to customers
worldwide. During the 1996 fiscal year, 24.6%, or $15.4 million, of the
Company's pro forma adhesives and sealants sales were in non-U.S. markets.
The principal executive offices of the Company are located at 8521 Six Forks
Road, Raleigh, North Carolina 27615, and the Company's telephone number is (919)
846-8011. Astor and PurFlex are registered trademarks of the Company.
THE TRANSACTIONS
ACQUISITION OF ADCO. Concurrent with the consummation of the Offering on
October 8, 1996, Astor acquired all of the outstanding capital stock and all of
the issued but unexercised options of ADCO, a publicly traded Nasdaq National
Market manufacturer and marketer of adhesives and sealants, for an aggregate
consideration of $54.4 million (the "ADCO Acquisition"). Through the acquisition
of ADCO, Astor added significant depth to its product lines, global marketing
and manufacturing networks and product development capabilities. Management
believes that these strengths will enable Astor to improve significantly the
penetration of its existing adhesives and sealants in the U.S. and provide Astor
the opportunity to market ADCO's products outside of the U.S. Management
believes that the ADCO Acquisition will also serve as an excellent platform from
which to pursue complementary acquisitions in the highly fragmented adhesives
and sealants industry.
6
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Pursuant to the terms of a definitive merger agreement between the parties,
Astor paid $10.25 per share for the 5.15 million ADCO shares outstanding, plus
an aggregate of $1.6 million representing the aggregate net spread on ADCO's
outstanding stock options. In addition, ADCO caused its subsidiary to redeem
approximately $3.9 million of outstanding preferred stock of such subsidiary and
pay the dividends accrued thereon as of the date of redemption. See "Acquisition
of ADCO."
Concurrent with the consummation of the Offering and the acquisition of
ADCO, ADCO Products, Inc., a subsidiary of ADCO, was merged with and into ADCO,
and ADCO was merged with and into Astor Corporation. Astor Corporation is the
surviving entity of these mergers.
SENIOR BANK FACILITY. Astor Corporation has entered into a Senior Secured
Credit Agreement (the "Senior Bank Facility") with The Chase Manhattan Bank (the
"Bank") providing for a six-year term loan (the "Bank Term Loan") denominated in
eurosterling in an amount not exceeding the U.S. dollar equivalent of $20.0
million and a six-year revolving credit facility (the "Revolving Credit
Facility") in an amount not exceeding the U.S. dollar equivalent of $30.0
million (subject to borrowing base limitations), which will be available in U.S.
dollars or eurosterling on a revolving basis.
The Bank Term Loan was made in a single drawing concurrent with the closing
of the Transactions and all of the proceeds were lent by Astor Corporation to
Astor Stag Ltd. and used to repay to Union Bank of Switzerland ("UBS") existing
indebtedness of Astor Stag Ltd. and ABI Acquisition 2 plc, both of which are
foreign subsidiaries of Astor Corporation based in the U.K. The note evidencing
the intercompany loan (the "Intercompany Term Loan") by Astor Corporation to
Astor Stag Ltd. is secured by substantially all the assets of Astor Stag Ltd.
and pledged in favor of the Lenders (as defined herein). The Bank Term Loan is
repayable in 21 quarterly installments of varying amounts, beginning on October
31, 1997, with the final maturity being October 31, 2002. The Intercompany Term
Loan is repayable on demand.
Subject to the satisfaction of customary conditions and meeting certain
borrowing base requirements, advances under the Revolving Credit Facility may be
made at any time prior to October 31, 2002 (the "Termination Date"), to be used
(i) to finance permitted acquisitions, (ii) to refinance existing indebtedness
of Astor Corporation, ABI Acquisition 2 plc and Astor Stag Ltd. and (iii) to
finance the working capital needs of Astor Corporation and its subsidiaries. Up
to $10.0 million of the Revolving Credit Facility will be available for letters
of credit. Proceeds from revolver advances to be used by subsidiaries in Europe
will be lent by Astor Corporation to Astor Stag Ltd. and the note evidencing
such intercompany advances (the "Intercompany Advances") will be secured and
pledged on the same basis as the note evidencing the Intercompany Term Loan. The
Intercompany Advances will be repayable on demand.
The Senior Bank Facility is secured by a first priority security interest in
all assets of Astor Corporation, all of the capital stock of Astor Corporation's
direct and indirect U.S. subsidiaries, 65% of the voting capital stock and 100%
of the non-voting capital stock of ABI Acquisition 2 plc and all of the capital
stock of Astor Corporation. The obligations of Astor Corporation under the
Senior Bank Facility are guaranteed on a senior secured basis by each of Astor
Corporation's existing and future U.S. subsidiaries. See "Senior Bank Facility."
The indebtedness under the Senior Bank Facility is subject to prepayment with
designated percentages of proceeds of asset sales, issuances of equity and debt
and excess cash flow. See "Senior Bank Facility."
7
<PAGE>
CORPORATE STRUCTURE. The following chart depicts the equity ownership of
the Company after giving effect to the Transactions, including the ADCO
Acquisition.
[FLOWCHART]
- ------------------------
(1) The outstanding voting preferred stock of ABI Acquisition 1 plc entitles the
holder thereof to (i) elect three of the four directors of ABI Acquisition 1
plc, (ii) exercise 75% of the voting power of the outstanding capital stock
of ABI Acquisition 1 plc and (iii) an aggregate liquidation preference of
$1.7 million.
(2) The outstanding voting preferred stock of Astor Corporation entitles the
holder thereof to an aggregate liquidation preference of $28.5 million and
has a cumulative dividend rate of 12.5% per annum. The holder of such shares
is also entitled to exercise 13.2% of the voting power of the currently
outstanding capital stock of Astor Corporation.
8
<PAGE>
THE OFFER
<TABLE>
<S> <C>
Securities Offered........... Up to $110,000,000 principal amount of 10 1/2% Series B
Senior Subordinated Notes Due October 15, 2006 (the
"Notes").
The Offer.................... The Notes are being offered in exchange for a like principal
amount of the Company's Old Notes. Old Notes may be
exchanged only in integral multiples of $1,000. The issuance
of the Notes is intended to satisfy the obligataions of the
Company under the terms of the Registration Rights
Agreement.
Tenders; Expiration Date;
Withdrawal.................. The Offer will expire at 5:00 P.M. New York City time on
, 1997, or such later date and time to which it
is extended by the Company (the "Expiration Date"). Tenders
of Old Notes pursuant to the Offer may be withdrawn at any
time prior to the Expiration Date. In the event the Company
terminates the Offer and does not accept for exchange any
Old Notes pursuant to the Offer, the Company will promptly
return such Old Notes to the Holders thereof.
Accrued Interest on the
Notes....................... The Notes will bear interest from and including the date of
issuance of the Old Notes. Accordingly, Holders who receive
Notes in exchange for Old Notes will forego accrued but
unpaid interest on their exchanged Old Notes for the period
from and including the date of issuance of the Old Notes to
the date of exchange, but will be entitled to such interest
under the Notes.
Conditions of the Offer...... The Offer is subject to certain customary conditions, any or
all of which may be waived by the Company. The Company
currently expects that each of the conditions will be
satisfied and that no waivers will be necessary. See "The
Offer -- Conditions to the Offer."
Procedures for Tendering Old
Notes....................... Each Holder wishing to accept the Offer must complete and
sign the Letter of Transmittal, in accordance with the
instructions contained therein, and submit the Letter of
Transmittal to the Exchange Agent identified below. See "The
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures.................. Holders of Old Notes who wish to tender their Old Notes and
whose Old Notes are not immediately available or who cannot
deliver their Old Notes and Letter of Transmittal and any
other documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date, must tender
their Old Notes according to the guaranteed delivery
procedures set forth in "The Offer -- Guaranteed Delivery
Procedures."
Acceptance of Old Notes and
Delivery of Notes........... The Company will accept for exchange any and all Old Notes
which are properly tendered in the Offer prior to 5:00 P.M.
New York City time on the Expiration Date. See "The Offer --
Acceptance of Old Notes for Exchange; Delivery of Notes."
Federal Income Tax
Considerations.............. The exchange of Old Notes for Notes pursuant to the Offer
will not be a taxable event for federal income tax purposes.
See "The Offer -- Federal Income Tax Consequences."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Rights of Dissenting
Holders..................... Holders of Old Notes do not have any appraisal or
dissenters' rights under the Delaware General Corporation
Law in connection with the Offer.
Exchange Agent............... State Street Bank and Trust Company; telephone (617)
664-5344. See "The Offer -- Exchange Agent."
Use of Proceeds.............. There will be no cash proceeds to the Company from exchanges
made pursuant to the Offer.
</TABLE>
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, Holders of Old Notes (other than any
holder who is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) who exchanged their Old Notes for Notes pursuant to the
Offer generally may offer such Notes for resale, resell such Notes and otherwise
transfer such Notes without compliance with the registration and prospectus
delivery provisions of the Securities Act provided such Notes are acquired in
the ordinary course of the holder's business and such holder has no arrangement
with any person to participate in a distribution of such Notes. Each
broker-dealer that receives Notes for its own account in exchange for Old Notes
must acknowledge that it will deliver a prospectus in connection with any resale
of such Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the Notes may not be
offered or sold unless they have been registered or qualifed for sale in such
jurisdiction or an exemption from registration or qualification is available and
the conditions thereto have been met. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Notes for offer or sale under the securities
or blue sky laws of such jurisdictions as any Holder of the Notes or the Old
Notes reasonably requests in writing. If a holder of Old Notes does not exchange
such Old Notes for Notes pursuant to the Offer, such Old Notes will continue to
be subject to the restrictions on transfer contained in the legend thereon. In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. See "The
Offer -- Purpose of the Offer" and "-- Resales of Notes."
TERMS OF THE NOTES
The terms of the Notes are substantially identical in all material respects
to the terms of the Old Notes, except that the Notes are expected to be freely
transferable as described under "The Offer -- Resales of Notes."
<TABLE>
<S> <C>
Maturity..................... October 15, 2006.
Interest Payment Dates....... October 15 and April 15 of each year, commencing on April
15, 1997.
Optional Redemption.......... Except as described below, the Notes will not be redeemable
by Astor Corporation prior to October 15, 2001. On or after
that date, the Notes may, subject to certain requirements,
be redeemed at the option of Astor Corporation, in whole or
in part, at the redemption prices set forth herein, together
with accrued and unpaid interest and Liquidated Damages (as
defined herein) thereon, if any, to the date of redemption.
In addition, at any time on or prior to October 15, 1999,
Astor Corporation may, subject to certain requirements,
redeem up to $35.0 million of the aggregate principal amount
of the Notes with the net cash proceeds of one or more
Public Equity Offerings (as defined herein) at a price equal
to 109.5% of the principal amount to be redeemed, together
with accrued and unpaid interest, if any, to the redemption
date; PROVIDED, that immediately following such redemption
not less than $75.0 million aggregate principal amount of
the Notes remains outstanding.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Mandatory Redemption......... None, except as set forth under "Description of Notes --
Change of Control" and "Description of Notes -- Certain
Covenants -- Asset Sales and Sales of Subsidiary Stock."
Guarantee.................... The Notes will be fully and unconditionally guaranteed on a
senior subordinated basis by Astor Holdings II and future
U.S. subsidiaries, if any, of Astor Corporation.
Ranking...................... The Notes will be senior subordinated obligations of Astor
Corporation, subordinated in right of payment to all
existing and future Senior Debt of Astor Corporation,
including indebtedness pursuant to the Senior Bank Facility.
The Notes will be structurally subordinated
to all indebtedness and liabilities of Astor Corporation's
existing subsidiaries and any future non-U.S. subsidiary.
The Guarantee of Astor Holdings II and any future U.S.
subsidiary of Astor Corporation which guarantees the Notes
will be subordinated to the prior payment in full of all
Senior Debt of Astor Holdings II and such subsidiaries. As
of September 30, 1996, on a pro forma basis after giving
effect to the Transactions, Astor Corporation and its
subsidiaries would have had Senior Debt outstanding of $20.0
million plus $2.3 million of letters of credit, and Astor
Holdings II would have had no Senior Debt outstanding.
Change of Control............ Upon the occurrence of a Change of Control, Astor
Corporation will be required to make an offer to repurchase
the Notes at a price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest
and Liquidated Damages thereon to the date of purchase.
Astor Corporation may be prohibited in certain circumstances
from making such repurchase. See "Risk Factors -- Control by
Indirect Stockholder; Consequences of Change of Control."
Certain Covenants............ The indenture governing the Notes (the "Indenture") contains
certain covenants that impose limitations on, among other
things, (i) the incurrence of additional indebtedness by
Astor Corporation, any Restricted Subsidiary (as defined
herein) and Astor Holdings II, (ii) the issuance of
Disqualified Stock (as defined herein), (iii) the making of
certain Restricted Payments (as defined herein), (iv) the
imposition of restrictions on the payment of dividends and
other payment restrictions affecting subsidiaries, (v)
anti-layering, (vi) the incurrence of liens, (vii)
transactions with affiliates and (viii) the consummation of
certain mergers, consolidations or sales of assets.
Absence of a Public Market
for the Notes............... There has been no public market for the Old Notes and no
active public market for the Notes is currently anticipated.
The Company currently does not intend to apply for the
listing of the Notes on any securities exchange or to seek
approval for quotation through any automated quotation
system. The Initial Purchasers have advised the Company that
each of the Initial Purchasers currently intends to make a
market in the Notes; however, neither is obligated to do so
and any market making may be discontinued by either Initial
Purchaser at any time without notice. Accordingly, no
assurance can be given as to the liquidity or the trading
market for the Notes.
</TABLE>
RISK FACTORS
For a discussion of certain matters that should be considered by prospective
investors in connection with the Offering, see "Risk Factors" beginning on page
15.
11
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents summary pro forma consolidated financial
information of Astor Holdings II derived from the Consolidated Financial
Statements of each of Astor Holdings II, ABI and ADCO, and other data as of the
dates and for the periods indicated. In the opinion of management of the
Company, all unaudited financial data used herein include all adjustments,
consisting only of normal adjustments, necessary for a fair presentation of the
results for the periods presented. Astor Holdings II is the parent corporation
of Astor Corporation, has guaranteed the obligations of Astor under the Notes
and has no material operating assets, liabilities or operations other than its
ownership of the outstanding common stock of Astor Corporation, the outstanding
$1.7 million (liquidation preference) of preferred voting ordinary stock of ABI
Acquisition 1 plc, a subsidiary of Astor Corporation, a subordinated
intercompany note payable to the Parent in the amount of $5.7 million and a
corresponding subordinated intercompany note receivable from ABI Acquisition 1
plc in the amount of $5.7 million. See "Risk Factors -- Absence of Guarantees
from Subsidiaries; Structural Subordination; Limitations on Payments to the
Company."
The summary pro forma consolidated financial data for the fiscal year ended
March 31, 1996 have been derived from the consolidated audited financial
statements of Astor Holdings II for the fiscal year ended on such date, the
consolidated audited financial statements of ADCO for the fiscal year ended
December 31, 1995 and the consolidated unaudited financial statements of ABI for
the period from April 1, 1995 to June 28, 1995.
The summary pro forma consolidated financial data for the six months ended
September 30, 1996 have been derived from the unaudited consolidated financial
statements of each of Astor Holdings II and ADCO for the six months ended
September 30, 1996. The results for the six months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
The summary pro forma consolidated financial data for the twelve months
ended September 30, 1996 have been derived from the consolidated audited
financial statements of Astor Holdings II for the fiscal year ended March 31,
1996, the consolidated audited financial statements of ADCO for the fiscal year
ended December 31, 1995, the unaudited consolidated financial statements of
Astor Holdings II for the six months ended September 30, 1996 and the unaudited
consolidated financial statements of ADCO for the nine months ended September
30, 1996.
The summary pro forma consolidated financial data are provided for
informational purposes only and do not purport to represent the financial
position or the results of operations of Astor Holdings II had the Transactions
or the Prior Transactions (as defined herein) occurred on or as of the dates
indicated nor do such data purport to project the results of Astor Holdings II
for any future period.
The summary pro forma consolidated financial data should be read in
conjunction with "Selected Consolidated Financial Data," "Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and the related
notes thereto for each of Astor Holdings II, ABI and ADCO included elsewhere in
this Prospectus.
12
<PAGE>
ASTOR HOLDINGS II
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
FISCAL YEAR TWELVE MONTHS SIX MONTHS
ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1996 (1) 1996 (2) 1996 (3)
----------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales:
Specialty waxes.................... $143,661 $153,212 $79,415
Adhesives and sealants............. 62,539 66,655 37,790
----------- -------------- -------
Total sales...................... 206,200 219,867 117,205
Gross profit before depreciation..... 48,546 53,076 28,992
Selling, general and administrative
expenses............................ 21,624 23,499 12,509
Depreciation and amortization........ 8,198 8,386 4,285
Non-recurring items.................. 1,184 1,223 --
Operating income..................... 17,540 19,968 12,198
Reorganization expense............... 856 -- --
Interest expense..................... 13,785 13,785 6,893
Provision for (benefit from) income
taxes............................... (2,546) (4,029) 141
Net income, before extraordinary
items............................... $ 5,828 $ 11,067 5,797
Ratio of earnings to fixed charges
(4)................................. 1.2x 1.5x 1.8x
OTHER DATA:
EBITDA (5)........................... $ 27,305 $ 30,432 $17,116
EBITDA margin (6).................... 13.2% 13.8% 14.6%
Capital expenditures................. $ 6,551 $ 6,588 $ 2,539
EBITDA to interest expenses, net..... 2.0x 2.2x 2.5x
Total debt to EBITDA (7)............. 5.1x 4.5x 4.0x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS OF
SEPTEMBER 30,
1996 (2)
--------------
<S> <C>
BALANCE SHEET DATA:
Current assets.................................................. $ 66,583
Total assets.................................................... 213,672
Total debt...................................................... 137,996
Stockholder's equity............................................ 38,056
</TABLE>
(See footnotes on following page)
13
<PAGE>
ASTOR HOLDINGS II
NOTES TO SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) The pro forma consolidated financial data for the year ended March 31, 1996
reflects the Transactions and the Prior Transactions as if each had occurred
on April 1, 1995. For purposes of this pro forma financial information, the
ABI Acquisition and the ADCO Acquisition are treated as purchases. See "Pro
Forma Financial Information," "Acquisition of ADCO," "Senior Bank Facility"
and "Prior Reorganization."
(2) The pro forma consolidated financial data for the twelve months ended
September 30, 1996 reflects the Transactions as if each had occurred on
April 1, 1995. The pro forma balance sheet at September 30, 1996 is prepared
assuming the Transactions had occurred at that date. For purposes of this
pro forma financial information, the ABI Acquisition and the ADCO
Acquisition are treated as purchases. See "Pro Forma Financial Information,"
"Acquisition of ADCO," "Senior Bank Facility" and "Prior Reorganization."
(3) The pro forma consolidated financial data for the six months ended September
30, 1996 reflects the Transactions as if each had occurred on April 1, 1995.
For purposes of this pro forma financial information, the ABI Acquisition
and the ADCO Acquisition are treated as purchases. See "Pro Forma Financial
Information," "Acquisition of ADCO," "Senior Bank Facility" and "Prior
Reorganization."
(4) For the purposes of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes, extraordinary items and
fixed charges. Fixed charges consist of interest expense, amortization
expense of deferred debt financing costs and the interest component of rent
expense.
(5) EBITDA represents earnings before interest expense, income tax expense,
depreciation and amortization expense, extraordinary items and non-recurring
items. EBITDA as used herein may not be comparable to similarly titled
measures reported by other companies. Information concerning EBITDA is
included as it is used by certain investors as a measure of a company's
ability to service its debt. EBITDA may also be considered an important
measure to the Company because certain of the financial ratio covenants in
the Senior Credit Facility are based in part upon EBITDA. EBITDA is not a
GAAP (as defined herein) measure of financial performance and should not be
used as an alternative to, or be construed as more meaningful than,
operating income or cash flows or as an indicator of the operating
performance or liquidity of Astor Holdings II. EBITDA differs from cash
flows from operating activities primarily because, unlike cash flow from
operations, EBITDA excludes interest expense, taxes and net change in
working capital.
On a pro forma basis the Company had $30.4 million of EBITDA for the twelve
months ended September 30, 1996. After deducting pro forma capital
expenditures of $6.6 million, pro forma working capital requirements of $2.0
million, pro forma cash interest of $13.8 million and pro forma cash taxes
of $1.0 million from EBITDA, the Company would have $7.0 million on a pro
forma basis available to make principal repayments on the Senior Bank
Facility. No amortization payments are required on the Revolving Credit
Facility or the Notes in the next five years. Amortization payments on the
Bank Term Loan are as follows:
<TABLE>
<CAPTION>
AMORTIZATION
FISCAL YEAR PAYMENT
- ---------------------------------------------------- ------------
<S> <C>
1997.............................................. --
1998.............................................. $1,400,000
1999.............................................. 1,800,000
2000.............................................. 3,000,000
2001.............................................. 4,500,000
</TABLE>
(6) EBITDA margin is the ratio of EBITDA to sales, expressed as a percentage.
(7) For the purposes of calculating total debt to EBITDA, (i) total debt for all
periods shown is pro forma total debt at September 30, 1996, (ii) EBITDA for
the period ended March 31, 1996 and September 30, 1996 reflects the twelve
months ended on such date and (iii) EBITDA for the six months ended
September 30, 1996 has been annualized.
14
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR
TO PURCHASING THE NOTES OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE
FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
SIGNIFICANT LEVERAGE
The Company is highly leveraged and has indebtedness that is substantial in
relation to its stockholder's equity. As of September 30, 1996, on a pro forma
basis after giving effect to the Transactions, the Company would have had an
aggregate of $138.0 million of outstanding indebtedness for borrowed money, $1.7
million (liquidation preference) of outstanding preferred stock of a subsidiary
of Astor Corporation held by Astor Holdings II and $33.0 million of
stockholder's equity. Astor Corporation is a subsidiary of Astor Holdings II.
Astor Holdings II has guaranteed the obligations of Astor Corporation under the
Indenture and the Notes. As of September 30, 1996, on a pro forma basis after
giving effect to the Transactions, Astor Holdings II (on a consolidated basis
including the Company and its subsidiaries) would have had an aggregate of
$138.0 million of outstanding indebtedness for borrowed money and $38.1 million
of stockholder's equity. The Indenture permits Astor Corporation, its
subsidiaries and Astor Holdings II to incur additional indebtedness, including
Senior Debt (as defined herein) subject to certain limitations. See
"Capitalization," "Pro Forma Financial Information," "Description of Notes" and
the Consolidated Financial Statements of Astor Holdings II and the related notes
thereto included elsewhere in this Prospectus.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest on the Notes and interest and principal on its other
existing indebtedness, thereby reducing the funds available to the Company for
other purposes; (iii) indebtedness under the Senior Bank Facility will be at
variable rates of interest, which will cause the Company to be vulnerable to
increases in interest rates; (iv) the Company may be hindered in its ability to
adjust rapidly to changing market conditions; and (v) the Company's substantial
degree of leverage could make it more vulnerable in the event of a downturn in
general economic conditions or in its business.
The Senior Bank Facility matures prior to the maturity of the Notes. In the
event that the Company is unable to refinance the Senior Bank Facility or raise
funds to repay the facility through asset sales, sales of equity or otherwise,
its ability to pay the principal of and interest on the Notes would be adversely
affected.
SUBORDINATION OF THE NOTES AND THE GUARANTEE
The Notes and the Guarantee will be general obligations of Astor Corporation
and Astor Holdings II, respectively, and will be subordinate in right of payment
to all Senior Debt of the Company and Astor Holdings II (or any future U.S.
subsidiary which guarantees the Notes), including all amounts owing under the
Senior Bank Facility. In addition, the borrowings under the Senior Bank Facility
(including the guarantees thereof) are secured by a first priority security
interest in all assets of Astor Corporation, all of the capital stock of Astor
Corporation's direct and indirect U.S. subsidiaries, 65% of the voting capital
stock and 100% of the non-voting capital stock of ABI Acquisition 2 plc and all
of the capital stock of Astor Corporation. See "Senior Bank Facility." In the
event of a bankruptcy, liquidation or reorganization of Astor Corporation or
Astor Holdings II, the assets of Astor Corporation or Astor Holdings II, as the
case may be, would be available to pay obligations on the Notes or the
Guarantee, as the case may be, only after all Senior Debt has been paid in full,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the Notes then outstanding. As of September 30, 1996, on a pro forma
basis after giving effect to the Transactions, Astor Corporation would have had
Senior Debt of approximately $22.3 million and approximately $27.7 million of
unused commitment under the Senior Bank Facility. Additional Senior Debt,
including secured indebtedness, may be incurred by Astor Corporation and Astor
Holdings II from time to
15
<PAGE>
time subject to certain restrictions contained in the Senior Bank Facility and
the Indenture. See "Description of Notes -- Subordination," "-- Certain
Covenants -- Incurrence of Indebtedness or Issuance of Preferred Stock" and
"Senior Bank Facility."
ABSENCE OF GUARANTEES FROM EXISTING SUBSIDIARIES; STRUCTURAL SUBORDINATION;
LIMITATIONS ON PAYMENTS TO THE COMPANY
Under the Indenture, Astor Corporation's existing subsidiaries are not
required to guarantee Astor Corporation's obligations under the Notes, although
the Indenture requires all future direct and indirect U.S. subsidiaries of Astor
Corporation to guarantee the Notes. As of and for the year ended September 30,
1996, on a pro forma basis after giving effect to the Transactions, the existing
subsidiaries of the Company would have had an aggregate of $45.9 million of
tangible assets (representing 30.9% of the total tangible assets of the Company
and Astor Holdings II on a consolidated basis), $659,000 of net income
(constituting 6.0% of the total consolidated pro forma net income of the Company
and the Guarantor). The rights of Astor Corporation and its creditors, including
the holders of the Notes, to realize upon the assets of Astor Corporation's
existing subsidiaries and any future non-U.S. subsidiary in the event of
bankruptcy, liquidation or reorganization of any such subsidiary will be subject
to the prior claims of such subsidiary's creditors, except to the extent that
Astor Corporation or Astor Holdings II may itself be a creditor with recognized
claims against such subsidiary. Astor Corporation is a creditor of Astor Stag
Ltd., an indirect U.K. subsidiary of Astor Corporation, for a total of $28.5
million which was loaned by the Company to Astor Stag Ltd. to repay existing
indebtedness of Astor Stag Ltd. and another indirect non-U.S. subsidiary of
Astor Corporation outstanding under the UBS Credit Facility. This claim, which
is secured by substantially all of the assets of Astor Stag, Ltd., has been
pledged to secure the Senior Bank Facility and is repayable upon demand by Astor
Corporation. There can be no assurance that such claim will remain outstanding
at any time. In addition, this claim (to the extent unsecured), and any other
such unsecured or junior secured claim of Astor Corporation or Astor Holdings II
with respect to a subsidiary of Astor Corporation, will still be subordinate to
any indebtedness secured (to the extent senior) by the assets of the subsidiary.
Astor Corporation may rely, in part, upon dividends and other payments from its
subsidiaries (including interest payments and the repayment of principal under
intercompany indebtedness) or funds contributed or otherwise transferred to
Astor Corporation by Astor Holdings II (which must rely upon equity or debt
financing in the absence of dividend payments from Astor Corporation) to meet
Astor Corporation's obligations, including the payment of principal and interest
on the Notes. The ability of Astor Corporation's subsidiaries and Astor Holdings
II to make such payments and transfers may be restricted or limited by, among
other things, applicable state and foreign corporate laws, tax laws and other
laws and regulations or by terms of agreements to which they may become party.
RESTRICTIVE LOAN COVENANTS; CONSEQUENCE OF FAILURE TO COMPLY
The Notes and the Senior Bank Facility impose upon the Company certain
financial and operating covenants including, among other things, requirements
that the Company maintain certain financial ratios and satisfy certain financial
tests, limitations on capital expenditures, and restrictions on the ability of
the Company to incur indebtedness, pay dividends or take certain other corporate
actions, all of which may restrict the Company's ability to expand or to pursue
its business strategies. In addition, instruments evidencing future borrowings
by the Company will likely contain similar restrictions. Changes in economic or
business conditions, results of operations or other factors could in the future
cause a violation of one or more covenants in the Company's debt instruments,
entitling the holders of such indebtedness to declare the indebtedness
immediately due and payable. An event of default under a debt instrument of the
Company is likely to result in an event of default under one or more other debt
instruments of the Company. The Notes, and the Senior Bank Facility both contain
such cross-default provisions. There can be no assurance that the assets of the
Company will be sufficient to repay any such accelerated indebtedness, and any
indebtedness containing cross-default provisions to such indebtedness, including
the Notes. See "Description of Notes" and "Senior Bank Facility."
CONTROL BY INDIRECT STOCKHOLDER; CONSEQUENCES OF CHANGE OF CONTROL
Astor Corporation is a subsidiary of Astor Holdings II, which in turn is a
subsidiary of the Parent. Entities controlled by Gerald L. Parsky, a director of
the Parent, Astor Holdings II and Astor Corporation,
16
<PAGE>
collectively own all of the outstanding common stock of the Parent. Therefore,
Mr. Parsky is able to elect directly or indirectly a majority of the directors
of the Parent, Astor Holdings II and the Company, and to approve or disapprove
substantially all matters submitted to a vote of stockholders of the Parent,
Astor Holdings II and the Company. See "Ownership of Voting Securities."
Upon the occurrence of a Change of Control (as defined herein), Astor
Corporation will be required to make an offer to repurchase the Notes at a price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest thereon. In addition, a change of control of Astor Corporation under
the Senior Bank Facility and, in all likelihood, other Senior Debt to which
Astor Corporation becomes a party will give rise to a default and rights of
acceleration under such other indebtedness. Such acceleration would prevent
repurchase of the Notes as a result of the subordination provisions applicable
to the Notes until the Senior Debt has been paid in full, decreasing the
likelihood that Astor Corporation would have the financial resources to
repurchase all or any part of the Notes. At September 30, 1996, on a pro forma
basis after giving effect to the Transactions, the Company would have had $138.0
million of indebtedness, consisting of the Notes, borrowings outstanding under
the Senior Bank Facility and an intercompany note to the Parent, carrying
optional redemption rights at the election of the holder in the event of a
change of control or provisions that would trigger an event of default upon the
occurrence of a change of control. If, as a result of the occurrence of a change
of control, all such indebtedness were required to be redeemed or became
immediately due and payable, Astor Corporation would not currently have
sufficient resources available to redeem and repay all such indebtedness and
there can be no assurance that sufficient resources would be available for such
purpose in the future. Even if such acceleration does not occur, the existence
of such a default under the Senior Bank Facility and, in all likelihood, other
Senior Debt will also contain prohibitions on payment of the Notes under such
circumstances for a specified period. See "Description of Notes --
Subordination."
REORGANIZATION; LIMITED REORGANIZED OPERATING HISTORY
Astor Corporation was incorporated as a new venture in 1989 in the State of
Delaware under the name Petrowax PA Inc. ("Petrowax") for the purpose of
developing a wax production business. As part of its start-up plan of
operations, Petrowax acquired two lube oil and wax production facilities from
Quaker State Oil Co. ("Quaker State"). Shortly after the completion of the
acquisition in 1990 and prior to the acquisition of ABI and ADCO, Petrowax
encountered a number of operational and financial difficulties, resulting in
Petrowax filing a voluntary petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code on February 25, 1992 (the "Filing"). Petrowax's Chapter 11
plan of reorganization (the "Reorganization Plan") was confirmed by an order of
the bankruptcy court dated May 19, 1995 and became effective as of June 28, 1995
(the "Effective Date"). On the Effective Date, Petrowax received an equity
infusion of $10.0 million from Astor Holdings II in consideration of the sale of
its common stock. As part of the Reorganization Plan, Petrowax entered into the
UBS Credit Facility pursuant to which UBS provided term loans in the principal
amount of $57.5 million and agreed to provide a revolving facility in the
principal amount of $20.0 million. Additionally, as part of the Reorganization
Plan, Petrowax consummated the ABI Acquisition and changed its name from
Petrowax to Astor Corporation, a tradename of ABI. As a result of the
reorganization and certain related actions, Astor Corporation is under new
operational management, its assets and liabilities have been substantially
restructured and its strategic plan has been significantly changed from its
strategic focus prior to the reorganization.
Because the Reorganization Plan became effective as of June 28, 1995,
purchasers of the Notes have only limited historical financial and other
information upon which to assess the effectiveness of the new strategic plan and
the results of Astor's restructured operations, including its combination with
ABI. Effective March 31, 1996, having attained consistent earnings for the
nine-month period since its emergence from bankruptcy, Astor Holdings II
effected a quasi-reorganization to restate, in conformity with generally
accepted accounting principles, its equity and financial position to better
reflect its true equity and financial position as a reorganized entity. Pursuant
to the quasi-reorganization, Astor Holding II's accumulated deficit at that date
of $23.9 million was offset against its additional paid-in capital, its retained
earnings were
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reduced to zero and its additional paid-in capital was proportionately reduced.
See "Prior Reorganization" and Note 3 to the Consolidated Financial Statements
of Astor Holdings II included elsewhere in this Memorandum.
POSSIBLE ENVIRONMENTAL LIABILITIES
The Company is subject to stringent federal, state, local and foreign laws
and regulations relating to the protection of the environment, including,
without limitation, those relating to the storage, handling, emission and
discharge of materials into the environment. The Company has expended, and may
be required to expend in the future, substantial funds for compliance with and
remediation under such laws and regulations. Some risk of environmental
liability is inherent in the nature of the Company's business, and there can be
no assurance that additional material environmental costs will not arise as a
result of future legislation or the discovery of non-compliance with existing
laws and regulations. Additionally, environmental statutes and regulations are
becoming increasingly more stringent. To the extent that the cost of compliance
increases and the Company cannot pass on future increases to its customers, such
increases may have a material adverse effect on the Company's profitability.
Except for certain of the matters discussed herein, the Company believes that it
is currently in material compliance with all applicable environmental laws and
regulations.
The Company is aware of certain conditions which may lead to environmental
liability being imposed on the Company with respect to the operation of its
facilities and business. Contamination exists at the Company's facility in
Titusville, Pennsylvania, which management believes resulted from disposal of
waste at the facility by an oil refinery that formerly operated in the area. In
addition, an investigation by the U.S. Environmental Protection Agency ("EPA"),
the conclusions of which management believes to be inaccurate, indicated that a
former subsidiary of ABI (which has since been merged into the Company) was the
former owner and a contributor of waste to a waste disposal area which has been
investigated by the EPA for potential inclusion on the Superfund list. Soil and
ground water contamination, which is being addressed in large measure by Quaker
State pursuant to an indemnity, also exists at the Company's Emlenton and
McKean, Pennsylvania facilities. Finally, contamination exists at ADCO's
manufacturing facility in Michigan Center, Michigan, for which Astor is seeking
protection from liability under a new state statute which shields new owners
from responsibility for contamination existing prior to acquisition of a
facility. The Company has certain indemnification rights with respect to certain
of these environmental matters. Assuming that the indemnitors continue to meet
their obligations, the Company does not believe that the above or any other
environmental matters will have a material adverse effect on the business or
financial condition of the Company. There can be no assurance, however, that the
indemnitors will continue to meet their obligations or that the Company will not
incur additional significant liabilities in connection with the above or other
environmental matters, either of which could have a material adverse effect on
the Company's business or financial condition. See "Business -- Environmental
Matters."
WAX FEEDSTOCK PRICE RISKS
The Company's raw material costs, particularly the costs of its wax
production feedstocks, are subject to commodity pricing risks. The markets and
prices for the Company's wax production feedstocks and other raw materials
depend on many factors beyond the control of the Company. The Company purchases
wax feedstocks primarily based on formulas tied to oil and gasoline price
indices which permit substantial volatility in feedstock costs. The Company is
able to hedge a portion of these costs by hedging crude oil in the public market
and, when possible, seeks to raise the prices of its specialty wax products in
response to increases in feedstock costs. However, the Company has not always in
the past been, and may not in the future always be, able to raise prices high
enough or quickly enough to offset the effects of such increased feedstock
costs. A substantial or prolonged increase in feedstock prices without a
corresponding increase in the Company's specialty wax product prices could have
a material adverse effect on the Company's business and financial condition. See
"Business -- Supply."
RELIANCE ON PRIMARY SUPPLIER FOR CERTAIN RAW MATERIALS
Approximately 26% of the Company's wax related raw material costs result
from the purchase of wax feedstocks derived from Altamont/Bluebell Yellow Wax
crude oil ("A/B Crude"). These wax feedstocks are purchased pursuant to a
long-term feedstock supply contract with Lube & Wax Ventures, L.L.C. ("L&W")
which expires on October 1, 2006, subject to certain early termination rights.
While the Company believes
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that, if needed, there are alternative sources of A/B Crude and other wax
feedstocks, the unanticipated termination of or nonperformance by the supplier
under this supply contract could have a material adverse effect on the Company's
business and financial condition.
RISKS RELATING TO ADCO ACQUISITION AND INTEGRATION OF OPERATIONS
Astor acquired ADCO concurrent with the closing of the Offering. Under the
acquisition agreement pursuant to which ADCO was acquired, the representations
and warranties of ADCO did not survive the effectiveness of the acquisition.
There can be no assurance that the Company will not encounter unanticipated
problems or liabilities with respect to the operations of ADCO or with the
integration of ADCO's operations with those of the Company. See "Acquisition of
ADCO."
COMPETITION
The Company competes with a wide variety of companies in a diverse number of
markets. In certain wax market segments, the Company competes with large
multinational oil refineries. The Company also competes with specialized wax
producers and formulators around the world which, like the Company, create
value-added products through formulating and packaging. Both the specialty wax
product and adhesives and sealants industries are highly fragmented, and the
Company competes with a large number of manufacturers in these industries.
Certain of the Company's competitors have greater financial, technical,
marketing and other resources than the Company. There can be no assurance that
the Company will be able to compete successfully in any of the markets in which
it operates. See "Business -- Competition."
PROTECTION OF CONFIDENTIAL AND PROPRIETARY INFORMATION
The success of the Company depends, in part, on its ability to maintain the
confidentiality of its trade secrets and proprietary formulations and processes.
There can be no assurance that the Company will be able to protect its
confidential information and, to the extent such confidential information may be
disclosed, the Company's business could be adversely affected. The Company also
holds 19 patents in the United States and 26 patents in other countries on
adhesives and sealants compositions, methods of using such adhesives and
sealants and other technologies related to such products. There can be no
assurance that these patents will provide adequate protection for the Company's
products or do not conflict with the patents rights of others. See "Business --
Patents and Proprietary Information."
DEPENDENCE ON KEY PERSONNEL
The success of the Company will depend upon the efforts and abilities of
certain key officers and employees. See "Business -- Competitive Strengths." The
Company could be adversely affected if for any reason these officers and
employees should no longer be active in the Company's operations. In addition, a
primary element in the Company's strategic plan is the specialized expertise of
its technical personnel and the abilities of its sales and customer service
personnel to build and maintain relationships with its customers. The Company
does not believe that the departure of any particular individual would have a
material adverse effect on the Company. However, if a significant number of such
personnel should no longer be active in the Company's business, and if the
Company were unable to find equally qualified personnel to replace them, there
can be no assurance that the Company would not be materially adversely affected.
Certain of the Company's executive officers, including Boyd D. Wainscott, the
Chairman of the Board and the Chief Executive Officer, and C. Richard Spalton, a
Director and the President, have entered into employment agreements with the
Company. See "Management -- Executive Compensation -- Management Compensation
and Employment Agreements." The Company does not maintain key person insurance
for any key officers or employees.
LACK OF PUBLIC MARKET FOR NOTES; LIMITED LIQUIDITY
There is currently no established market for the Notes and there can be no
assurance as to the liquidity of markets that may develop for the Notes, the
ability of Holders of the Notes to sell their Notes or the price at which such
Holders would be able to sell their Notes. If such markets were to exist, the
Notes could trade at prices that may be higher or lower than the initial market
values thereof depending on many factors, including prevailing interest rates
and the markets for similar securities. The Old Notes are eligible for trading
in the Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") market. The Company does not intend to apply for listing of the Notes
on any securities exchange or for quotation through any automated quotation
system. The Initial Purchasers have advised the Company that they currently
intend to make a market in the Old Notes, and, if issued, the Notes. However,
neither is obligated
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to do so, and any market-making with respect to the Old Notes or the Notes may
be discontinued at any time without notice. In addition, such market-making
activity may be limited during the pendency of the Offer. The Offer will not be
conditioned upon any minimum or maximum aggregate principal amount of Old Notes
being tendered for exchange. No assurance can be given as to the liquidity of
the trading market for the Notes, or, in the case of non-tendering Holders of
Old Notes, the trading market for the Old Notes following the Offer. See "Plan
of Distribution."
THE OFFER
PURPOSE OF THE OFFER
The Offer is designed to provide Holders of Old Notes with an opportunity to
acquire Notes which, unlike the Old Notes, will be freely tradable at all times,
subject to any restrictions on transfer imposed by state "blue sky" laws and
provided that the Holder is not an affiliate of the Company within the meaning
of the Securities Act and represents that the Notes are being acquired in the
ordinary course of such Holder's business and the Holder is not engaged in, and
does not intend to engage in a distribution of the Notes. The outstanding Old
Notes in the aggregate principal amount of $110.0 million were originally issued
and sold on October 8, 1996 (the "Original Issue Date") in order to provide
financing for the ADCO Acquisition and the repayment of the Company's
outstanding indebtedness under the UBS credit facility. The original sale to the
Initial Purchasers was not registered under the Securities Act in reliance upon
the exemption provided by Section 4(2) of the Securities Act and the concurrent
resale of the Old Notes to investors was not registered under the Securities Act
in reliance upon the exemption provided by Rule 144A promulgated under the
Securities Act. The Old Notes may not be reoffered, resold or transferred other
than pursuant to a registration statement filed pursuant to the Securities Act
or unless an exemption from the registration requirements of the Securities Act
is available. Pursuant to Rule 144, Old Notes may generally be resold (a)
commencing two years after the Original Issue Date, in an amount up to, for any
three-month period, the greater of 1% of the Old Notes then outstanding or the
average weekly trading volume of the Old Notes during the four calendar weeks
immediately preceding the filing of the required notice of sale with the
Commission and (b) commencing three years after the Original Issue Date, in any
amount and otherwise without restriction by a Holder who is not, and has not
been for the preceding 90 days, an affiliate of the Company. The Old Notes are
eligible for trading in the PORTAL Market, and may be resold to certain
Qualified Institutional Buyers pursuant to Rule 144A. Certain other exemptions
may also be available under other provisions of the federal securities laws for
the resale of the Old Notes.
In connection with the original issue and sale of the Old Notes, the Company
entered into a Registration Rights Agreement, pursuant to which it agreed to
file with the Commission a registration statement covering the exchange by the
Company of the Notes for the Old Notes (the "Exchange Offer Registration
Statement"). The Registration Rights Agreement provides that (i) the Company
will file the Exchange Offer Registration Statement with the Commission on or
prior to 30 days after the Original Issue Date, (ii) the Company will use its
best efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 105 days after the Original Issue
Date, (iii) unless the Offer would not be permitted by applicable law or
Commission policy, the Company will commence the Offer and use its best efforts
to issue on or prior to 30 business days after the date on which the Exchange
Offer Registration Statement is declared effective by the Commission, Notes in
exchange for all Old Notes tendered prior thereto in the Offer and (iv) if
obligated to file a shelf registration statement covering the Old Notes (a
"Shelf Registration Statement"), the Company will file the Shelf Registration
Statement with the Commission on or prior to 30 days after such filing
obligation arises and use its best efforts to cause the Shelf Registration
Statement to be declared effective by the Commission on or prior to 105 days
after such obligation arises and cause such Shelf Registration Statement to
remain effective and usable for a period of two years following the initial
effectiveness thereof. If (a) the Company fails to file any of the registration
statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such registration statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness, (c) the Company fails to consummate the Offer within 30 business
days after the date on which the Exchange Offer Registration Statement is
declared effective, or (d) the Shelf Registration Statement or the Exchange
Offer Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
(as defined
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below) during the periods specified in the Registration Rights Agreement (each
such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Company will pay liquidated damages ("Liquidated Damages")
to each Holder of Transfer Restricted Securities, with respect to the first
90-day period immediately following the occurrence of such Registration Default
in an amount equal to $.10 per week per $1,000 principal amount of Transfer
Restrictive Securities held by such person. The amount of the Liquidated Damages
will increase by an additional $.05 per week per $1,000 principal amount of
Transfer Restricted Securities with respect to each subsequent 60-day period
until all Registration Defaults have been cured up to a maximum amount of
Liquidated Damages of $.30 per week per $1,000 principal amount of Transfer
Restricted Securities (regardless of whether one or more than one Registration
Default is outstanding). Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease. For purposes of the foregoing,
"Transfer Restricted Securities" means each Old Note until (i) the date on which
such Old Note has been exchanged by a person other than a broker-dealer for a
Note in the Offer, (ii) the date on which such Old Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (iii) the date on which such Old Note is distributed to
the public pursuant to Rule 144 under the Securities Act, or (iv) the date on
which such Old Note is salable pursuant to Rule 144(k) under the Securities Act.
The staff of the Commission has issued certain interpretive letters that
concluded, in circumstances similar to those contemplated by the Offer, that new
debt securities issued in a registered exchange for outstanding debt securities,
which new securities are intended to be substantially identical to the
securities for which they are exchanged, may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-dealer who
purchases such securities from the issuer to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a person who is an
affiliate of the issuer within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provision of
the Securities Act, PROVIDED that the new securities are acquired in the
ordinary course of such holder's business and such holder has no arrangement
with any person to participate in the distribution of the new securities.
However, a broker-dealer who holds outstanding debt securities that were
acquired for its own account as a result of market-making or other trading
activities may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of the new
securities received by the broker-dealer in any such exchange. See "-- Resales
of Notes." The Company has not requested or obtained an interpretive letter from
the Commission staff with respect to this Offer, and the Company and the Holders
are not entitled to rely on interpretive advice provided by the staff to other
persons, which advice was based on the facts and conditions represented in such
letters. However, the Offer is being conducted in a manner intended to be
consistent with the facts and conditions represented in such letters. If any
Holder has any arrangement or understanding with respect to the distribution of
the Notes to be acquired pursuant to the Offer, such Holder (i) could not rely
on the applicable interpretations of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, each
broker-dealer that receives Notes for its own account in exchange for the Old
Notes, where such Old Notes were acquired by such broker-dealers 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 Notes. See "Plan
of Distribution" By delivering the Letter of Transmittal, a Holder tendering Old
Notes for exchange will represent and warrant to the Company that the Holder is
acquiring the Notes in the ordinary course of its business and that the Holder
is not engaged in, and does not intend to engage in, a distribution of the
Notes. Any Holder using the Offer to participate in a distribution of the Notes
to be acquired in the Offer must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Holders who do not exchange their Old Notes pursuant to this
Offer will continue to hold Old Notes that are subject to restrictions on
transfer.
It is expected that the Notes will be freely transferable by the Holders
thereof, subject to the limitations described in the immediately preceding
paragraph and in "-- Resales of Notes." Sales of Notes acquired in the Offer by
Holders who are "affiliates" of the Company within the meaning of the Securities
Act will be subject to certain limitation on resale under Rule 144 of the
Securities Act. Such persons will only be entitled to sell Notes in compliance
with the volume limitations set forth in Rule 144, and sales of Notes by
affiliates
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will be subject to certain Rule 144 requirements as to the manner of sale,
notice and the availability of current public information regarding the Company.
The foregoing is a summary only of Rule 144 as it may apply to affiliates of the
Company. Any such persons must consult their own legal counsel for advice as to
any restrictions that might apply to the resale of their Notes.
The Notes otherwise will be substantially identical in all material respects
(including interest rate, maturity, security and restrictive covenants) to the
Old Notes for which they may be exchanged pursuant to this Offer.
TERMS OF THE OFFER
Upon the terms and subject to the conditions set forth herein and in the
accompanying Letter of Transmittal, the Company will exchange $1,000 principal
amount of Notes for each $1,000 principal amount of its outstanding Old Notes.
Notes will be issued only in integral multiplies of $1,000 to each tendering
Holder of Old Notes whose Old Notes are accepted in the Offer.
The Notes will bear interest from and including the Original Issue Date.
Accordingly, Holders who receive Notes in exchange for Old Notes will forego
accrued but unpaid interest on their exchanged Old Notes for the period from and
including the Original Issue Date to the date of exchange, but will be entitled
to such interest under the Notes.
As of December , 1996, $110.0 million aggregate principal amount of Old
Notes were outstanding. This Prospectus and the Letter of Transmittal are being
sent to all registered Holders of Old Notes as of that date. Tendering Holders
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Notes pursuant to the Offer. The Company will pay all charges
and expenses, other than certain transfer taxes which may be imposed, in
connection with the Offer. See "-- Payment of Expenses."
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION
The Offer will expire at 5:00 P.M., New York City time, on
, 1997 subject to extension by the Company by notice to the
Exchange Agent as herein provided. The Company reserves the right to extend the
Offer at its discretion, in which event the term "Expiration Date" shall mean
the time and date on which the Offer as so extended shall expire. The Company
shall notify the Exchange Agent of any extension by oral or written notice and
shall mail to the registered holders of Old Notes an 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 to extend or terminate the Offer and not
accept for exchange any Old Notes if any of the events set forth below under "--
Conditions to the Offer" occur and are not waived by the Company, by giving oral
or written notice of such delay or termination to the Exchange Agent. See "--
Conditions to the Offer." The rights reserved by the Company in this paragraph
are in addition to the Company's rights set forth below under the caption "--
Conditions to the Offer."
PROCEDURES FOR TENDERING
The tender to the Company of Old Notes by a Holder thereof pursuant to one
of the procedures set forth below and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
Except as set forth below, a holder who wishes to tender Old Notes for
exchange pursuant to the Offer must transmit a properly completed and duly
executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at the address set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
pursuant to the procedure of book-entry
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transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. LETTERS OF TRANSMITTAL AND OLD NOTES SHOULD NOT BE
SENT TO THE COMPANY. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND US A PROXY.
Signatures on a Letter of Transmittal must be guaranteed unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered Holder of Old
Notes who has not completed the box entitled "Special Issuance and Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of any firm
that is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. (the "NASD") or a commercial
bank or trust company having an office in the United States (an "Eligible
Institution"). In the event that signatures on a Letter of Transmittal are
required to be guaranteed, such guarantee must be by an Eligible Institution.
The method of delivery of Old Notes and other documents to the Exchange
Agents is at the election and risk of the Holder, but if delivery is by mail it
is suggested that the mailing be made sufficiently in advance of the Expiration
Date to permit delivery to the Exchange Agent before the Expiration Date.
If the Letter of Transmittal is signed by a person other than a registered
Holder of any Old Note tendered therewith, such Old Note must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name or names of the registered Holder or Holders appear on the Old Note(s).
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be resolved by the Company,
whose determination will be final and binding. The Company reserves the absolute
right to reject any or all tenders that are not in proper form or the acceptance
of which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right to waive any irregularities or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Offer (including the instructions in the Letter of
Transmittal) will be final and binding. Unless waived, any irregularities in
connection with tenders must be cured within such time as the Company shall
determine. Neither the Company nor the Exchange Agent shall be under any duty to
give notification of defects in such tenders or shall incur liabilities for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering Holder, unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date.
The Company's acceptance for exchange of Old Notes tendered pursuant to the
Offer will constitute a binding agreement between the tendering person and the
Company upon the terms and subject to the conditions of the Offer.
BOOK ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Depository Trust Company for purposes of the Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository Trust Company's systems may
make book-entry delivery of Old Notes by causing the Depository Trust Company to
transfer such Old Notes into the Exchange Agent's account at the Depository
Trust Company in accordance with such Depository Trust Company's procedures for
transfer. However, although delivery of Old Notes may be effected through
book-entry transfer at the Depository Trust Company, the Letter of Transmittal
or facsimile thereof with any required signature guarantees and any other
required documents must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "Exchange Agent" on
or prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
CONDITIONS TO THE OFFER
Notwithstanding any other provisions of the Offer, or any extension of the
Offer, the Company will not be required to issue Notes in respect of any
properly tendered Old Notes not previously accepted, and may terminate the Offer
by oral or written notice to the Exchange Agent and the Holders, or at its
option, modify or otherwise amend the Offer, if any material change occurs that
is likely to affect the Offer, including, but not limited to, the following:
(a) there shall be instituted or threatened any action or proceeding
before any court or governmental agency challenging the Offer or otherwise
directly or indirectly relating to the Offer or otherwise affecting the
Company;
(b) there shall occur any development in any pending action or
proceeding that, in the sole judgement of the Company, would or might (i)
have an adverse effect on the business of the Company, (ii) prohibit,
restrict or delay consummation of the Offer, or (iii) impair the
contemplated benefits of the Offer;
(c) any statute, rule or regulation shall have been proposed or enacted,
or any action shall have been taken by any governmental authority which, in
the sole judgment of the Company, would or might (i) have an adverse effect
on the business of the Company, (ii) prohibit, restrict or delay
consummation of the Offer, or (iii) impair the contemplated benefits of the
Offer; or
(d) there exists, in the sole judgment of the Company, any actual or
threatened legal impediment (including a default or prospective default
under an agreement, indenture or other instrument or obligation to which the
Company is a party or by which it is bound) to the consummation of the
transactions contemplated by the Offer.
The Company expressly reserves the right to terminate the Offer and not
accept for exchange any Old Notes upon the occurrence of any of the foregoing
conditions. In addition, the Company may amend the Offer at any time prior to
5:00 P.M., New York City time, on the Expiration Date if any of the conditions
set forth above occur. Moreover, regardless of whether any of such conditions
has occurred, the Company may amend the Offer in any manner which, in its good
faith judgement, is advantageous to the Holders.
24
<PAGE>
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its sole discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NOTES
Upon the terms and subject to the conditions of the Offer, the Company will
accept all Old Notes validly tendered prior to 5:00 P.M., New York City time, on
the Expiration Date. The Company will deliver Notes in exchange for Old Notes
promptly following the Expiration Date.
For purposes of the Offer, the Company shall be deemed to have accepted
validly tendered Old Notes when, as and if the Company has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering Holders for the purpose of receiving the Notes. Under no
circumstances will interest be paid by the Company or the Exchange Agent by
reason of any delay in making such payment or delivery.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, at the Company's
expense, to the tendering Holder thereof as promptly as practicable after the
expiration or termination of the Offer.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn
(including the principal amount of such Old Notes), and (where certificates for
Old Notes have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing Holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange Agent,
then, prior to the release of such certificates the withdrawing Holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such Holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at the
Depository Trust Company to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Depository Trust Company pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
the Depository Trust Company for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "-- Procedures for Tendering" above at any time on or prior to
the Expiration Date.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizing federal income tax consequences of the
Offer reflects the opinion of Gibson, Dunn, & Crutcher LLP, counsel to the
Company, as to material federal income tax consequences expected to result from
the Offer. An opinion of counsel is not binding on the Internal Revenue Service
("IRS") or the courts, and there can be no assurances that the IRS will not
take, and that a court would not sustain, a position contrary to that described
below. Moreover, the following discussion is for general information only and
does not constitute comprehensive tax advice to any particular Holder of Old
Notes. The summary is based on the current provisions of the Internal Revenue
Code of 1986, as amended, and applicable Treasury regulations, judicial
authority and administrative pronouncements. The tax consequences described
below could be modified by future changes in the relevant law, which could have
25
<PAGE>
retroactive effect. Each Holder of Old Notes should consult its own tax adviser
as to these and any other federal income tax consequences of the Offer as well
as any tax consequences to it under foreign, state, local or other law.
Exchanges of Old Notes for Notes pursuant to the Offer should be treated as
a modification of the Old Notes that does not constitute a material change in
their terms, and the Company intends to treat the exchanges in that manner.
Under that approach, a Note is treated as a continuation of the corresponding
Old Note. An exchanging Holder's holding period for a Note would include such
Holder's holding period for the Old Note. Such Holder would not recognize any
gain or loss, and such Holder's basis in the Note would be the same as such
Holder's basis in the Old Note. The Offer will result in no federal income tax
consequences to a non-exchanging Holder.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Offer. All correspondence in connection with the Offer and the Letter of
Transmittal should be addressed to the Exchange Agent as follows:
<TABLE>
<CAPTION>
BY HAND DELIVERY, MAIL OR OVERNIGHT EXPRESS
(INSURED OR REGISTERED RECOMMENDED): BY FACSIMILE:
- --------------------------------------------------------------------------- -----------------
<S> <C>
State Street Bank and Trust Company (617) 664-5365
61 Broadway Concourse Level
New York, New York 10006 BY TELEPHONE:
-----------------
Attention: Corporate Trust Department (617) 664-5344
</TABLE>
Requests for additional copies of the Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent or the Company.
PAYMENT OF EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Offer and will not make any payments to brokers, dealers or
others for soliciting acceptances of the Offer. The Company, however, will pay
reasonable and customary fees and reasonable out-of-pocket expenses to the
Exchange Agent in connection therewith. The Company will also pay the cash
expenses to be incurred in connection with the Offer, including accounting,
legal, printing, and related fees and expenses.
ACCOUNTING TREATMENT
The Notes will be recorded at the same carrying value as the Old Notes, as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
Company's expenses of the Offer will be capitalized for accounting purposes.
RESALES OF NOTES
With respect to resales of Notes, based on certain interpretive letters
issued by the staff of the Commission to third parties, the Company believes
that a Holder of Notes (other than (i) a broker-dealer who purchases such Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person who is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act) who exchanged
Old Notes for Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the Notes,
will be allowed to resell the Notes to the public without further registration
under the Securities Act and without delivering to the purchasers of the Notes a
prospectus that satisfies the requirements of the Securities Act. However, a
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act. If any
other Holder is deemed to be an "underwriter" within the meaning of the
Securities Act or acquires Notes in the Offer for the purpose of distributing or
participating in a distribution of the Notes, such holder must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available. For a period of 180 days from the
Expiration Date, the Company will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
26
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma combined debt and equity
capitalization of Astor Holdings II as of September 30, 1996 and as adjusted to
give effect to the Transactions, including the application of the net proceeds
from the Offering.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
UBS Credit Facility:
Term loans........................................................................... $ 52,969 $ --
Revolving loans...................................................................... 12,539 --
Senior Bank Facility:
Bank Term Loan....................................................................... -- 20,000
Revolving Credit Facility (1)........................................................ -- --
Subsidiary debt (2).................................................................... 2,277 2,277
Senior Subordinated Notes, net of original issue discount.............................. -- 109,450
Subordinated Note due to an affiliate (3).............................................. 5,847 5,847
Other (4).............................................................................. 422 422
---------- -----------
Total debt............................................................................. 74,054 137,996
---------- -----------
Stockholder's Equity:
Common stock, $0.01 par value, 10,000 shares authorized, 1,000 shares issued and
outstanding........................................................................... -- --
Additional paid-in capital............................................................. 36,671 36,671
Foreign currency translation adjustment................................................ 16 16
Retained earnings...................................................................... 5,091 1,369(5)
---------- -----------
Total stockholder's equity............................................................. 41,778 38,056
---------- -----------
Total capitalization................................................................... $ 115,832 $ 176,052
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) After giving effect to the Transactions and the issuance of $1.8 million of
letters of credit under the Senior Bank Facility, the Company will have
$28.2 million available for revolving borrowings under the Senior Bank
Facility, subject to borrowing base limitations.
(2) Subsidiary debt represents borrowings of $600,000 by a U.S. subsidiary and
$1.7 million by a Belgian subsidiary, from a Belgian bank in Belgian francs,
both of which are secured by a letter of credit issued under the UBS Credit
Facility. Upon the consummation of the Offering, this letter of credit was
replaced for the same amount under the Senior Bank Facility.
(3) Represents an unsecured note payable to the Parent maturing on July 5, 2003.
Interest accrues on such note at the rate of 6% and is payable
semi-annually.
(4) Includes current maturities of $110,000.
(5) Represents the cost of early termination of interest rate swap contracts,
net of tax benefit, of $180,000 and the elimination of unamortized debt
issuance costs related to early extinguishment of term loans under the UBS
Credit Facility, net of a tax benefit, of $3.5 million.
27
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated statement of income for the
year ended March 31, 1996 gives effect to (i) the Prior Transactions, consisting
of the reorganization of Petrowax, the establishment of the UBS Credit Facility
and the completion of the ABI Acquisition, and (ii) the Transactions, consisting
of the ADCO Acquisition and the Offering and the application of the net proceeds
therefrom, as if they had occurred on April 1, 1995. The unaudited pro forma
consolidated statement of income for the three months ended June 30, 1996 gives
effect to the Transactions, including the ADCO Acquisition and the Offering and
the application of the net proceeds therefrom, as if they had occurred on April
1, 1995. The unaudited pro forma consolidated statement of income for the twelve
months ended September 30, 1996 gives effect to the Transactions, including the
ADCO Acquisition and the Offering and the application of the net proceeds
therefrom, as if they had occurred on April 1, 1995. The unaudited pro forma
condensed consolidated balance sheet at September 30, 1996 gives effect to the
Transactions, including the ADCO Acquisition and the Offering and the
application of the net proceeds therefrom, as if they had occurred on September
30, 1996. The historical financial statements of Astor Holdings II reflect the
Prior Transactions as of June 28, 1995. For purposes of this pro forma financial
information, both the ABI Acquisition and the ADCO Acquisition are treated as
purchases. The unaudited pro forma consolidated statements of income reflect the
preliminary allocation of the purchase price for ADCO to Astor Holdings II's
tangible and intangible assets and liabilities. Although the final allocation of
the ADCO purchase price and the resulting amortization expense may differ
somewhat from the preliminary estimates, management does not believe that the
final allocation will differ materially from the Company's preliminary
estimates.
The unaudited pro forma financial data are based on the historical financial
statements of each of Astor Holdings II, ABI and ADCO, and the assumptions and
adjustments described in the accompanying notes. The unaudited pro forma
consolidated financial data are provided for informational purposes only and do
not purport to represent what Astor Holdings II's financial position or results
of operations actually would have been if the foregoing transactions occurred as
of the dates indicated or what such results will be for any future periods.
The unaudited pro forma financial data are based on assumptions that the
Company believes are reasonable and should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto for each of
Astor Holdings II, ABI and ADCO included elsewhere in this Prospectus.
28
<PAGE>
ASTOR HOLDINGS II
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
-----------------------------------------------------------------------------------------------------------
HISTORICAL ASTOR HISTORICAL ABI HISTORICAL
HOLDINGS II FOR FOR THE THREE ADCO FOR THE
THE YEAR ENDED MONTHS ENDED PRO FORMA FOR YEAR ENDED
MARCH 31, 1996 JUNE 28, 1995 ABI ACQUISITION PRIOR DECEMBER 31, TRANSACTION
(1) (2) ADJUSTMENTS TRANSACTIONS 1995 ADJUSTMENTS
---------------- --------------- ---------------- --------------- -------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales............... $ 135,418 $ 24,451 $ (1,080)(3) $ 158,789 $ 47,411 $ --
Cost of sales....... 108,176 18,546 (1,080)(3) 125,390 32,264 --
(252)(4)
-------- ------- ------- --------------- ------- -------
Gross profit before
depreciation....... 27,242 5,905 252 33,399 15,147 --
Selling, general and
administrative
expenses........... 12,893 2,644 -- 15,537 6,087 --
Depreciation and
amortization....... 5,416 823 130(5) 6,369 1,169 660(6)
Non-recurring items
(7)................ 874 -- -- 874 310 --
-------- ------- ------- --------------- ------- -------
Operating income.... 8,059 2,438 122 10,619 7,581 (660)
Income from
investment in
Rheochem........... 91 276 -- 367 -- --
Management fee
income (expense)... -- -- -- -- (151) 151(8)
Other income........ -- -- -- -- 16 --
Interest expense.... (5,252) (123) (1,170)(9) (6,545) (17) (7,223)(10)
Dividends on
preferred stock of
subsidiary......... -- -- -- -- (280) 280(11)
Reorganization
expenses........... (856) -- -- (856) -- --
-------- ------- ------- --------------- ------- -------
Income before taxes
and extraordinary
items.............. 2,042 2,591 (1,048) 3,585 7,149 (7,452)
Provision for
(benefit from)
income taxes....... (3,434) 875 (2,559) 2,877 (2,864)(12)
-------- ------- ------- --------------- ------- -------
Income before
extraordinary
items.............. $ 5,476 $ 1,716 $ (1,048) $ 6,144 $ 4,272 $ (4,588)
-------- ------- ------- --------------- ------- -------
-------- ------- ------- --------------- ------- -------
<CAPTION>
ASTOR HOLDINGS
II PRO FORMA
--------------
<S> <C>
Sales............... $ 206,200
Cost of sales....... 157,654
--------------
Gross profit before
depreciation....... 48,546
Selling, general and
administrative
expenses........... 21,624
Depreciation and
amortization....... 8,198
Non-recurring items
(7)................ 1,184
--------------
Operating income.... 17,540
Income from
investment in
Rheochem........... 367
Management fee
income (expense)... --
Other income........ 16
Interest expense.... (13,785)
Dividends on
preferred stock of
subsidiary......... --
Reorganization
expenses........... (856)
--------------
Income before taxes
and extraordinary
items.............. 3,282
Provision for
(benefit from)
income taxes....... (2,546)
--------------
Income before
extraordinary
items.............. $ 5,828
--------------
--------------
</TABLE>
(See footnotes on following page)
29
<PAGE>
ASTOR HOLDINGS II
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(1) Represents Astor Holdings II's consolidated results of operations for the
fiscal year ended March 31, 1996, which include the results of operations
of ABI since its acquisition on June 28, 1995.
(2) Represents ABI's historical operating results for the preacquisition period
from April 1, 1995 to June 28, 1995 in accordance with U.S. GAAP. ABI's
statement of income has been translated into U.S. dollars by using the
weighted average exchange rate for the reported period.
(3) Represents the elimination of Astor Holdings II's sales to ABI and costs of
such sales for the preacquisition period from April 1, 1995 to June 28,
1995.
(4) Represents the elimination of additional cost of sales resulting from the
write-up of the opening finished goods inventory to fair market value for
the ABI Acquisition. This adjustment to the historical financial statements
is being eliminated because it is directly related to the accounting for
the ABI Acquisition.
(5) Represents a reduction in depreciation expense of $496,000 resulting from
adjusting property, plant and equipment to fair market value and assigning
new useful lives to property, plant and equipment for the ABI Acquisition
and the additional amortization of new intangibles, including goodwill over
25 years, for the three months prior to the ABI Acquisition of $626,000.
The depreciation policy is the straight-line method of depreciation with
asset lives of 20 to 31.5 years for buildings and 10 years for machinery
and equipment.
(6) Represents the additional amortization of new intangibles from the ADCO
Acquisition of $1.5 million, including goodwill over 40 years and deferred
financing costs over 6 years to 10 years, and the additional depreciation
expense resulting from the write-up of property, plant and equipment to
fair market value for the ADCO Acquisition of $104,000, less a reduction in
amortization expense of $984,000 due to the write-off of existing deferred
financing costs as a result of the early extinguishment of the UBS Credit
Facility. The depreciation policy is the straight-line method of
depreciation with asset lives of 40 years for buildings and 16 years for
machinery and equipment.
(7) Represents non-recurring flood expense of $500,000 and moving expense of
$374,000 incurred by Astor Holdings II and the new packaging expense of
$310,000 incurred by ADCO.
(8) Represents the capitalization of management fees paid to former
stockholders of ADCO as part of the purchase price of ADCO because Astor
management does not believe that they will utilize this management
contract.
(9) Represents the additional interest expense on the borrowings under the UBS
Credit Facility utilized to purchase ABI for the three months prior to the
ABI Acquisition.
(10) Reflects the pro forma interest expense as follows:
<TABLE>
<CAPTION>
Senior Subordinated Notes, net of original issue discount
(interest rate of 10.5%)...................................... $11,550,000
<S> <C>
Bank Term Loan (assumed interest rate of 8.5%)................. 1,700,000
Subordinated Note due to an affiliate.......................... 342,000
Subsidiary debt................................................ 193,000
Elimination of historical interest charge...................... (6,562,000)
----------
$7,223,000
----------
----------
</TABLE>
An increase of 1/8% in the interest rate on the variable rate pertaining to
the above debt instruments would result in an interest expense increase of
$27,000.
(11) Represents the elimination of cash dividends paid to former holders of
preferred stock of ADCO's subsidiary.
(12) Represents the tax benefit resulting from higher expenses, primarily
interest costs.
30
<PAGE>
ASTOR HOLDINGS II
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------------
HISTORICAL ASTOR TRANSACTION
HOLDINGS II HISTORICAL ADCO ADJUSTMENTS PRO FORMA
---------------- ---------------- ------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales........................................ $ 87,827 $ 29,378 $ -- $ 117,205
Cost of sales................................ 67,736 20,477 -- 88,213
------- ------- ------------- --------
Gross profit before depreciation............. 20,091 8,901 -- 28,992
Selling, general and administrative
expenses.................................... 9,010 3,499 -- 12,509
Depreciation and amortization................ 3,345 610 330(1) 4,285
------- ------- ------------- --------
Operating income............................. 7,736 4,792 (330) 12,198
Income from investment in Rheochem........... 441 -- -- 441
Management fee income (expense).............. -- (81) 81(2) --
Other income (expense)....................... -- 192 -- 192
Interest income (expense).................... (3,276) 122 (3,739)(3) (6,893)
Dividends on preferred stock of subsidiary... -- (182) 182(4) --
------- ------- ------------- --------
Income before taxes and extraordinary
items....................................... 4,901 4,843 (3,806) 5,938
Provision for income taxes................... (190) 1,969 (1,638)(5) 141
------- ------- ------------- --------
Income before extraordinary items............ $ 5,091 $ 2,874 $ (2,168) $ 5,797
------- ------- ------------- --------
------- ------- ------------- --------
</TABLE>
(See footnotes on following page)
31
<PAGE>
ASTOR HOLDINGS II
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(1) Represents the additional amortization of new intangibles from the ADCO
Acquisition of $770,000, including goodwill over 40 years and deferred
financing costs over 6 years to 10 years, and the additional depreciation
expense resulting from the write-up of property, plant and equipment to
fair market value for the ADCO Acquisition of $52,000, less a reduction in
amortization expense of $492,000 due to the write-off of existing deferred
financing costs as a result of the early extinguishment of the UBS Credit
Facility. The depreciation policy is the straight line method of
depreciation with asset lives of 40 years for buildings and 16 years for
machinery and equipment.
(2) Reflects the pro forma interest expense as follows:
<TABLE>
<S> <C>
Senior Subordinated Notes, net of original issue discount
(interest rate of 10.5%)........................................ $5,775,000
Bank Term Loan (assumed interest rate of 8.5%).................. 850,000
Subordinated Note due to an affiliate........................... 171,000
Subsidiary debt................................................. 97,000
Elimination of historical interest charge....................... (3,154,000)
----------
$3,739,000
----------
----------
</TABLE>
An increase of 1/8% in the interest rate on the variable rate pertaining to
the above debt instruments would result in an interest expense increase of
$7,000.
(3) Represents the capitalization of management fees paid to former
stockholders of ADCO as part of the purchase price of ADCO because Astor
management does not believe they will utilize this management contract.
(4) Represents the elimination of cash dividends paid to former holders of
preferred stock of ADCO's subsidiary.
(5) Represents tax benefits resulting from higher expenses, primarily interest
costs.
32
<PAGE>
ASTOR HOLDINGS II
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------------
HISTORICAL ASTOR TRANSACTION
HOLDINGS II HISTORICAL ADCO ADJUSTMENTS PRO FORMA
---------------- ---------------- ------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales........................................ $ 169,050 $ 50,817 $ -- $ 219,867
Cost of sales................................ 131,723 35,405 (337)(1) 166,791
-------- ------- ------------- --------
Gross profit before depreciation............. 37,327 15,412 337 53,076
Selling, general and administrative
expenses.................................... 17,065 6,434 -- 23,499
Depreciation and amortization................ 6,518 1,208 660(2) 8,386
Non-recurring items (3)...................... 688 535 -- 1,223
-------- ------- ------------- --------
Operating income............................. 13,056 7,235 (323) 19,968
Income from investment in Rheochem........... 597 -- -- 597
Management fee income (expense).............. -- (160) 160(4) --
Other income................................. -- 258 -- 258
Interest income (expense).................... (6,691) 240 (7,334)(5) (13,785)
Dividends on preferred stock of subsidiary... -- (322) 322(6) --
-------- ------- ------------- --------
Income before taxes and extraordinary
items....................................... 6,962 7,251 (7,175) 7,038
Provision for (benefit from) income taxes.... (4,190) 2,963 (2,802)(7) (4,029)
-------- ------- ------------- --------
Income before extraordinary items............ $ 11,152 $ 4,288 $ (4,373) $ 11,067
-------- ------- ------------- --------
-------- ------- ------------- --------
</TABLE>
(See footnotes on following page)
33
<PAGE>
ASTOR HOLDINGS II
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(1) Represents the elimination of the additional cost of sales resulting from
the write-up of the opening finished goods inventory to fair market value
for the ABI Acquisition. This adjustment to the historical financial
statements is being eliminated because it is directly related to the
accounting for the ABI Acquisition.
(2) Represents the additional amortization of new intangibles from the ADCO
Acquisition of $1.5 million, including goodwill over 40 years and deferred
financing costs over 6 years to 10 years, and the additional depreciation
expense resulting from the write-up of property, plant and equipment to
fair market value for the ADCO Acquisition of $104,000, less a reduction in
amortization expense of $984,000 due to the write-off of existing deferred
financing costs as a result of the early extinguishment of the UBS Credit
Facility. The depreciation policy is the straight-line method of
depreciation with asset lives of 40 years for buildings and 16 years for
machinery and equipment.
(3) Represents the non-recurring expenses related to new packaging expense at
ADCO of $535,000 and flood expense of $500,000 and moving expense of
$188,000 at Astor Holdings II.
(4) Represents the capitalization of management fees paid to former
stockholders of ADCO as part of the purchase price of ADCO because Astor
management does not believe they will utilize this management contract.
(5) Reflects the interest expense on the pro forma debt instruments as follows:
<TABLE>
<S> <C>
Senior Subordinated Notes, net of original issue discount
(interest rate of 10.5%)....................................... $11,550,000
Bank Term Loans (assumed interest rate of 8.5%)................ 1,700,000
Subordinated Note due to an affiliate.......................... 342,000
Subsidiary debt................................................ 193,000
Elimination of historical interest charge...................... (6,451,000)
----------
$7,334,000
----------
----------
</TABLE>
An increase of 1/8% in the interest rate on the variable rate pertaining to
the above debt instruments would result in an interest expense increase of
$27,000
(6) Represents the elimination of cash dividends paid to former holders of
preferred stock of ADCO's subsidiary.
(7) Represents tax benefits resulting from higher expenses, primarily interest
costs.
34
<PAGE>
ASTOR HOLDINGS II
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------------------------------
HISTORICAL
---------------------- ASTOR
ASTOR TRANSACTION HOLDINGS II
HOLDINGS II ADCO ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 1,765 $ 5,810 $ (5,791)(1) $ 1,784
Accounts receivable, net..................................... 23,645 7,295 -- 30,940
Receivables from Rheochem.................................... 635 -- -- 635
Inventory.................................................... 21,835 6,498 518(2) 28,851
Prepaid expenses and other current assets.................... 4,225 148 -- 4,373
----------- --------- ----------- -----------
Total current assets........................................... 52,105 19,751 (5,273) 66,583
Property, plant and equipment, net............................. 50,964 9,411 9,840(3) 70,215
Investment in Rheochem......................................... 4,392 -- -- 4,392
Goodwill....................................................... 29,180 7,371 24,640(4) 61,193
Intangible assets, net......................................... 6,161 451 2,521(5) 9,133
Deferred income taxes, net..................................... 4,692 256 (2,805)(6) 2,143
Other assets................................................... -- 13 -- 13
----------- --------- ----------- -----------
Total assets................................................... $ 147,494 $ 37,255 $ 28,923 $ 213,672
----------- --------- ----------- -----------
----------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................. $ 16,309 $ 2,918 $ -- $ 19,227
Accrued interest payable..................................... 522 -- -- 522
Accrued expenses............................................. 8,086 2,822 (97)(7) 10,811
Current portion of long term debt............................ 5,361 -- (5,251)(8) 110
----------- --------- ----------- -----------
Total current liabilities...................................... 30,278 5,740 (5,348) 30,670
Long term debt................................................. 62,846 -- 69,193 (10 132,039
Subordinated Note due to an affiliate (9)...................... 5,264 -- -- 5,264
Deferred income taxes.......................................... 4,856 1,024 (1,687) 11) 4,193
Other long-term liabilities.................................... 2,472 -- 978 (12 3,450
ADCO redeemable preferred stock of subsidiary.................. -- 3,920 (3,920) 13) --
Stockholder's equity:
ADCO stockholders' equity.................................... -- 26,571 (26,571) 14) --
Common stock................................................. -- -- -- --
Additional paid-in capital................................... 36,671 -- -- 36,671
Retained earnings............................................ 5,091 -- (3,722) 15) 1,369
Foreign currency translation adjustment...................... 16 -- -- 16
----------- --------- ----------- -----------
Total stockholder's equity..................................... 41,778 26,571 (30,293) 38,056
----------- --------- ----------- -----------
Total liabilities and stockholder's equity..................... $ 147,494 $ 37,255 $ 28,923 $ 213,672
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
(See footnotes on following page)
35
<PAGE>
ASTOR HOLDINGS II
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents the use of ADCO cash of $4.0 million to redeem outstanding
preferred stock of ADCO's subsidiary and to pay $1.1 million in transactions
fees and the use of Astor's existing cash of $756,000 to fund the
Transactions less the cash receipt of the receivables from management
stockholders ($50,000). See note 10 below. The use of cash is consistent with
the actual funding of the Transactions.
(2) Represents the estimated write-up of finished goods inventory to fair market
value in connection with the purchase price allocation.
(3) Represents the estimated write-up of property, plant and equipment to fair
market value in connection with the purchase price allocation.
(4) Represents $32.0 million of excess purchase price over the fair market value
of the net assets acquired less the elimination of ADCO's existing goodwill
of $7.4 million. Management's preliminary allocation of the purchase price
for ADCO is as follows:
<TABLE>
<CAPTION>
Purchase price:
<S> <C>
Cash portion................................................... $54,414,000
Estimated fees and expenses.................................... 1,705,000
----------
Total...................................................... $56,119,000
----------
----------
Allocated as follows:
Existing book value of ADCO.................................... $26,621,000
Increase in inventory to estimated fair market value........... 518,000
Estimated increase in property, plant and equipment to fair
market value.................................................. 9,840,000
Elimination of existing ADCO goodwill.......................... (7,373,000)
Transaction related liabilities (a)............................ (2,261,000)
Increase in deferred tax....................................... (3,239,000)
Increase in goodwill........................................... 32,013,000
----------
Total...................................................... $56,119,000
----------
----------
</TABLE>
--------------------------------------
(a) Fees related to the ADCO acquisition of $1.1 million and
future payments under ADCO's existing management agreement of
$1.1 million.
(5) Represents deferred debt issuance costs related to the Offering of $8.2
million less the elimination of unamortized debt issuance costs related to
early extinguishment of term loans under the UBS Credit Facility of $5.7
million.
(6) Represents the federal tax benefits of $1.5 million, on the $5.7 million
extraordinary loss for write-off of debt issuance costs related to the early
extinguishment of term loans under the UBS Credit Facility, less the net
deferred tax liabilities ($3.2 million) resulting from the allocation of
purchase price for the ADCO acquisition and the reclassification of the ADCO
deferred tax liabilities ($1 million) acquired.
(7) Represents the current portion of the future payments under ADCO's existing
agreement of $163,000, and unpaid fees related to the ADCO acquisition of
$67,000 less the tax benefit on the cost of early termination of interest
swap contracts of $94,000, the dividend payment on redeemable preferred
stock of ADCO's subsidiary prior to the ADCO Acquisition of $112,000 and the
interest payment of $121,000.
(8) Represents the repayment of current portion of long-term debt under the UBS
Credit Facility.
(9) Represents an unsecured loan note payable to the Parent maturing on July 5,
2003. Interest accrues on such note at the rate of 6% and is payable
semi-annually.
36
<PAGE>
ASTOR HOLDINGS II
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
(10) Represents the proceeds from the Offering of $109.5 million and the Bank
Term Loan under the Senior Bank Facility of $20.0 million, net of repayment
of long-term debt of $65.5 million. The sources and uses of funds of the
Transactions are as follows:
<TABLE>
<CAPTION>
Source of funds:
<S> <C>
Cash on hand.............................................. $ 756,000
Bank Term Loan............................................ 20,000,000
Proceeds from the Offering................................ 109,450,000
-----------
Total sources......................................... $130,206,000
-----------
-----------
Use of funds:
ADCO cash purchase price.................................. $54,414,000
Repayment of borrowings and interest under UBS Credit
Facility................................................. 65,629,000
Fees and expenses......................................... 10,163,000
-----------
Total uses............................................ $130,206,000
-----------
-----------
</TABLE>
No amortization payments are required on the Revolving Credit Facility or
the Notes in the next five years. Amortization payments on the Bank Term Loan
are as follows:
<TABLE>
<CAPTION>
AMORTIZATION
FISCAL YEAR PAYMENT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1997............................................................................ --
1998............................................................................ $1,400,000
1999............................................................................ 1,800,000
2000............................................................................ 3,000,000
2001............................................................................ $4,500,000
</TABLE>
(11) Represents the foreign tax benefits ($660,000) on the extraordinary loss
for write-off of debt issuance costs related to the early extinguishment of
term loans under the UBS Credit Facility and the reclassification of ADCO
deferred tax liabilities acquired to deferred tax assets account.
(12) Represents the long term portion of the future payments under ADCO's
existing management agreement.
(13) Represents ADCO's redemption of preferred stock of its subsidiary of $3.9
million.
(14) Represents the elimination of ADCO's historical stockholders' equity ($26.6
million) resulting from the application of purchase accounting, net of the
collection of receivables from management stockholders ($50,000).
(15) Represents the cost of early termination of interest rate swap contracts,
net of tax benefit, of $180,000 and the elimination of unamortized debt
issuance costs related to early extinguishment of term loans under the UBS
Credit Facility, net of tax benefit, of $3.5 million.
37
<PAGE>
ASTOR HOLDINGS II
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of March 31 of
each of the years 1992 through 1996 and for the years then ended have been
derived from the Consolidated Financial Statements of Astor Holdings II. The
Consolidated Financial Statements of Astor Holdings II for each of the fiscal
years ended March 31, 1994, 1995 and 1996 were audited by Ernst & Young LLP,
independent auditors, and appear elsewhere in this Prospectus. The selected
financial data as of and for the years ended March 31, 1992 and 1993 and as of
September 30, 1995 and 1996 and for the six months then ended have been derived
from unaudited consolidated financial statements of Astor Holdings II, but
include all adjustments which are, in the opinion of management, necessary for a
fair presentation of Astor Holdings II's financial position at such dates and
results of operations for such periods. Astor Holdings II, the parent
corporation of Astor Corporation, has guaranteed the obligations of Astor
Corporation under the Notes and has no material operating assets or liabilities
or operations other than its ownership of all the outstanding common stock of
Astor Corporation, the outstanding $1.7 million (liquidation preference) of
preferred voting ordinary stock of ABI Acquisition 1 plc, a subsidiary of Astor
Corporation, a subordinated intercompany note payable to the Parent in the
amount of $5.7 million and a corresponding subordinated intercompany note
receivable from ABI Acquisition 1 plc in the amount of $5.7 million. Operating
results for the six months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending March 31,
1997. The selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related notes
thereto for each of Astor Holdings II and ABI included elsewhere in this
Prospectus.
38
<PAGE>
ASTOR HOLDINGS II
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
MONTHS ENDED
AS OF AND FOR YEARS ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------------------------- --------------------
1992 1993 1994 1995 1996(1) 1995 1996
---------- --------- ---------- --------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.................................... $ 48,052 $ 47,837 $ 54,665 $ 61,852 $ 135,418 $ 54,195 $ 87,827
Gross profit before depreciation......... (12,606) 789 3,759 7,302 27,242 10,006 20,091
Selling, general and administrative
expenses................................ 5,694 3,505 3,652 4,132 12,893 5,024 9,010
Depreciation and amortization............ 3,274 4,870 4,041 1,993 5,416 2,243 3,345
Non-recurring items...................... 202 (500) 25,883(2) -- 874 -- --
---------- --------- ---------- --------- ---------- --------- ---------
Income (loss) from operations............ (21,574) (7,086) (29,817) 1,177 8,059 2,739 7,736
Income (loss) from Rheochem.............. -- -- -- -- 91 (65) 441
Interest and other income................ 65 7 5 -- -- -- --
Interest expense......................... 4,220 1,015 1,476 1,606 5,251 1,837 3,276
Reorganization expense................... -- 1,815 1,256 1,088 856 856 --
---------- --------- ---------- --------- ---------- --------- ---------
Income (loss) before income taxes and
extraordinary items..................... (25,931) (9,909) (32,544) (1,517) 2,043 (19) 4,901
Provision for (benefit from) income
taxes................................... -- -- -- -- (3,434 (3) 566 (190)
---------- --------- ---------- --------- ---------- --------- ---------
Income (loss) before extraordinary
items................................... (25,931) (9,909) (32,544) (1,517) 5,477 (585) 5,091
Extraordinary items...................... -- -- -- -- 44,933(4) 44,933(4) --
---------- --------- ---------- --------- ---------- --------- ---------
Net income (loss)........................ $ (25,931) $ (9,909) $ (32,544) $ (1,517) $ 50,410 $ 44,348 $ 5,091
---------- --------- ---------- --------- ---------- --------- ---------
---------- --------- ---------- --------- ---------- --------- ---------
Ratio of earnings to fixed charges (5)... N/A N/A N/A N/A 1.3x N/A 2.3x
OTHER DATA:
Cash flow from investing activities...... 1,678 (146) (260) (274) (65,186) (62,442) (2,094)
Cash flow from financing activities...... 33,817 3,141 (508) (114) 63,035 59,899 (2,782)
Cash flow from operating activities...... (35,377) (2,894) 391 859 1,357 4,733 5,316
EBITDA (6)............................... $ (18,300) $ (2,716) $ 107 $ 3,170 $ 14,440 $ 5,773 $ 11,522
EBITDA margin (7)........................ N/A N/A 0.2% 5.1% 10.7% 10.7% 13.1%
EBITDA to interest expense, net.......... N/A N/A 0.1x 2.0x 2.7x 3.1x 3.5x
Total debt to EBITDA (8)................. N/A N/A N/M 20.2x 5.3x 6.5x 3.2x
Capital expenditures..................... $ 680 $ 70 $ 260 $ 274 $ 4,640 $ 1,786 $ 2,094
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF SEPTEMBER 30,
--------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1995 1996
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................ $ 16,675 $ 12,313 $ 10,192 $ 13,475 $ 47,479 $ 50,773 $ 52,105
Current liabilities................... 1,975 3,743 6,239 13,707 27,604 33,284 30,278
Total assets.......................... 66,819 58,344 28,131 30,166 142,906 143,779 147,495
Total debt............................ 44,916 55,336 56,696 64,075 76,524 74,874 74,054
Stockholder's equity (deficit)........ (147) (10,055) (42,599) (44,115) 36,358(9) 30,248 41,779
</TABLE>
(See footnotes on following page)
39
<PAGE>
ASTOR HOLDINGS II
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
(1) Represents Astor Holdings II's consolidated results of operations for the
fiscal year ended March 31, 1996, which includes the results of operations
of ABI since its acquisition on June 28, 1995.
(2) In fiscal 1994, Astor Holdings II recorded a provision of $25.9 million,
representing the writedown of property, plant and equipment and other
intangible assets in order to recognize a permanent impairment of value.
(3) During this period Astor Holdings II recognized a net deferred tax asset
primarily with respect to net operating loss carryforwards.
(4) Astor Holdings II recorded a gain on the forgiveness of debt of $44.9
million upon the effectiveness of Petrowax's Reorganization Plan as of June
28, 1995.
(5) For the purposes of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes, extraordinary items and
fixed charges. Fixed charges consist of interest expense, amortization of
debt expense and the interest component of rent expense. Earnings for the
years ended March 31, 1992, 1993, 1994 and 1995 and for the six months ended
September 30, 1995 were insufficient to cover fixed charges by $25.9
million, $9.9 million, $32.5 million, $1.5 million and $0.6 million,
respectively.
(6) EBITDA represents earnings before interest expense, income tax expense,
depreciation and amortization expense, extraordinary items and non-recurring
items. EBITDA as used herein may not be comparable to similarly titled
measures reported by other companies. Information concerning EBITDA has been
included as it is used by certain investors as a measure of a company's
ability to service its debt. EBITDA may also be considered an important
measure to the Company because certain of the financial ratio covenants in
the Senior Credit Facility are based in part upon EBITDA. EBITDA is not a
GAAP measure of financial performance and should not be used as an
alternative to, or be construed as more meaningful than, operating income or
cash flows or as an indicator of the operating performance or liquidity of
Astor Holdings II. EBITDA differs from cash flows from operating activities
primarily because, unlike cash flow from operations, EBITDA excludes
interest expense, taxes and net change in working capital.
On a pro forma basis the Company had $30.4 million of EBITDA for the twelve
months ended September 30, 1996. After deducting pro forma capital
expenditures of $6.6 million, pro forma working capital requirements of $2.0
million, pro forma cash interest of $13.8 million and pro forma cash taxes
of $1.0 million from EBITDA, the Company would have $7.0 million on a pro
forma basis available to make principal repayments on the Senior Bank
Facility. No amortization payments are required on the Revolving Credit
Facility or the Notes in the next five years. Amortization payments on the
Bank Term Loan are as follows:
<TABLE>
<CAPTION>
AMORTIZATION
FISCAL YEAR PAYMENT
- ---------------------------------------------------- ------------
<S> <C>
1997.............................................. --
1998.............................................. $1,400,000
1999.............................................. 1,800,000
2000.............................................. 3,000,000
2001.............................................. 4,500,000
</TABLE>
(7) EBITDA margin is the ratio of EBITDA to sales, expressed as a percentage.
(8) For purposes of calculating total debt to EBITDA, EBITDA for the six months
ended September 30, 1996 and 1995 has been annualized.
(9) In addition to the forgiveness of debt by Petrowax's creditors, the sole
stockholder recapitalized Astor Holdings II on June 28, 1995 by contributing
$30.7 million to its equity.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
and the related notes included elsewhere in this Prospectus. The consolidated
financial data presented below is that of Astor Holdings II. Astor Holdings II
is the parent corporation of Astor Corporation, has guaranteed the obligations
of Astor Corporation under the Notes and has no material assets or liabilities
or operations other than its ownership of all the outstanding common stock of
Astor Corporation, the outstanding $1.7 million (liquidation preference) of
preferred voting ordinary stock of ABI Acquisition 1 plc, a subsidiary of Astor
Corporation, a subordinated intercompany note payable to the Parent in the
amount of $5.7 million and a corresponding subordinated intercompany note
receivable from ABI Acquisition 1 plc in the amount of $5.7 million. As a
result, except for its ownership of the preferred voting ordinary stock of ABI
Acquisition 1 plc, the consolidated financial statements of Astor Holdings II
and Astor Corporation are substantially identical.
GENERAL
The current business and structure of Astor were created through the
combination of Astor Corporation and ABI in June 1995. This combination created
one of the largest producers of specialty waxes in the world, based on sales,
and a recognized U.K. manufacturer and marketer of adhesives and sealants. The
ABI Acquisition improved Astor's in-house marketing and packaging capabilities,
resulting in improved product distribution, and improved Astor's product
development capabilities, allowing the development of more higher-margin
value-added products.
Astor Corporation was incorporated as a new venture in 1989 in the State of
Delaware under the name Petrowax for the purpose of developing a wax production
business. As part of its start-up plan of operations, Petrowax acquired two lube
oil and wax production facilities from Quaker State. Shortly after the
completion of the acquisition in 1990 and prior to the acquisition of ABI and
the acquisition of ADCO, Petrowax encountered a number of operational and
financial difficulties, including (i) difficulties in converting the acquired
facilities to the production of specialty waxes, (ii) surplus inventories
resulting from long lead times required to secure customer approvals, an
exclusive reseller's inability to perform its obligations to purchase wax from
Petrowax and the delay in converting one of the facilities, (iii) a lack of
extensive process knowledge and limited product development capabilities
resulting in the production of low-margin products and (iv) insufficient working
capital, forcing Petrowax to liquidate inventory to fund day-to-day operations.
As a result of these and other difficulties and inefficiencies, Petrowax
voluntarily filed for relief pursuant to Chapter 11 of the U.S. Bankruptcy Code
on February 25, 1992.
Following the Filing, Petrowax took a number of steps to improve its
competitive position, including (i) the recruitment of turnaround management,
(ii) the renegotiation of its primary supply contract to provide for improved
pricing and the delivery of higher quality waxy components of A/B Crude, (iii)
the termination of Petrowax's exclusive marketing contract with its reseller,
the establishment of a number of non-exclusive reseller arrangements and the
increase of Petrowax's direct sales of its products, (iv) the arrangement of
debtor-in-possession financing and additional working capital to provide for
short-term working capital needs, (v) the renegotiation of various
transportation and terminaling contracts and (vi) the implementation of a number
of other overhead reduction measures.
After the above described corrective measures were taken, Petrowax focused
on its emergence from bankruptcy and improving its strategic position in the
marketplace. In June 1994, Mr. Boyd Wainscott, an experienced multinational
chemical company manager, joined Petrowax to lead it in developing and
implementing a strategic business plan. This plan included (i) improving
marketing functions and product distribution, (ii) developing more
higher-margin, value-added products, (iii) improving manufacturing operations
and increasing manufacturing capacity, and (iv) pursuing acquisition
opportunities in the consolidating specialty chemicals industry.
In June 1995, Petrowax emerged from bankruptcy, was recapitalized, acquired
ABI and changed its name from Petrowax to Astor Corporation, a tradename of ABI.
The acquisition of ABI has resulted in a significant improvement in the
operating results of Astor.
41
<PAGE>
Of Astor's total sales of $135.4 million for fiscal year 1996, specialty wax
products represented approximately 90%. Astor has facilities in the U.S., the
U.K. and Belgium and sells its products to customers in over 50 countries.
RESULTS OF OPERATIONS
The following table summarizes Astor Holding II's historical results of
operations as a percentage of sales for the last three fiscal years ended March
31, 1994, 1995, and 1996 and the six months periods ended September 30, 1995 and
1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED
MARCH 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 93.1 88.2 79.9 81.5 77.1
--------- --------- --------- --------- ---------
Gross profit before depreciation.............. 6.9 11.8 20.1 18.5 22.9
Selling, general and administrative
expenses..................................... 6.7 6.7 9.5 9.3 10.3
Depreciation and amortization................. 7.4 3.2 4.0 4.1 3.8
Non-recurring items........................... 49.6 1.8 1.3 1.6 --
--------- --------- --------- --------- ---------
Income (loss) from operations................. (56.8) 0.1 5.3 3.5 8.8
Income (loss) from Rheochem................... -- -- 0.1 (0.1) 0.5
Interest expense, net......................... 2.7 2.6 3.9 3.4 3.7
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary items.......................... (59.5) (2.5) 1.5 0.0 5.6
Provision for (benefit from) income taxes..... -- -- (2.5) 1.0 (0.2)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary items...... (59.5) (2.5) 4.0 (1.0) 5.8
Extraordinary items........................... -- -- 33.2 82.9 --
--------- --------- --------- --------- ---------
Net income (loss)............................. (59.5)% (2.5)% 37.2% 81.9% 5.8%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1995
SALES. Sales increased by $33.6 million from $54.2 million for the six
months ended September 30, 1995 to $87.8 million for the six months ended
September 30, 1996. Of this sales increase, $26.1 million is related to the
acquisition of ABI in June 1995. Excluding the impact of ABI, sales increased
$7.5 million, or 23%, as a result of (i) higher sales volume due to the capacity
improvements achieved from the capital expenditure program completed in January
1996, (ii) higher specialty wax prices realized in the U.S., (iii) a more
focused marketing effort provided by the addition of ABI's sales force resulting
in greater sales volume and (iv) a product mix shift to higher priced products.
Of this 23% increase in sales, excluding the impact of ABI, 4% was due to an
increase in product price and 19% was due to an increase in sales volume.
GROSS PROFIT. Gross profit increased by $10.1 million from $10.0 million
for the six months ended September 30, 1995 to $20.1 million for the six months
ended September 30, 1996, with $8.0 million of the increase attributable to the
acquisition of ABI. Gross profit as a percentage of sales increased from 18.5%
for the six months ended September 30, 1995 to 22.9% for the three months ended
September 30, 1996, primarily as a result of the acquisition. Excluding the
acquisition of ABI, gross profit as a percentage of sales improved from 13.1%
for the six months ended September 30, 1995 to 16.0% for the six months ended
September 30, 1996 principally as a result of the reasons discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $4.0 million from $5.0 million for the six
months ended September 30, 1995 to $9.0 million for the six months ended
September 30, 1996. Selling, general and administrative expenses as a percentage
of sales increased from 9.3% for the six months ended September 30, 1995 to
10.3% for the six months ended September 30, 1996. The increase was primarily
associated with the expansion of the business as a result of the acquisition of
ABI. The $4.0 million increase was comprised of (i) $1.3 million of additional
selling related costs associated with ABI product sales, (ii) $1.8 million of
administrative costs associated with the acquired ABI businesses and (iii) $0.9
million associated with planned staff increases to support the new larger
company and Astor's growth strategy.
42
<PAGE>
INCOME FROM RHEOCHEM. Astor's share of equity earnings from Rheochem (as
defined herein) was $0.4 million for the six months ended September 30, 1996
compared to a $0.1 million loss from Rheochem for the six months ended September
30, 1995. Astor acquired its interest in Rheochem on June 28, 1995 with the
acquisition of ABI. See "Business -- Rheochem Joint Venture."
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $1.1 million from $2.2 million for the six months ended September
30, 1995 to $3.3 million for the six months ended September 30, 1996 primarily
due to the acquisition of ABI.
INTEREST EXPENSE, NET. Interest expense, net, increased by $1.5 million
from $1.8 million for the six months ended September 30, 1995 to $3.3 million
for the six months ended September 30, 1996. During this period the Company had
an average amount of debt outstanding of $74.6 million, with the average
interest rate during this period equaling 8.8%. The increase was primarily due
to the additional debt incurred in connection with the acquisition of ABI.
NONRECURRING EXPENSES. The $0.9 million of reorganization expenses for the
six months ended September 30, 1995 were primarily attributable to professional
fees associated with Astor's emergence from bankruptcy. No costs related to the
Prior Transactions occurred in the six month period ended September 30, 1996 or
are expected in the future.
EXTRAORDINARY ITEM -- GAIN ON CANCELLATION OF DEBT. An extraordinary item
resulting from the gain on cancellation of $44.9 million of debt was recorded in
the six months ended September 30, 1995 reflecting the discharge of pre-petition
indebtedness of Petrowax.
NET INCOME BEFORE EXTRAORDINARY ITEMS. As a result of the factors discussed
above, particularly the acquisition of ABI and improved performance of Astor's
business, net income before extraordinary items for the six months ended
September 30, 1996 was $5.1 million while the six months ended September 30,
1995 showed a $0.6 million net loss before extraordinary items.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
SALES. Sales increased by $73.5 million from $61.9 million in fiscal year
1995 to $135.4 million in fiscal year 1996. Of this sales increase, $68.6
million is related to the acquisition of ABI in June 1995. Excluding the impact
of ABI, sales increased $4.9 million, or 8%, from $61.9 million in fiscal year
1995 to $66.8 million in fiscal year 1996 as a result of (i) increased sales
volume due to capacity improvements achieved from the capital expenditure
program completed in January 1996, (ii) higher specialty wax prices realized in
the U.S., (iii) a more focused marketing effort provided by the acquisition of
ABI's sales force resulting in greater sales volumes and (iv) a product mix
shift to higher priced products. Of this 8% increase, excluding the impact of
ABI, 7% was due to an increase in product prices and 1% was due to an increase
in sales volume.
GROSS PROFIT. Gross profit increased by $19.9 million from $7.3 million in
fiscal year 1995 to $27.2 million in fiscal year 1996, with most of the increase
attributable to the acquisition of ABI in June 1995. Gross profit as a
percentage of sales increased from 11.8% in fiscal year 1995 to 20.1% in fiscal
year 1996, primarily as a result of the acquisition. Excluding the acquisition
of ABI, Astor's gross profit increased by $2.8 million, or 38%, from $7.3
million in fiscal year 1995 to $10.1 million in fiscal year 1996 and, on a
percentage of sales basis, from 11.8% in fiscal 1995 to 15.1% in fiscal 1996
principally as a result of the reasons discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $8.8 million from $4.1 million in fiscal
year 1995 to $12.9 million in fiscal year 1996. The acquisition of ABI accounted
for $7.6 million of the selling, general and administrative expenses increase.
INCOME FROM RHEOCHEM. Astor's share of equity earnings from Rheochem was
$0.1 million in fiscal year 1996 compared to no income from Rheochem for fiscal
year 1995. Astor acquired its interest in Rheochem on June 28, 1995 with the
acquisition of ABI. See "Business -- Rheochem Joint Venture."
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $3.4 million from $2.0 million in fiscal year 1995 to $5.4 million
in fiscal year 1996 primarily due to the acquisition of ABI.
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INTEREST EXPENSE, NET. Interest expense, net, increased by $3.7 million
from $1.6 million in fiscal year 1995 to $5.3 million in fiscal year 1996.
During this period the Company had an average amount of debt outstanding of
$53.8, with the average interest rate during this period equal to 9.9%. The
increase was primarily due to the additional debt incurred in connection with
the acquisition of ABI.
NONRECURRING EXPENSES. Reorganization expenses of $0.9 million were
recognized in fiscal year 1996 compared to $1.1 million in fiscal year 1995.
These expenses were primarily attributable to professional fees and employee
costs associated with Petrowax's operating under bankruptcy. No additional costs
pertaining to this matter are expected in the future. Other non-recurring costs
of $0.8 million in fiscal year 1996 included $0.5 million related to a flood at
the Farmer's Valley facility and $0.3 million related to non-recurring moving
costs.
EXTRAORDINARY ITEM -- GAIN ON CANCELLATION OF DEBT. An extraordinary item
resulting from the gain on cancellation of $44.9 million of debt was recorded in
fiscal year 1996 reflecting the discharge of pre-petition indebtedness of
Petrowax.
INCOME TAXES. A net income tax benefit of $3.4 million was recorded in
fiscal 1996. This benefit is primarily attributed to the reduction in the
valuation allowance related to the net deferred tax asset.
NET INCOME BEFORE EXTRAORDINARY ITEMS. Net income before extraordinary
items increased by $7.0 million from a loss of $1.5 million in fiscal year 1995
to $5.5 million in fiscal year 1996.
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1994
SALES. Sales increased by $7.2 million, or 13%, from $54.7 million in
fiscal year 1994 to $61.9 million in fiscal year 1995. This sales increase was
primarily the result of increased wax volumes resulting from the use of a higher
wax yielding feedstock.
GROSS PROFIT. Gross profit increased by $3.5 million from $3.8 million in
fiscal year 1994 to $7.3 million in fiscal year 1995. Gross profit as a
percentage of sales increased from 6.9% in fiscal year 1994 to 11.8% in fiscal
year 1995 principally as a result of the reasons discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $0.4 million from $3.7 million in fiscal
year 1994 to $4.1 million in fiscal year 1995. The selling, general and
administrative expense increase was primarily the result of higher sales volume.
Selling, general and administrative expenses as a percentage of sales remained
stable at 6.7% in fiscal years 1994 and 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization charges
decreased by $2.0 million from $4.0 million in fiscal year 1994 to $2.0 million
in fiscal year 1995 primarily due to adjustments in fiscal year 1994 to the book
value of certain assets in recognition of their impairment.
INTEREST EXPENSE, NET. Interest expense, net, increased by $0.1 million
from $1.5 million in fiscal year 1994 to $1.6 million in fiscal year 1995.
During this period the Company had an average amount of debt outstanding of
$12.4 million, with the average interest rate during this period equaling 12.9%.
This increase was primarily due to higher debt levels related to an increase in
working capital requirements.
NONRECURRING EXPENSES. The $27.1 million of nonrecurring expenses
recognized in fiscal year 1994 compared to $1.1 million in fiscal year 1995 was
primarily attributable to a $25.9 million provision reflecting the writedown of
assets in order to recognize permanent impairment of their value. Reorganization
expenses decreased by $0.2 million from $1.3 million in fiscal year 1994
primarily due to lower professional fees associated with Petrowax's bankruptcy.
NET LOSS. The net loss decreased by $5.2 million from a net loss before
extraordinary items and asset impairment writedown of $6.7 million in fiscal
year 1994 to a net loss of $1.5 million in fiscal year 1995 for the reasons
discussed above.
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RECENT ABI DEVELOPMENTS
Astor completed the ABI acquisition in June 1995. See "Prior
Reorganization." Although nine months of ABI's post-acquisition results are
included in Astor's financial statements for the year ended March 31, 1996,
Astor believes that the following unaudited comparative information of the
business formerly conducted as ABI is useful in evaluating the financial
performance of the Company.
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1995
Sales increased by $7.2 million, or 15%, from $47.9 million for the six
months ended September 30, 1995 to $55.1 million for the six months ended
September 30, 1996. Primarily all of the sales increase was attributable to
strong wax demand in the United States. Sales to Europe and the rest of the
world were flat due to a slow down in the European economy during fiscal 1996.
Gross profit increased by $1.9 million, or 16%, from $11.9 million for the
six months ended September 30, 1995 to $13.8 million for the six months ended
September 30, 1996. The increase in gross profit is due primarily to sales
volume increases in the U.S. specialty wax business. The gross profit margin
increased from 24.8% to 25.0% primarily as a result of product mix.
Selling, general and administrative expenses for ABI increased by $0.3
million from $5.8 million for the six months ended September 30, 1995 to $6.1
million for the six months ended September 30, 1996 primarily due to planned
higher staffing levels in anticipation of the division's growth with Astor
Holdings II. As a percentage of sales, selling, general and administrative
expenses decreased from 12.1% for the six months ended September 30, 1995 to
11.0% for the six months ended September 30, 1996. The contribution of earnings
from the Rheochem joint venture, continuing management fees and equity earnings
increased by $0.1 million, from $1.1 million for the six months ended September
30, 1995 to $1.2 million for the six months ended September 30, 1996. EBITDA
increased by $1.6 million, or 22%, from $7.2 million for the six months ended
September 30, 1995 to $8.9 million for the six months ended September 30, 1996
as a result of the factors discussed above.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
Sales increased by $12.3 million, or 14%, from $89.0 million for the year
ended March 31, 1995 to $101.3 million for the year ended March 31, 1996. The
increased sales are the result of both the strong worldwide wax demand and more
aggressive sales efforts in the Far East. Gross profit increased by $1.2
million, or 6%, from $21.8 million for the year ended March 31, 1995 to $23.0
million for the year ended March 31, 1996 as a result of the sales increase. The
gross profit margin percentage for the year ended March 31, 1996 decreased to
22.5% from 24.5% for the year ended March 31, 1995 due to product mix. Selling,
general and administrative expenses increased by $0.1 million, or 1%, from $11.7
million for the year ended March 31, 1995 to $11.8 million for the year ended
March 31, 1996 primarily due to the higher selling cost associated with sales
increases. Selling, general and administrative expenses as a percentage of sales
decreased from 13.1% for the year ended March 31, 1995 to 11.6% for the year
ended March 31, 1996 due to higher sales. The contribution to ABI's earnings
from the Rheochem joint venture, taking into account management fees and equity
earnings increased by $0.4 million, or 31%, from $1.3 million for the year ended
March 31, 1995 to $1.7 million for the year ended March 31, 1996 due to higher
Rheochem operating income. EBITDA increased by $1.5 million, or 13%, from $11.4
million for the year ended March 31, 1995 to $12.9 million for the year ended
March 31, 1996 as a result of the factors discussed above.
RECENT ADCO DEVELOPMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS SEPTEMBER 30,
1995
Sales increased by $3.4 million, or 9%, from $36.9 million for the nine
months ended September 30, 1995 to $40.3 million for the nine months ended
September 30, 1996. The sales increase was primarily attributable to double
digit sales increases in the roofing and window manufacturing markets compared
to sales for the same period in 1995. Except for the expected decline in the
automotive OEM market due to the redesign of the Ford F-Series trucks, other
product lines also showed increases.
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Gross profit increased by $14,000, to $11.3 million for the nine months
ended September 30, 1996. Gross profit as a percentage of sales decreased from
30.6% for the nine months ended September 30, 1995 to 28.1% for the nine months
ended September 30, 1996. This decrease was mainly due to increased raw material
costs and a reduction in selling prices in the roofing market to meet
competitive pricing.
Selling, general and administrative expenses increased $0.3 million, or 8%,
from $4.4 million for the nine months ended September 30, 1995 to $4.7 million
for the nine months ended September 30, 1996. The increase was mainly the result
of $0.4 million in one-time costs associated with the sale of ADCO. Excluding
one-time costs, expenses decreased $0.1 million due to lower salary and
advertising expenditures.
Research and development costs increased $0.1 million, or 13%, from $1.0
million for the nine months ended September 30, 1995 to $1.1 million for the
nine months ended September 30, 1996. The increase was mainly due to increased
salary expense for research personnel hired in the latter half of 1995.
Operating income decreased $0.4 million, or 8%, from $5.9 million for the
nine months ended September 30, 1995 to $5.5 million for the nine months ended
September 30, 1996 for the reasons discussed above. Operating income as a
percentage of sales declined from 16.1% for the nine months ended September 30,
1995 to 13.6% for the nine months ended September 30, 1996.
Interest expense decreased $105,000, or 100%, from $105,000 for the nine
months ended September 30, 1995 to $0 for the nine months ended September 30,
1996. This decrease was attributable to the repayment of all of ADCO's
outstanding bank debt from the proceeds of the initial public offering of ADCO's
common stock in February, 1995.
Other income increased $0.4 million, from $35,000 for the nine months ended
September 30, 1995 to $0.4 million for the nine months ended September 30, 1996
due to $0.2 million of interest income and $0.2 million of royalty income.
Income taxes decreased by $12,000 from the nine months ended September 30, 1995,
to $2.1 million for the nine months ended September 1996. The effective tax rate
decreased from 36.9% for the nine months ended September 30, 1995 to 36.7% for
the nine months ended September 30, 1996.
From the prior year period, net income increased by $15,000 from the nine
months ended September 30, 1995, to $3.6 million for the nine months ended
September 30, 1996. Net income as a percentage of sales decreased from 9.7% for
the nine months ended September 30, 1995 to 8.9% for the nine months ended
September 30, 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Net sales increased $8.7 million, or 22%, from $38.7 million in fiscal year
1994 to $47.4 million in fiscal year 1995. The gain in fiscal year 1995 was due
to growth in sales in the automotive OEM, roofing and the window manufacturing
markets. Roofing sales accounted for $4.3 million, or 49%, of the increase, as
tape sales increased with continued market acceptance. Automotive OEM sales
accounted for $2.5 million, or 29%, of the increase, due to sales of hot melt
products. Window manufacturing sales accounted for $0.7 million, or 8% of the
increase, due to increased sales of hot melt and matrix products.
Gross profit increased $2.4 million, or 21%, from $11.7 million in fiscal
year 1994 to $14.1 million in fiscal year 1995 due to greater net sales. Gross
profit as a percentage of sales declined slightly in fiscal year 1995 from 30.2%
in fiscal year 1994 to 29.7% in fiscal year 1995. The decline in gross profit as
a percentage of sales was due to credits issued to customers for a urethane
product package problem.
Selling, general and administrative expenses increased $0.9 million, or 18%,
from $4.8 million in fiscal year 1994 to $5.7 million in fiscal year 1995. The
increase was due to the hiring of an additional sales representative and
commissions to outside sales representatives, increased salesmen travel costs,
increased legal and other costs associated with being a public corporation and
increased Michigan single business tax.
Research and development expenses increased $0.1 million, or 7%, from $1.3
million in fiscal year 1994 to $1.4 million in fiscal year 1995. The increase
was due to the hiring of additional technical personnel.
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Operating income increased $1.4 million, or 26%, from $5.6 million in fiscal
year 1994 to $7.0 million in fiscal year 1995. Operating income as a percentage
of sales increased from 14.4% in fiscal year 1994 to 14.8% in fiscal year 1995.
Interest expense decreased $0.5 million from $0.6 million in fiscal year
1994 to $0.1 million in fiscal year 1995. Proceeds from the initial public
offering in February 1995 were used to repay all outstanding loans during 1995.
Income taxes increased $0.8 million from $1.7 million in fiscal year 1994 to
$2.5 million in fiscal year 1995. The effective tax rate for fiscal year 1995
was 36.6% compared to 37.9% in fiscal year 1994. The reduction in the effective
tax rate was primarily the result of non-deductible goodwill becoming a smaller
percentage of income before taxes.
Net income increased $1.5 million, or 50%, from $2.8 million in fiscal year
1994 to $4.3 million in fiscal year 1995. Net income as a percentage of sales
increased from 7.4% in fiscal year 1994 to 9.0% in fiscal year 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE PRO FORMA YEAR ENDED DECEMBER
31, 1993
Net sales increased $7.4 million, or 24%, from $31.3 million in fiscal year
1993 to $38.7 million in fiscal year 1994. This increase was due to growth in
sales in the roofing and automotive OEM markets. Roofing sales accounted for
$5.2 million, or 70%, of the increase and automotive OEM sales accounted for
$1.6 million, or 22%, of the increase. In roofing, the increase resulted from
expanded sales of roofing tape products. The automotive OEM increase was
primarily due to further penetration of hot melt products and the specification
of several of ADCO's butyl tapes for new applications.
Gross profits increased $2.9 million, or 32%, from $8.8 million in fiscal
year 1993 to $11.7 million in fiscal year 1994. Gross profit as a percentage of
sales increased from 28.2% in fiscal year 1993 to 30.2% in fiscal year 1994. The
increase in gross profit as a percentage of sales was attributable to a
favorable change in product mix towards higher margin roofing products,
increased capacity utilization and conversion to in-house urethane
manufacturing, which lowered production costs.
Selling, general and administrative expenses increased $0.4 million, or 10%,
from $4.4 million in fiscal year 1993 to $4.8 million in fiscal year 1994. The
increase was primarily attributable to the hiring of additional salespersons,
increased advertising expenditures and increased sales commissions.
Research and development expenses increased $0.3 million, or 24%, from $1.0
million in fiscal year 1993 to $1.3 million in fiscal year 1994. The increase
was primarily attributable to the hiring of technical personnel and legal costs
associated with the worldwide filing of certain urethane patent applications.
Operating income increased $2.2 million, or 63%, from $3.4 million in fiscal
year 1993 to $5.6 million in fiscal year 1994. Operating income as a percentage
of sales increased from 10.9% in fiscal year 1993 to 14.4% in fiscal year 1994.
Interest expense declined $52,000, or 68%, from $648,000 in fiscal year 1993
to $596,000 in fiscal year 1994.
Income taxes increased $0.7 million, or 68%, from $1.0 million in fiscal
year 1993 to $1.7 million in fiscal year 1994. The effective tax rate in fiscal
year 1994 was 35.7% compared to 36.2% in fiscal year 1993.
Net income increased $1.3 million, or 85%, from $1.5 million in fiscal year
1993 to $2.8 million in fiscal year 1994. Net income as a percentage of sales
increased from 4.9% of sales in fiscal year 1993 to 7.4% of sales is fiscal year
1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the six months ended September
30, 1996 was $5.3 million compared to $4.7 million for the six months ended
September 30, 1995. The $5.3 million of net cash provided in the six months
ended September 30, 1996 was primarily due to cash flow from operating profits
of $7.3 million, offsetting a $2.0 million use of cash for working capital and
an increase in inventories due to higher sales offsetting an increase in accrued
expenses. The $4.7 million of cash provided by operating activities for
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the six months ended September 30, 1995 was primarily due to $1.7 million cash
flow from operating profits and a $3.0 million source of cash from working
capital, resulting from an increase in accrued expenses which offset increased
inventories and accounts receivable due to higher sales.
Net cash provided by operating activities for the years ended March 31,
1996, 1995 and 1994 was $1.4 million, $0.9 million and $0.4 million,
respectively. The cash provided for the year ended March 31, 1996 was primarily
due to an increase in cash flow from operations as a result of the acquisition
of ABI, increased sales and higher product prices. The cash provided for the
year ended March 31, 1995 was primarily due to $0.5 million of cash flow from
operating profits and a $0.4 million source of cash from working capital,
resulting from an increase in accounts payable which offset increased
inventories and accounts receivable due to higher sales. The cash provided for
the year ended March 31, 1994 resulted from increased accounts payable.
Cash used in investing activities for the six months ended September 30,
1996 and 1995 and the years ended March 31, 1996, 1995 and 1994 was $2.1
million, $12.4 million, $65.2 million, $0.3 million and $0.3 million,
respectively. Cash used in investing for the six months ended September 30, 1995
and for the year ended March 31, 1996 included the ABI acquisition costs of
$60.8 million. Cash used for the year ended March 31, 1996 also included capital
expenditures of $4.6 million. The use of cash for the six months ended September
30, 1996 was primarily due to capital expenditures. The Company expects that
capital expenditure requirements will be approximately $3.4 million for fiscal
year 1997 and approximately $0.6 million for the ADCO operations following the
ADCO acquisition, resulting in total capital expenditures of $4.0 million for
fiscal 1997. The Company expects to fund future capital expenditures primarily
from cash generated from operating activities although there can be no assurance
that cash from future operations will be sufficient for this purpose. Astor
purchased ADCO with proceeds from the Offering and the Senior Bank Facility.
Cash used in financing activities for the six months ended September 30,
1996 was $2.8 million due to debt repayments of the Bank Term Loan of $2.0
million and a $0.6 million reduction in the Revolving Credit Facility
borrowings. Cash provided by financing activities of $59.9 million for the six
months ended September 30, 1995 was due to (i) proceeds from the long-term debt
issuance of $67.8 million, (ii) $30.4 million from the issuance of stock and
warrants, net of fees, (iii) the repayment of $31.4 million of existing debt,
and (iv) the settlement of bankruptcy claims. Cash used in financing activities
for the year ended March 31, 1996, consisting of $63.0 million, included the
aforementioned debt financing and capital infusion, net of repayments of
existing debt and bankruptcy claims. Cash used for financing activities for the
fiscal years ended March 31, 1995 and 1994, consisting of $0.1 million and $0.5
million, respectively, was due to capital lease payments and the reduction of
pre-petition liabilities.
The Company had $140.0 million of total debt outstanding as of November 30,
1996 compared to $138.0 million as of September 30, 1996. As of November 30,
1996, the Notes were senior to $6.4 million of such indebtedness. Based on
current borrowings and the interest rate under the Senior Bank Facility, the
Company's debt service for fiscal 1997 is anticipated to be $10.2 million, with
the Company's monthly debt service anticipated to be $1.2 million. In addition,
the Company will have no principal repayments and capital requirements are
expected to be $4.0 million in fiscal 1997. The Company expects to service its
debt primarily from its cash from operations in fiscal 1997, although there can
be no assurance that cash from future operations will be sufficient for that
purpose.
The Company believes that cash generated from operations, together with the
amounts available under the Senior Bank Facility, will be adequate to meet its
debt service requirements, capital expenditures and working capital needs for at
least the next two years, although no assurances can be given in this regard.
As of March 31, 1996 Astor Corporation had net operating losses ("NOLs")
aggregating approximately $24.0 million available to offset certain taxable
income in future years. The utilization of these NOLs would be limited under
Section 382 of the Internal Revenue Code (the "Code") if Astor Corporation were
to undergo, or is deemed to have previously undergone, an "ownership change."
Although the Prior Transactions involved substantial changes in Astor
Corporation's equity ownership, Astor Corporation believes an "ownership
change," as defined by the Code, did not occur. However, this determination is
subject to
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uncertainty. In addition, there can be no assurance that future changes in the
equity ownership of Astor Corporation, Astor Holdings II or the Parent will not
occur or that such NOLs may be utilized in the future. The NOLs are expected to
expire in the years 2007 through 2009.
SEASONALITY. Based on the historical performances of Astor Holdings II and
ADCO, management expects the Company's future performance to display seasonal
fluctuations, with the first fiscal quarter being the strongest quarter and the
third fiscal quarter being the weakest.
ENVIRONMENTAL MATTERS. The Company is aware of certain conditions which may
lead to environmental liability being imposed on the Company. Contamination
exists at the Company's facility in Titusville, Pennsylvania, which management
believes resulted from disposal of waste at the facility by other industries
that formerly operated in the area. In addition, an EPA investigation, the
conclusions of which management believes to be inaccurate, indicated that a
former subsidiary of ABI (which has since merged into the Company) was the
former owner and a contributor of waste to a waste disposal area which has been
investigated by the EPA for potential inclusion on the Superfund list. Soil and
groudwater contamination, which is being addressed in large measure by Quaker
State pursuant to an indemnity, also exists at the Company's Emlenton and
McKean, Pennsylvania facilities. Finally, contamination exists at ADCO's
manufacturing facility in Michigan Center, Michigan for which Astor is seeking
protection from liability under a new state statute which shields new owners
from responsibility for contamination existing prior to acquisition of a
facility. The Company has indemnification rights with respect to certain of
these environmental matters. Assuming that the indemnitors continue to meet
their obligations, the Company does not believe that the above or any other
environmental matters will have a material adverse effect on the business,
financial condition (including liquidity) or results of operations of the
Company. See "Business -- Environmental Matters."
FOREIGN EXCHANGE EXPOSURE. The functional currency for the majority of
Astor's foreign operations is the applicable local currency. The bulk of Astor's
foreign sales, raw materials, expenses, assets, and liabilities (including bank
debt) are denominated in the local currency, providing for a natural hedge for
currency exposure. For a small portion of foreign sales transactions, Astor uses
forward foreign exchange contracts to mitigate exposure. The translation from
the applicable foreign currency to U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using a weighted average exchange rate during
the period. Translation adjustments resulting from such translation were $0.3
million at March 31, 1996.
HEDGING ACTIVITIES. The Company is currently not a party to any interest
rate swap contracts relating to any of its outstanding debt. As of November 30,
1996, $116.1 million of the Company's total outstanding debt of $140.0 million
was subject to a fixed rate. In order to mitigate the impact of A/B Crude market
price fluctuations, the Company has hedged a portion of its raw material costs
by hedging crude oil in the futures market, entering into a series of price swap
contracts with The Chase Manhattan Bank which fix the cost of a portion of the
Company's A/B Crude purchases through March 31, 1997 and, in the case of certain
of its feedstocks, purchasing feedstocks which are naturally hedged as a result
of a product swap agreement.
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BUSINESS
RECENT HISTORY
In 1994, Mr. Boyd Wainscott, an experienced multinational chemical company
manager, joined Astor to lead it in developing and implementing a strategic
business plan. This plan included improving marketing functions and product
distribution, developing more higher-margin, value-added products, improving
manufacturing operations and increasing manufacturing capacity, and pursuing
acquisition opportunities in the consolidating specialty chemicals industry.
Since implementation of the plan, Astor has increased production capacity by 12%
and increased sales by its direct sales force from the 1994 to the 1996 fiscal
year by $11.2 million.
As part of this strategic plan, in June 1995, the current business and
structure of Astor were created through the combination of Astor Corporation and
ABI, a manufacturer of specialty waxes and adhesives and sealants based in the
U.K. This combination created one of the largest producers of specialty waxes in
the world, based on sales, and a recognized U.K. manufacturer of adhesives and
sealants. Through the addition of global marketing personnel, global marketing
intelligence and domestic product packaging facilities, the ABI Acquisition
improved Astor's in-house marketing and packaging capabilities, resulting in
improved product distribution and improved Astor's product development
capabilities, allowing for the development of higher-valued products.
Concurrent with the consummation of the Offering on October 8, 1996, Astor
acquired all of the outstanding capital stock and all of the issued but
unexercised options of ADCO, a publicly traded Nasdaq National Market
manufacturer and marketer of adhesives and sealants, for an aggregate
consideration of $54.4 million. Through the acquisition of ADCO, Astor added
significant depth to its product lines, global marketing and manufacturing
networks and product development capabilities. Management believes that these
strengths will enable Astor to improve significantly the penetration of its
existing adhesives and sealants in the U.S. and provide Astor the opportunity to
market ADCO's products outside of the U.S. Management believes that the ADCO
Acquisition will also serve as an excellent platform from which to pursue
complementary acquisitions in the highly fragmented adhesives and sealants
industry. Astor and ADCO are referred to herein on a combined basis, after
giving effect to the ADCO Acquisition, as the Company.
COMPANY OVERVIEW
The Company is a leading global developer, producer and marketer of a wide
variety of value-added specialty chemical products. Its principal products are
(i) a broad range of specialty waxes, which represented approximately 70% of pro
forma sales for the 1996 fiscal year, and (ii) an extensive line of
technologically advanced adhesives and sealants, which represented approximately
30% of pro forma sales for the 1996 fiscal year. These products are sold to a
diverse base of over 4,000 customers in more than 50 countries worldwide, with
35.4% of 1996 pro forma sales made to customers outside the U.S., and are used
in numerous industrial and commercial applications. In the 1996 fiscal year, no
single customer of the Company accounted for more than 5% of the Company's pro
forma sales, and the top ten customers accounted for approximately 21% of the
Company's pro forma sales. During the twelve months ended September 30, 1996,
the Company had pro forma revenues, EBITDA and net income before extraordinary
items of $219.9 million, $30.4 million and $11.1 million, respectively. The
Company's sales of specialty waxes and adhesives and sealants grew on a pro
forma basis from $159.4 million in fiscal year 1994 to $206.2 million in fiscal
year 1996, or at a compound annual rate of 13.7%.
The Company focuses on developing value-added products to satisfy customers'
unique product demands and exacting specifications by conducting extensive
applied research and product development, often in conjunction with its
customers. The Company's product development has led to a variety of new
products and patented technologies for the Company. The Company's position is
further strengthened by its numerous technical customer approvals and the
value-added nature of its products, which generally represent a relatively small
percentage of an end-use product's total cost. These factors contributed to the
high contribution margins (defined as sales less raw material costs) which have
been achieved by the Company in recent periods. In fiscal 1996, pro forma
contribution margins for specialty waxes and for adhesives and sealants were
approximately 38.8% and 48.6%, respectively.
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SPECIALTY WAXES. Management of the Company believes that the Company is the
largest developer, producer and marketer of specialty waxes in North America,
and one of the largest producers of specialty waxes in the world, based on
sales. During 1993, the most recent year for which statistics are available,
approximately two billion pounds of specialty and other waxes were consumed in
the U.S., representing over $500 million in revenues, and over seven billion
pounds of specialty and other waxes were consumed worldwide, according to Wax
Data and a study by Kline & Company. During the last ten years, wax demand has
grown at approximately 3.3% per annum in the U.S., according to Wax Data.
However, certain end-use products have experienced significantly higher growth
rates, such as the PVC pipe market which grew at a rate of 10.0% from 1993 to
1994, according to Modern Plastics. Due to the lack of cost-effective wax
substitutes, management believes that wax demand will be driven by the growth of
its end-use products. Specialty waxes, like the Company's products, are
distinguished by their melt point, hardness, color and other performance
characteristics, as well as their consistent qualities and custom
specifications, and are used as an essential value-added component in hundreds
of products and applications. The primary applications of the Company's products
include use as a protective component in packaging and tires, as a fuel in
candles and synthetic firelogs and as a lubricant in PVC extrusion. The Company
produces one of the most extensive lines of customized waxes in the industry and
currently has over 3,000 different wax formulations in its proprietary database.
The Company had $143.7 million of pro forma sales of specialty waxes in
fiscal 1996. Over the past three fiscal years, the Company's sales of specialty
waxes have grown on a pro forma basis at a compound annual rate of 10.9%, well
in excess of the wax industry's growth rate, primarily due to the Company's
focus on high-growth niche markets. The Company's specialty wax products are
manufactured in the U.S., the U.K. and Belgium, and are sold both directly and
through independent agents to customers worldwide. During the 1996 fiscal year,
40.0%, or $57.5 million, of the Company's pro forma specialty wax sales were in
non-U.S. markets.
ADHESIVES AND SEALANTS. The Company is a leading developer, producer and
marketer of an extensive line of adhesives and sealants for a variety of
specialized niche applications. According to Chemical Week, in 1995 sales of
adhesives and sealants reached approximately $15.4 billion worldwide, and $9.4
billion in North America. Adhesives are used to bond various materials under
numerous temperature and moisture conditions, and sealants are used to prevent
the passage of air, water and noise between two surfaces. The primary markets
for the Company's adhesives and sealants are new and replacement commercial
roofing, transportation aftermarket, transportation OEM, insulated window
manufacturing for new and replacement construction, concrete pipe and vaults,
and new and rehab building construction. The Company currently offers more than
1,650 proprietary adhesives and sealants to its customers.
The Company had $62.5 million of pro forma sales of adhesives and sealants
in fiscal 1996. Over the past three fiscal years, the Company's sales of
adhesives and sealants have grown on a pro forma basis at a compound annual rate
of 21.3%, well in excess of the adhesives and sealants industry's growth rate of
5.0% - 6.0% as reported by Chemical Week, primarily due to the Company's
aggressive development of and the commercial acceptance of its new products. The
Company's adhesives and sealants are manufactured in both the U.S. and the U.K.,
and are sold both directly and through independent agents to customers
worldwide. During the 1996 fiscal year, 24.6%, or $15.4 million, of the
Company's pro forma adhesives and sealants sales were in non-U.S. markets.
COMPETITIVE STRENGTHS. The Company believes that it benefits from the
following competitive strengths:
DIVERSE GLOBAL END-USE MARKETS AND PRODUCTS. The Company serves numerous
end-use markets with over 4,650 products. This wide variety of products is sold
to a diverse global base of over 4,000 customers. In the 1996 fiscal year, no
single customer of the Company accounted for more than 5% of the Company's pro
forma sales, and the top ten customers accounted for approximately 21% of the
Company's pro forma sales. This diversity of products, markets and customers
minimizes the Company's exposure to any particular customer, economic cycle or
geographic market and provides a broad base from which to grow sales through
continued development of core technologies and new applications.
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LEADING MARKET POSITIONS. The Company enjoys substantial market shares in
many niche markets because of its product design capabilities, reputation,
quality and service. In addition, the names -- Astor Stag, Astor Wax and ADCO --
are established and trusted in their respective industries and provide brand
name recognition for the introduction and development of new products and
markets.
GLOBAL MARKETING AND MANUFACTURING CAPABILITIES. The Company sells its
products in over 50 countries worldwide through a global marketing network and
maintains manufacturing facilities in the U.S., the U.K. and Belgium. In fiscal
1996, the Company's sales of specialty waxes and adhesives and sealants outside
of the U.S., on a pro forma basis, totaled $72.9 million, or 35.4% of total
sales. The Company's international marketing and manufacturing capabilities
provide a platform for the introduction of existing and new products throughout
the world and allow the Company to better serve its customers' needs on a
worldwide basis.
CUSTOMER-DRIVEN PRODUCT DEVELOPMENT. The Company focuses on developing
value-added products with its customers by utilizing its extensive product
development expertise and manufacturing process capabilities. The Company's
sales, technical service and development staff work with customers to identify
specific needs and develop innovative, superior performance solutions. New
developments resulting from this process can often be profitably applied to
other high-margin niche markets. Additionally, many of the Company's products
are sold to customers following an often rigorous technical approval process.
The Company has obtained numerous valuable customer approvals which it believes
provide it with a competitive advantage.
LOW-FIXED COST AND FLEXIBLE MANUFACTURING CAPABILITIES. The Company has
engineered its manufacturing facilities to be capable of producing batches of
specialty products on an as needed basis with a minimum of fixed costs which
were 20% of total pro forma costs in the 1996 fiscal year. This just-in-time
focus and relatively low fixed-cost structure enables the Company to respond
rapidly to changing customer specifications and reduces the impact on
profitability during periods of decreased customer demand.
EXPERIENCED MANAGEMENT TEAM. Since 1994, Astor's management team has
substantially improved operating efficiencies and achieved significant cost
savings. Additional efficiencies and savings were achieved by Astor following
the acquisition of ABI in June 1995. The ADCO Acquisition further enhances
managerial expertise with the addition of several new senior managers. The
resulting management team has extensive wax and specialty chemical industry
experience. The Company currently has employment agreements with each of its
five top executives. See "Management -- Executive Compensation -- Management
Compensation and Employment Agreements."
BUSINESS STRATEGY. The Company's business strategy includes the following
key elements:
FOCUS ON DIVERSE, HIGH-MARGIN NICHE MARKETS. The Company intends to
continue to aggressively expand its diverse line of high-margin products for
niche markets. New product development will be achieved through customer
solution engineering and the extension of existing technologies to new
applications. The Company believes that increasing the breadth and diversity of
its product offerings will further reduce the Company's already limited exposure
to fluctuations in any single market.
CONTINUE CUSTOMER-DRIVEN PRODUCT DEVELOPMENT. The Company intends to
continue its strong commitment to applied research and product development. The
Company's focus on solutions for the customer fosters a collaborative effort
between its experienced technical and sales personnel and its customers. This
product development effort serves to enhance customer loyalty and is the genesis
for many new products.
FURTHER GLOBAL EXPANSION. The Company intends to continue to grow in new
geographic markets by selling existing and new products to its current global
customers as they move manufacturing capacity to new geographic regions. Once
established in a new region, the Company intends to open sales offices and
develop marketing alliances to target new customers. Through the combination of
ADCO's product line and Astor's global distribution network, the Company will
have the ability to further develop global adhesives
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and sealants market opportunities. Additionally, the strong product development,
manufacturing and distribution base of ADCO in the U.S. will enable Astor to
more aggressively introduce and market its adhesives and sealants in the U.S.
PURSUE STRATEGIC ACQUISITIONS. The Company intends to selectively pursue
complementary acquisitions which can be integrated into the Company's existing
businesses. As a result of global consolidation trends and the fragmented nature
of the specialty wax and the adhesives and sealants industries, management
believes many opportunities exist for the Company to make strategic
acquisitions. The Company intends to pursue acquisitions which will diversify
its product lines, enhance its product development capabilities, improve its
global marketing reach and lower its costs.
INDUSTRY OVERVIEW
Through the successful execution of its business strategy, the Company has
become a leader in two distinct segments of the specialty chemical industry --
specialty waxes and adhesives and sealants.
WAXES
The large number of wax applications in industrial and consumer products has
created significant worldwide wax demand. During 1993, the last year for which
statistics are available, approximately two billion pounds of specialty and
other waxes were consumed in the U.S., representing over $500 million in
revenues, and seven billion pounds of specialty and other waxes were consumed
worldwide, according to Wax Data and a study by Kline & Company. During the last
ten years, wax demand has grown at a rate of approximately 3.3% per annum in the
U.S., according to Wax Data. However, certain end-use products have experienced
significantly higher growth rates, such as the PVC pipe market which grew at a
rate of 10.0% from 1993 to 1994, according to Modern Plastics. Due to a lack of
cost-effective substitutes, management believes that wax demand will be driven
by the growth of its end-use products. The Company believes that businesses
which successfully target such high growth niche markets as PVC and that develop
new applications and customers will have the opportunity to experience
significantly higher growth than the industry average.
Wax plays a critical role as both a primary element and as an additive in
many different product applications. Specialty waxes, like the Company's
products, are distinguished by their melt point, hardness, color and other
performance characteristics, as well as their consistent qualities and custom
specifications, and are used as an essential, value-added component in hundreds
of products and applications. In most cases, wax represents a small portion of
the total cost of production, but is a critical component of the end-use
product.
Wax is primarily derived as a by-product of the petroleum refining process
and typically represents less than 1% of the volume of a standard barrel of
petroleum. Wax industry suppliers include large petroleum refiners and wax
specialists.
Petroleum refiners are typically volume-driven bulk suppliers providing
little product specialization or service, in part because they view wax as a
by-product of their refining operations. Typically, wax sales by these refiners
represent less than 1% of their revenues, and thus wax production receives
little strategic or capital commitment. The characteristics of the waxes
resulting from production by large refiners are often inconsistent due to
alterations made in the refining process to emphasize production of other
products. As a result, waxes produced by petroleum refiners are typically
commodity in nature and customers tend to be volume buyers requiring little or
no customization or servicing.
Wax specialists, like the Company, focus on customer service. Such services
include development assistance, product customization, specification and supply
consistency, custom packaging and order-size flexibility. Wax specialists target
niche applications and customers demanding these value-added services. As a
result, wax specialists develop significant customer relationships and numerous
product formulations.
ADHESIVES AND SEALANTS
Adhesives and sealants are utilized in a multitude of applications within
many industrial and consumer products. According to Chemical Week, in 1995,
worldwide sales of adhesives and sealants totaled $15.4 billion, with sales in
North America representing approximately $9.4 billion. In 1994, U.S. industry
sales of adhesives and sealants increased by approximately 5% to 6%, according
to Chemical Week. Certain niche
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markets have experienced significantly higher growth rates, such as the
automotive industry, which, according to Adhesive Age, an industry publication,
experienced a compound annual growth rate in the use of adhesives and sealants
sales of 14.9% from 1985 to 1993.
Adhesives and sealants are critical to the performance of an end-use
product, but typically represent a small portion of total product cost.
Adhesives are used to bond various materials under numerous temperature and
moisture conditions, and sealants are used to prevent the passage of air, water
and noise between two surfaces.
The worldwide adhesives and sealants industry is highly fragmented with over
500 suppliers in the U.S. alone. According to Chemical Marketing Reporter, an
industry publication, while the five largest suppliers comprise approximately
33% of total U.S. sales, the ten largest suppliers in the U.S. only comprise
approximately 42% of total sales. The adhesives and sealants industry's broad
range of applications leads to the highly fragmented nature of this industry.
Certain applications require little customer service or specialization; these
adhesives and sealants have commodity characteristics and are sold either
directly to customers or through distributors. However, many suppliers, like the
Company, develop expertise within specialized niches. Due to the unique
technical requirements within these niches, even a small supplier to the
industry can be a leader for certain applications. These suppliers tend to be
service-oriented with significant focus on technical development. As a result,
they target customers requiring customized products, strict quality control and
technical support. This value-added service can generate significant goodwill
and strong customer relationships.
PRODUCTS AND MARKETS
The Company offers a complete line of specialty waxes and an extensive line
of adhesives and sealants. The Company markets its products in over 50 countries
worldwide through its direct sales force and global network of agents. During
the 1996 fiscal year, the Company's pro forma revenue was geographically
diversified; 65% in the U.S., 16% in the U.K., 9% in continental Europe and 10%
in all other regions. During the 1996 fiscal year, specialty waxes represented
approximately 70% of the Company's pro forma sales, and adhesives and sealants
represented approximately 30% of the Company's pro forma sales. The following
table summarizes the Company's 1996 fiscal year pro forma sales by product and
market:
1996 PRO FORMA SALES
<TABLE>
<CAPTION>
U.S. NON-U.S. TOTAL % OF SALES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
SPECIALTY WAXES:
Consumer/Industrial Products................................... $ 29.6 $ 21.4 $ 51.0 25%
Packaging...................................................... 12.3 11.3 23.6 11
Tire/Rubber.................................................... 11.8 9.0 20.8 10
Candle......................................................... 14.2 1.4 15.6 8
Synthetic Fireplace Logs....................................... 6.0 1.0 7.0 4
Cable Fill..................................................... 0.6 5.8 6.4 3
PVC Lubricants................................................. 5.2 1.1 6.3 3
Anticorrosives................................................. -- 4.0 4.0 2
Road Surfacing................................................. -- 2.5 2.5 1
Byproducts..................................................... 6.5 -- 6.5 3
--------- ----- --------- ---
Specialty Waxes Total........................................ $ 86.2 $ 57.5 $ 143.7 70%
--------- ----- --------- ---
</TABLE>
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<TABLE>
<CAPTION>
U.S. NON-U.S. TOTAL % OF SALES
--------- ----------- --------- -----------
ADHESIVES AND SEALANTS:
<S> <C> <C> <C> <C>
Roofing........................................................ $ 18.5 $ -- $ 18.5 9%
Transportation Aftermarket..................................... 5.7 8.7 14.4 7
Transportation OEM............................................. 9.4 1.7 11.1 5
Window Manufacturing........................................... 6.0 -- 6.0 3
Concrete Pipe & Vault.......................................... 5.4 -- 5.4 3
Building Construction.......................................... -- 5.0 5.0 2
Other Industrial............................................... 2.1 -- 2.1 1
--------- ----- --------- ---
Adhesives and Sealants Total................................. 47.1 15.4 62.5 30
--------- ----- --------- ---
Total........................................................ $ 133.3 $ 72.9 $ 206.2 100%
--------- ----- --------- ---
--------- ----- --------- ---
</TABLE>
SPECIALTY WAXES
The Company's proprietary specialty waxes are generally sold to customers
demanding unique performance characteristics. An infinite number of formulations
are possible depending on the customer's requirements for melting point, color,
hardness, viscosity and many other performance characteristics. The Company's
major markets and products are described below.
CONSUMER/INDUSTRIAL PRODUCTS The Company produces specific wax formulations
for hundreds of applications requiring exacting specifications, such as: cheese
wax coatings, hot-melt wax used for bonding materials, chewing gum base,
petroleum based jellies for pharmaceuticals and cosmetics, thermostat waxes,
dental floss, stains and textile production applications and crayons. These
products generally serve value-added niches which require a high degree of
customer reliance on product quality. Many of these products also meet the
specifications of the U.S. Food and Drug Administration ("FDA"). The Company is
diversified globally in this product category with approximately 42% of its
fiscal 1996 pro forma sales of these products made outside of the U.S.
PACKAGING. The Company's products are used by packaging manufacturers in
the production of flexible packages, folding cartons and various foil, cardboard
and paper related packages. Such products provide barrier characteristics, scuff
protection and flexibility. These packaging applications are often used for food
products, and are therefore produced by the Company to meet FDA, as well as U.K.
and European, food and quality standards. The Company is a significant packaging
wax provider, based on sales, maintaining strong customer relationships based
upon specific product design. In addition, the Company is diversified globally
in this product category with almost 50% of its fiscal 1996 pro forma sales of
these products outside of the U.S.
TIRE/RUBBER. The Company's waxes are used in rubber products to prevent
aging and cracking resulting from exposure to ozone in the atmosphere. The
Company's most significant customers are tire manufacturers who demand highly
specialized wax formulations to meet their rigid and exacting requirements.
Although the cost of wax is typically less than 5% of a tire's cost, its
specific chemical characteristics are integral and critical to the tire's
overall performance. As a result, the Company has maintained long established
relationships and acts as a product development partner with various tire
producers. The Company is a leading global supplier in this market category, and
the Company's sales in this product category are geographically diversified,
with approximately 43% of its fiscal 1996 pro forma sales of these products
outside of the U.S.
CANDLES. The Company is a significant supplier of wax to the candle
industry in the U.S. Waxes are the primary fuel source in candles and are used
to influence a candle's color, drip rate, smoke characteristics, burn time and
other performance characteristics. The Company is a high-end leader in specialty
formulations to specialty, value-added candle manufacturers. U.S. wax
consumption for candles accounts for approximately 12% of the total U.S. wax
market, and the Company has aggressively increased its position in the U.S.
market over the last three years.
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SYNTHETIC FIREPLACE LOGS. The Company's waxes are used as a major component
in the production of synthetic fireplace logs and are used both as a binder for
the log and as a fuel source. Wax formulations specifically affect the burning
characteristics such as color, height and duration of the firelog flame. The
Company is a leading supplier in North America to synthetic fireplace log
manufacturers.
CABLE FILL. The Company's waxes are used as a critical component in the
production of telephone cables and other fiber optic cables to provide barrier
and integrity protection for cable filament over a wide temperature range. The
Company has been active in the evolution from traditional petroleum jelly-based
fills for copper cables to more sophisticated gels used with fiber optics. The
Company's cable fill wax business has been cultivated through attention to
customer service and technical precision.
PVC LUBRICANTS. The production of rigid PVC pipe and siding requires
lubrication during the extrusion process, which is provided by specialty wax
formulations. The Company sells the majority of its PVC wax lubricants through
its joint venture partner, Rheochem, which in addition to manufacturing its own
range of products, acts as a distributor of the Company's PVC wax lubricants in
North America. The Company combined with Rheochem has a leading supply position
in the U.S. See "-- Rheochem Joint Venture."
ANTICORROSIVES. The Company's anticorrosives are used in automotive,
aerospace and engineering applications as corrosion inhibitors, sealers and
water barrier protectives due to their excellent film forming properties.
Significant anticorrosive approvals have been obtained from several automotive
producers in Europe and emerging countries. The Company has 100% of the
anticorrosive business of one major automobile producer in the U.K. to which one
Company employee is fully dedicated and on-site at the customer's facility.
ROAD SURFACING. The Company's road surfacing products are used as both a
surface dressing and as a binder for the aggregate used and are sold primarily
to municipalities for road surfacing in the U.K. and in selected parts of
Europe. These products are produced in the Company's facility in the U.K. and
are sold to roadway contractors. The Company's position has been stable in the
U.K. marketplace and opportunities are available to license road surfacing
technology to global partners.
BYPRODUCTS. Byproducts, which include lube base oil and catalytic cracker
feedstocks, represent a small percentage of the Company's sales and are derived
from its wax manufacturing process. The Company will continue to participate in
these segments while continuing to seek upgrades to more higher-margin products.
ADHESIVES AND SEALANTS.
The Company manufactures a growing line of adhesives and sealants which are
manufactured in various forms, including: hot-melts, pumpables and extruded tape
products. The Company concentrates its efforts on specialized applications in
which performance criteria are more demanding and in which greater added value
can be offered. The Company's primary products and markets are described below.
ROOFING. The Company supplies a number of products, including laminates,
butyl adhesives and sealants and primers to improve the installation and
retrofit of single-ply roofing systems in the new and rehab commercial building
industry. The Company has pioneered more efficient, faster curing seam tapes
and, by moving away from solvent-based traditional adhesives, the Company has
achieved a favored market position. The Company is a market leader in the U.S.
and its customers include all of the largest single-ply roofing system
suppliers. In addition, the Company has licensed certain of its technology
related to selected roofing products to Firestone. The market for the Company's
line of high-margin roofing products has grown steadily in recent years
particularly with the introduction of specialty laminates designed to fit over
difficult to cover areas.
TRANSPORTATION AFTERMARKET. The Company manufactures urethane sealants and
butyl tapes which are used to install and replace windshield glass in
automobiles in the U.S. and used for vehicle crash repair outside the U.S. These
products provide fast cure bonding in the installation of replacement
windshields in vehicles with airbags, which is required to ensure structural
integrity of the windshield in the event of an accident. The Company believes it
is well positioned to take advantage of this market shift to urethane, which is
stronger and cures faster than traditional bonding materials. Other
polyurethanes have been introduced for the adhesion of body parts.
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TRANSPORTATION OEM. The Company's products include: hot melt sealants,
acrylics, extrudable compounds, butyl tapes and polyurethanes. These products
are used by automobile, recreational vehicle and trailer manufacturers to reduce
the passage of unwanted air, moisture and noise between two surfaces and to
attach product components. Specialty adhesives are increasingly being used as a
substitute for mechanical fasteners to improve performance and reduce costs. The
Company's products are highly regarded by major automobile manufacturers and
often are the product of choice.
WINDOW MANUFACTURING. The Company produces hot melt adhesives and sealants,
pressure sensitive tapes and liquid butyl pumpables for the manufacture of
insulated glass windows. These products provide both adhesion and sealing
properties between the window glass and the window frame, and act as a moisture
barrier between two panes of glass. The Company is well positioned as the window
manufacturing market trends toward achieving greater energy efficiency for both
the new and retrofit market.
CONCRETE PIPE AND VAULT. The Company offers a line of construction-related
products serving various industrial markets, including the concrete pipe and the
concrete burial vault markets. The Company's products in these markets include
large cross-sectional flexible tape sealants designed to form a gasket-type seal
when compressed between two concrete surfaces. The Company maintains a leading
market position for sales of adhesives and sealants to the concrete vault
industry in the U.S.
BUILDING CONSTRUCTION. The Company produces a variety of adhesives and
sealants used for both new and rehab building construction. The Company's
products in this area are used to seal joints in structures, and are used to
provide waterproofing and corrosion resistance to floors, doors, windows, car
decks, bridges and commercial buildings. The Company's line of products are sold
exclusively in the U.K. and Europe at this time.
OTHER INDUSTRIAL. The Company performs toll processing of intermediate raw
materials for third parties, particularly the processing of butyl solutions. The
Company intends to continue to take advantage of these opportunities when
practical.
APPLIED RESEARCH AND PRODUCT DEVELOPMENT
The Company maintains a strong commitment to applied research and product
development, focusing its efforts on enhancing existing product lines as well as
developing new products based on the Company's existing technologies and
production capabilities. The Company's applied research and product development
staff works together with the Company's sales staff and customers to identify
specific needs and develop innovative, superior performance solutions which
satisfy those needs. This method of product development allows the customer to
become a member of the development team, develops close ongoing working
relationships between the Company and its customers and, in many instances,
permits the Company to gain an in-depth understanding of its customers'
businesses, enabling it to better anticipate and serve its customers' needs.
Advancements resulting from this process can often be profitably applied to
other high-margin niche markets.
The Company employs a research and development staff of 40 experienced
chemists and laboratory technicians. The Company expended $2.0 million, $2.3
million and $2.5 million on a pro forma basis in the 1994, 1995 and 1996 fiscal
years, respectively, in these efforts.
SALES AND MARKETING
The Company maintains an extensive global marketing network that includes a
direct sales force and relationships with independent sales representatives,
distributors and resellers. The Company has 90 technical sales and marketing
personnel who work in coordination with the Company's product development and
technical personnel to service the Company's customers. Members of the Company's
sales force typically have a chemistry background and extensive industry
experience and work directly with customers' technical personnel. The Company
extends its global marketing reach through a geographical network of over 40
local agents who specialize in a particular market.
The Company has over 3,000 wax product customers, of which the ten largest
customers in the 1996 fiscal year accounted for approximately 15% of total pro
forma sales. The Company has over 1,000 adhesives
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and sealants product customers, of which the ten largest customers accounted for
approximately 14% of total pro forma sales in the 1996 fiscal year. No single
customer of the Company accounted for more than 5% of the Company's total pro
forma sales in the 1996 fiscal year. The Company anticipates that over time
sales to its larger adhesives and sealants customers will become a smaller
percentage of its total sales.
The Company sells many of its products to customers pursuant to a technical
approval process, and over the past several years the Company has developed
numerous valuable customer approvals. The approval process ranges from a
relatively simple process of sample evaluation and product quality review
procedures to a more complicated process of matching a specific molecular
structure to a customer's applications. Oftentimes, approvals require long lead
times to obtain and require the Company to work closely with customer technical
personnel to develop product specifications. The Company believes that the
nature of these approvals gives it a significant competitive advantage and
positions the Company to develop new formulations for its customers' next
generation of products.
SUPPLY
SPECIALTY WAXES
The Company purchases a wide variety of raw materials for the production of
its specialty wax products. The primary feedstocks used for these products are
partially refined crude oil, other waxy feedstocks and fully processed waxes.
Approximately 26% of the Company's wax-related raw material costs are
attributable to wax feedstocks derived from A/B Crude extracted from Utah
production fields. The Company uses wax feedstocks derived from A/B Crude due to
its very high wax content. Wax represents approximately 27% of each barrel of
naturally occurring A/B Crude compared to a typical barrel of crude oil which
may have a wax content of as low as 1%. There are over 400 million barrels of
proven reserves of A/B Crude in the Utah production fields, or more than 70
years of supply based on current demand and extraction methods. The remaining
74% of the Company's raw materials used for production of specialty wax products
are other partially refined crude oils, fully processed waxes and additives that
are acquired from many sources worldwide and are readily available in the
marketplace.
The Company has a long-term contract with L&W for the purchase of its wax
feedstocks derived from A/B Crude. This contract expires on October 1, 2006,
subject to certain early termination rights. Although the Company believes that,
if needed, there are alternative sources of A/B Crude and other waxy feedstocks,
the unanticipated termination of or nonperformance by the supplier under this
supply contract could have a material adverse effect on the Company's business
and financial condition. Raw materials purchased under this contract and the
Company's other supply relationships are generally priced based on market price
formulas, many of which track crude oil or gasoline fuel prices. In order to
mitigate the impact of A/B Crude market price fluctuations, the Company has
hedged a portion of its raw material costs by hedging crude oil in the futures
market, entering into a series of price swap contracts with The Chase Manhattan
Bank which fix the cost of a portion of the Company's A/B Crude purchases
through March 31, 1997 and, in the case of certain of its feedstocks, purchasing
feedstocks which are naturally hedged as a result of a product swap agreement.
The Company generally seeks to raise the prices of its specialty wax products in
response to increases in feedstock costs, although it has not always been able
to raise prices high enough or quickly enough to offset fully increases in
feedstock costs. In addition, the prices of certain byproducts from the
Company's production processes also track crude oil prices, acting to hedge
volatility in the Company's raw material costs. See "Risk Factors -- Wax
Feedstock Price Risks."
The Company continually monitors and evaluates alternative raw material
sources, and actively pursues alternative suppliers which can economically
provide waxes having the quality and consistency that the Company requires.
ADHESIVES AND SEALANTS
The primary raw materials used by the Company in the production of its
adhesives and sealants are butyl rubber, ethylene propylene diene monomer
rubber, polyisobutylenes, carbon black, isocyanates, polyols, petroleum oils and
release films. The Company purchases these materials from a wide variety of
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suppliers. In general, these materials are available from multiple suppliers,
and the Company makes an effort to establish secondary suppliers as well as seek
cost-effective alternatives for raw materials having limited availability.
Long-term purchase agreements are pursued when practical.
MANUFACTURING
The Company has engineered its manufacturing facilities to be capable of
producing batches of specialty products on an as needed basis with a minimum of
fixed costs which were 20% of total pro forma costs in the 1996 fiscal year.
This just-in-time focus and relatively low fixed-cost structure enables the
Company to respond rapidly to changing customer specifications and reduces the
impact on profitability during periods of decreased customer demand.
PRODUCTION OF SPECIALTY WAXES
The Company's wax production and formulation facilities are located in
Western Pennsylvania -- the McKean plant located near Farmers Valley,
Pennsylvania and the Emlenton plant located in Emlenton, Pennsylvania. In
addition, the Company's formulation and packaging operations are conducted at
four global locations: Marshall, Texas; Titusville, Pennsylvania; West Drayton,
U.K. and Eupen, Belgium. The Company has joint ownership of Rheochem's PVC wax
lubricant facility in Columbia, Missouri.
At the Company's wax production and formulation facilities, waxy feedstocks
undergo multiple separation processes whereby oil is removed from wax and wax is
separated by melting point into various wax streams. Many of the waxes are
filtered to FDA standards. The resulting wax products are either sold as is,
formulated and then sold, or shipped to one of the Company's formulation and
packaging operations. During each step of wax production, from the raw materials
to the ultimate finished product, quality control personnel sample and monitor
each stream of each process to ensure its quality, specification and
consistency.
At the Company's formulation and packaging facilities, specialty blends of
waxes are produced by mixing together various types and melt point grades of
waxes, as well as by adding non-wax additives such as ethylene-vinyl acetate,
polyethylene and other polymers and resins which can modify overall viscosity
and other specific characteristics dictated by customers. All formulations
designed for specific customers and market applications are proprietary in
nature and produced under strict quality controls. The Company offers a complete
line of packaging capabilities including pelletizing, prilling, slabbing and
flaking of all its wax products and ships them in all forms of containers.
The Company's specialty formulation and packaging facilities are
strategically located to serve world markets and to take advantage of feedstock
sources. The production capabilities of each facility are similar. In general,
bulk materials and ingredients are purchased and then processed using formulas
designed by the Company's and customers' chemists.
All of the Company's formulation and packaging facilities are ISO (the
International Standards Organization) 9002 certified, a widely recognized
industry standard of quality assurance, and operate under its strict guidelines.
The Company is currently seeking to have its wax production and formulation
facilities ISO certified.
The Company's McKean plant and Emlenton plant are currently operating at
nearly full capacity. The Company estimates that up to $5.0 million of capital
expenditures would be required to increase the production capacity of these
facilities by approximately 25% over their current levels of production. Less
than 25% of the waxes produced at these two facilities is utilized as wax raw
materials for the Company's remaining four facilities, with the balance of the
wax feedstocks for these operations being supplied by third parties. The Company
believes that there are adequate third party sources of wax raw materials
available to meet the foreseeable needs of its formulation and packaging
operations. The Company believes that its formulation and packaging operations
will be able to meet customer demand for the Company's specialty waxes for the
foreseeable future without significant capital expenditures and at this time,
management does not anticipate expanding the Company's existing plants or
acquiring new ones.
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ADHESIVES AND SEALANTS PRODUCTION
All production of adhesives and sealants is conducted at two locations: West
Drayton, U.K. and Michigan Center, Michigan. These facilities are well located
to serve the Company's major customers. The production of adhesives and sealants
is a multi-stage process which involves extensive formulation and mixing. Due to
the diversity in the Company's products, the Company utilizes versatile,
proprietary machinery and equipment to fulfill production requirements. The
product is then packaged in drums, pails, cartridges or other forms based on the
customer's requirements. The Company's manufacturing personnel maintain and
improve operating processes as well as assist in the development of new
processes for new products. The expertise of these employees in the
construction, installation and modification of existing and new manufacturing
systems is critical to the development of new products. The Company believes
that it has the equipment, processes and knowledge to accommodate the production
of new adhesives and sealants without significant capital additions.
In connection with the recently completed ADCO Acquisition, the Company
intends to take steps designed to increase sales of Astor's U.K.-manufactured
adhesives and sealants in the U.S. and sales of ADCO's U.S.-manufactured
products globally. The Company believes that it will benefit by manufacturing
products in the country or geographic region in which the products will be sold.
Limited capital expenditures may be necessary to accommodate the production of
Astor's adhesives and sealants at ADCO's Michigan Center plant.
RHEOCHEM JOINT VENTURE
The Company holds a 50% joint venture interest in Rheochem Technologies,
Inc. ("Rheochem"), a manufacturer of a range of PVC lubricant products based in
Columbia, Missouri. The other 50% joint venture partner is Rheochem, Inc.
("RCI"), whose principal founded Rheochem and has wide experience in PVC
compounding technology. Rheochem has developed advanced wax-based lubricants
which improve processing of PVC siding and pipes and has allowed Rheochem to
capture a large share of what the Company believes to be an expanding PVC
lubricant market. Under the terms of the joint venture agreement, RCI is
primarily responsible for the management of the joint venture whereas the
Company provides the joint venture with accounting services and technical
support. In addition, there is an agreement between the Company and Rheochem
whereby Rheochem markets PVC lubricants developed by Astor in North America,
while the Company processes certain of Rheochem's PVC lubricants at its
processing plants in Titusville, Pennsylvania and Marshall, Texas. These
products are sold to the joint venture at mutually agreed upon prices, which
have historically been market prices. The Company and RCI share equally in the
profits and losses of the joint venture and each of them receives management
fees for the respective management and technical services they provide.
Under the joint venture agreement, neither the Company nor RCI may sell its
interests in Rheochem without first complying with right of first offer and
right of first refusal procedures in favor of the other party. After December
31, 1997, either the Company or RCI may compel the other party to purchase all
its Rheochem interests or to sell to it all the other party's Rheochem
interests. In addition, if the principal of RCI ceases to render services to
Rheochem as a result of death, disability or other reasons, then the Company
will have a six-month call option to require RCI to sell its Rheochem interests
and RCI will concurrently have a seven month put option to require the Company
to purchase RCI's Rheochem interests, in either case at aggregate current value
determined under procedures set forth in the agreement.
Rheochem recorded net sales of $25.9 million and net income of $0.4 million
for the year ended December 31, 1995. Rheochem recorded net sales of $26.1
million and net income of $1.0 million for the nine months ending September 30,
1996. The combined contribution of management fees and equity earnings to
Astor's fiscal year 1996 earnings was $1.2 million.
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FACILITIES
The Company operates ten locations and participates in a joint venture which
operates one additional facility with an aggregate total space of approximately
824,000 square feet. The following table sets forth certain information
regarding these locations. Each of the locations is owned by the Company unless
otherwise indicated.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQ. FT. (1) TYPE OF OPERATIONS
- -------------------------------------- ------------ -------------------------------------------------
<S> <C> <C>
Raleigh, North Carolina (2) 6,600 Global corporate offices
Farmers Valley, Pennsylvania 185,000 Wax production and formulation
Emlenton, Pennsylvania 95,000 Wax production and formulation
Titusville, Pennsylvania 50,000 Wax formulation and packaging
Atlanta, Georgia (2) 22,500 U.S. sales and marketing and administration
Marshall, Texas 74,000 Wax formulation and packaging
Michigan Center, Michigan 170,000 Adhesives and sealants production and research
and development
Columbia, Missouri (3) 22,500 Wax formulation and packaging
West Drayton, Middlesex, England 130,000 European offices, research and development, wax
formulation and packaging, and adhesives and
sealants production
Eupen, Belgium 67,000 Wax formulation and packaging
Kuala Lumpur, Malaysia (2) 1,200 Asian sales and marketing
</TABLE>
- ------------------------
(1) Does not include acreage used for tank farms, other equipment not under roof
or stand-alone warehouses.
(2) These facilities are leased. The Raleigh, North Carolina lease expires on
May 31, 2001, the Atlanta, Georgia lease expires on March 1, 2001 and the
Kuala Lumpur, Malaysia lease expires on April 1, 1998.
(3) This facility is owned and operated by Rheochem, a joint venture in which
the Company holds a 50% interest. See "-- Rheochem Joint Venture."
COMPETITION
The Company competes in the production and sale of specialty wax products
with (i) large multinational oil refineries who largely produce commodity wax as
a byproduct of their lube oil refining business, (ii) a wide variety of
specialty wax producers around the world, which, like the Company, create
value-added products through formulation and packaging and (iii) a large number
of specialty chemical manufacturers, which typically compete in one or more
niche markets. Certain of these competitors have greater financial, technical,
marketing and other resources than the Company. The Company competes on a
variety of factors, including the consistency of its products, the breadth of
its product line, its applied research and product development capabilities, its
worldwide marketing capabilities and its value-added customer services.
The adhesives and sealants markets are highly fragmented, and the Company
competes with a large number of other manufacturers, many of which have greater
financial, technical, marketing and other resources than the Company. The
Company competes by pursuing definable niches in less competitive markets in
which the Company can utilize its technological expertise and applied research
and product development capabilities.
In both the specialty wax and adhesives and sealants businesses, the Company
has developed many of its product formulations in conjunction with its
customers, who often work closely with the Company during the product
development process. Additionally, the Company sells many of its products to
customers pursuant to a technical approval process, and over the past several
years the Company has developed numerous such
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customer approvals. The approval process ranges from a relatively simple process
of sample evaluation and product quality review procedures to a more complicated
process of matching a specific molecular structure to a customer's applications.
The Company believes that the nature of its approvals and its close working
relationship with certain of its customers reduces the threat of losing these
customers to its competitors and positions the Company to develop new
formulations for these customers' next generation of products.
PATENTS AND PROPRIETARY INFORMATION
The Company currently has over 3,000 different wax formulations and over
1,650 adhesives and sealants in its proprietary database. The Company relies
primarily upon trade secrets and other unpatented proprietary information in its
operations, particularly in its specialty wax products business. The Company
also holds 19 patents in the U.S. and 26 patents in other countries on adhesives
and sealants compositions, methods of using such adhesives and sealants and
other technologies related to such products.
However, there can be no assurance that the Company will be able to maintain
the confidentiality of its trade secrets and proprietary formulations and
processes, that others will not develop similar or better formulations and
processes, that the Company's patents will provide any protection or benefit to
the Company or that additional patents will be issued.
ENVIRONMENTAL MATTERS
The Company is subject to stringent federal, state, local and foreign
environmental laws and regulations relating to the protection of the
environment, including, without limitation, those relating to the storage,
handling, emission and discharge of materials into the environment
("Environmental Laws"). The Company has expended and may be required to expend
in the future, substantial funds for compliance with and remediation under
Environmental Laws. Costs and expenses may be incurred in connection with the
repair or upgrade of facilities to meet existing or new requirements under
Environmental Laws, the remediation of hazardous substances in the soil and
groundwater from historical or ongoing operations at the Company's facilities,
or for other purposes. Except for certain of the matters discussed herein, the
Company believes that it is in material compliance with all applicable
environmental laws and regulations.
Environmental Laws are constantly evolving and it is impossible to predict
accurately the effect they may have upon the capital expenditures, earnings or
competitive position of the Company in the future, except that such
Environmental Laws are becoming increasingly strict and can be expected to
result in increasing compliance costs. To the extent that the cost of compliance
increases and the Company cannot pass on future increases to its customers, such
increases may have an adverse effect on the Company's profitability.
Environmental Laws also provide for substantial penalties and criminal sanctions
for certain violations. The Company is aware of certain conditions, including
the matters discussed below, which may lead to environmental liability being
imposed on the Company with respect to the operation of its facilities and
business. The Company has certain indemnification rights with respect to certain
of these environmental matters. Assuming that the indemnitors continue to meet
their obligations, the Company does not believe that these matters will have a
material adverse effect on the business or financial condition of the Company.
There can be no assurance, however, that the indemnitors will continue to meet
their obligations or that the Company will not incur additional significant
liabilities in connection with these or other environmental matters or that such
liabilities will not have a material adverse effect on the Company's business or
financial condition.
TITUSVILLE FACILITY
The Company is aware of contamination at a portion of its Titusville,
Pennsylvania facility. Investigations to date indicate that the Company's
operations did not contribute to the contamination and that most of the
contamination results from the disposal of waste by an oil refinery that
formerly operated in the area. Although the Company, as the current owner of the
site, could be held strictly liable under certain Environmental Laws for the
cleanup of the Titusville facility, the Company would have the right to recover
some or all of the costs of cleaning up this site from third parties who have
owned or operated the site or contributed to its contamination. Environmental
consultants engaged by the Company have given a preliminary estimate of $1
million for the cost of cleaning up this site. Under the terms of an agreement
between the Parent and ABI pursuant to which ABI was acquired and became a
subsidiary of the Company, the Parent is
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entitled to set-off, against principal and interest otherwise payable on
L1,450,988 of the subordinated debt issued to ABI's former stockholders, any
costs relating to this site over $350,000, so long as the Parent notifies the
former stockholders by June 28, 1999 of the existence of the condition giving
rise to the set-off claim. After October 1, 1996, any such set-off by the Parent
will result in a corresponding reduction in the mirror intercompany note from
ABI Acquisition 2 plc to ABI Acquisition 1 plc, the mirror intercompany note
from ABI Acquisition 1 plc to Astor Holdings II and the mirror intercompany note
from Astor Holdings II to the Parent. The Company has begun the process of
characterizing the contamination of the Titusville facility pursuant to the
Pennsylvania Land Recycling and Environmental Remediation Standards Act, which
provides for the voluntary cleanup of industrial properties through the use of
streamlined procedures and remedial standards tailored to the future use of the
property.
The Titusville facility is located near the Cyclops Site, which has evidence
of soil and groundwater contamination and has been the subject of an Expanded
Site Inspection by an EPA contractor. Costs of remediation of the Cyclops Site
have been estimated to range between $4 million and $15 million in 1995 dollars
for soil remediation. No cost estimate is available for the remediation, if any,
of groundwater at this site. Based upon investigations conducted to date, the
Company believes that other parties are likely responsible for the contamination
at the Cyclops Site. Under certain Environmental Laws, remediation costs for
this site would be borne by parties who have owned or operated the site or are
responsible for its contamination. An EPA investigation, the conclusions of
which management believes to be inaccurate, indicated that a former subsidiary
of ABI (which has since been merged into the Company) formerly owned the Cyclops
Site and disposed of wastes there. However, based on the Company's
investigations to date, the Company believes that ABI's former subsidiary never
owned or operated the Cyclops Site, or arranged for the disposal of or
transported hazardous waste there and that a different company with some common
ownership and a similar name was the prior owner. Because of the proximity of
the Company's property to the Cyclops Site and other unknown factors, there can
be no assurance that the Company will not incur some liability relating to the
Cyclops Site. Under the terms of the ABI acquisition agreement between the
Parent and ABI, the Parent is entitled to set-off, against the principal and
interest otherwise payable on L1,450,988 of subordinated debt issued to ABI's
former stockholders, any costs relating to the Cyclops Site, so long as the
Parent notifies the stockholders by June 28, 1999 of the existence of the
condition giving rise to the set-off claim. After October 1, 1996, any such
set-off by the Parent will result in a corresponding reduction in the mirror
intercompany note from ABI Acquisition 2 plc to ABI Acquisition 1 plc, the
mirror intercompany note from ABI Acquisition 1 plc to Astor Holdings II and the
mirror intercompany note from Astor Holdings II to the Parent.
PENNSYLVANIA REFINERY FACILITIES
Quaker State, which formerly owned the Company's Emlenton and McKean,
Pennsylvania facilities, has installed groundwater recovery systems at these
facilities and is using the Company's wastewater treatment facilities for
treatment of the contaminated groundwater. Quaker State is responsible for all
costs of the recovery systems, a fee for use of the Company's wastewater
treatment facilities and any incremental costs resulting from the Company's
treatment of groundwater in its wastewater treatment facilities. Groundwater
remediation at the McKean and Emlenton facilities is funded entirely by Quaker
State pursuant to an indemnity agreement. In addition, under the indemnity
agreement, certain non-groundwater environmental remediation and compliance
costs are divided equally between Quaker State and the Company (with the Company
paying its share in the form of subordinated notes payable to Quaker State on
December 31, 2008) up to a total of $5.5 million. Costs above $5.5 million are
paid entirely by Quaker State under the indemnity agreement. The cost sharing
arrangement for such non-groundwater remediation costs and compliance costs
expires in 2010. Since 1990, the Company has incurred approximately $150,000 of
indebtedness relating to this cost-sharing arrangement. There is no expiration
date or maximum liability, however, with respect to Quaker State's obligation to
pay for groundwater remediation at the Emlenton and McKean facilities. There are
several additional environmental compliance issues relating to tanks,
separators, drying pits, cleaning areas and other matters at these facilities,
some of which Quaker State is addressing pursuant to the indemnity agreement and
some for which the Company is seeking coverage from Quaker State under the
indemnity agreement. For example, the EPA is currently reviewing an engineering
proposal, funded by
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Quaker State pursuant to the indemnity, to remedy a potential noncompliance by
installing dikeage surrounding several large naptha storage tanks at the
Emlenton facility. Quaker State consistently has performed its groundwater
remediation obligations under the indemnity. However, any failure by Quaker
State to continue funding the costs to be borne by it or the incurrence of any
costs for which Quaker State is not responsible substantially in excess of those
currently expected by the Company could have a material adverse effect on the
Company's financial condition or results of operations.
PAGE AVENUE FACILITY
ADCO's manufacturing facility located in Michigan Center, Michigan (the
"Page Avenue Facility") has been the subject of cleanup action during which
numerous buried drums and other waste as well as an underground storage tank
("UST") were removed. The Company believes that former owners and operators of
the Page Avenue Facility buried the drums and other waste and operated the UST.
Residual soil and groundwater contamination apparently released from the drum
waste and/or the UST still remains at the Page Avenue Facility. The results of
investigation and cleanup activities at the Page Avenue Facility have been
reported to the Michigan Department of Environmental Quality ("MDEQ"). Under
recent changes to the Michigan environmental cleanup liability statute, the
current owner of a contaminated facility is only liable for cleanup costs if it
is responsible for causing a release of contamination at the facility. In
October 1995, ADCO asserted to MDEQ that it should not be held liable for any
additional remediation under the revised statute because previous owners and
operators were responsible for the contamination at the Page Avenue Facility.
MDEQ has not yet responded to ADCO's correspondence on this issue. The revised
Michigan cleanup statute also shields from liability the new owner of a
previously contaminated facility if that person conducts a baseline
environmental assessment ("BEA") of the facility within 45 days of acquiring it
and discloses the results of the assessment to MDEQ and subsequent purchasers of
the facility. Astor Corporation has initiated the process of conducting a BEA of
the Page Avenue Facility. Pursuant to a 1993 agreement through which the Page
Avenue Facility was acquired from Nalco Chemical Company ("Nalco"), ADCO has an
indemnity, subject to caps and other limitations, from Nalco Chemical Company
for certain losses incurred in connection with the cleanup of the drum waste
area and the former UST (the "Nalco Indemnity"). There can be no assurance,
however, that the Company would be able to make any recovery under the Nalco
Indemnity.
THIRD PARTY WASTE DISPOSAL SITES
ADCO has been named as a potentially responsible party ("PRP") at two
third-party waste disposal sites pursuant to the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA") -- the Jackson Drop Forge
Site in Jackson, Michigan (the "Jackson Site") and the Frontier Chemical Site in
Niagara Falls, New York (the "Frontier Site"). The Company believes that ADCO
has no involvement with the Jackson Site. In addition, the EPA has informally
indicated that it no longer considers ADCO a PRP at the Jackson Site. The
Company believes that a portion of the liability, if any, in connection with the
Jackson Site is subject to the Nalco Indemnity. In connection with the Frontier
Site, ADCO has paid approximately $9,000 to settle its share of alleged
liability for removal actions at the site. It is unclear whether the EPA will
require additional cleanup at the Frontier Site.
LEGAL PROCEEDINGS
From time to time, the Company has been and is involved in various legal
proceedings. Management believes that all of such litigation is routine in
nature and incidental to the conduct of its business, and that none of such
litigation would have a material adverse effect on the financial condition or
results of operations of the Company.
The Company has been named as a defendant, along with 92 other companies, in
a class action lawsuit in Texas. The suit alleges personal injury, death and
other damages arising out of the plaintiffs' exposure to a variety of building
materials and other products while working at the Corpus Christi Army Depot. The
plaintiffs, who are seeking approximately $500 million in damages, appear to
have named as defendants the manufacturers of every substance known to have been
used over an extended period at the Army Depot. The Company product involved
appears to be a sealant used in the installation and repair of commercial
roofing.
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The Company's insurance carrier is currently defending this action on behalf of
the Company. While the case is still in the early stages of discovery, according
to the insurer, no evidence has been produced to date linking the Company's
sealants to any of the plaintiffs' claims.
EMPLOYEES
As of July 1, 1996, the Company had 768 employees in its worldwide
operations. Of that total, 525 were primarily engaged in manufacturing and
production, 90 were primarily engaged in sales, marketing and distribution, 40
were primarily engaged in applied research and product development, and 113 were
primarily engaged in management and administration.
At the Company's Emlenton and McKean, Pennsylvania facilities, 188 of the
hourly production employees are members of the Oil, Chemical and Atomic Workers
International Union. In February 1996, the Company entered into a labor
agreement with this union expiring in January 1999. At its Michigan Center,
Michigan facility, 130 of the Company's hourly production employees are members
of the International Association of Machinists and Aerospace Workers. In May
1994, the Company entered into a five-year labor agreement with this union.
The Company has never experienced a labor strike or other labor-related work
stoppage, and the Company believes that its employee and labor relations are
good.
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ACQUISITION OF ADCO
TERMS OF MERGER
Concurrent with the consummation of the Offering on October 8, 1996, Astor
acquired all of the outstanding capital stock and all of the issued but
unexercised options of ADCO, a publicly traded Nasdaq National Market
manufacturer and marketer of adhesives and sealants, for an aggregate
consideration of $54.4 million. Through the acquisition of ADCO, Astor added
significant depth to its product lines, global marketing and manufacturing
networks and product development capabilities. Management believes that these
strengths will enable Astor to improve significantly the penetration of its
existing adhesives and sealants in the U.S. and provide Astor the opportunity to
market ADCO's products outside of the U.S. Management believes that the ADCO
Acquisition will also serve as an excellent platform from which to pursue
complementary acquisitions in the highly fragmented adhesives and sealants
industry.
Pursuant to the terms of a definitive merger agreement between the parties,
Astor paid $10.25 per share for the 5.15 million ADCO shares outstanding, plus
an aggregate of $1.6 million representing the aggregate net spread on ADCO's
outstanding stock options. In addition, ADCO caused its subsidiary to redeem
approximately $3.9 million of outstanding preferred stock of such subsidiary and
pay the dividends accrued thereon as of the date of redemption.
The merger agreement contains customary representations and warranties from
ADCO to Astor. These representations and warranties, and any related
indemnification rights, terminated upon the effectiveness of the ADCO
Acquisition. Concurrent with the consummation of the Offering and the
acquisition of ADCO, ADCO Products, Inc., a subsidiary of ADCO, was merged with
and into ADCO, and ADCO was merged with and into Astor Corporation. Astor
Corporation is the surviving entity of these mergers.
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CORPORATE STRUCTURE
The following chart depicts the equity ownership of the Company after giving
effect to the Transactions, including the ADCO Acquisition.
[FLOWCHART]
- ------------------------
(1) The outstanding voting preferred stock of ABI Acquisition 1 plc entitles the
holder thereof to (i) elect three of the four directors of ABI Acquisition 1
plc, (ii) exercise 75% of the voting power of the outstanding capital stock
of ABI Acquisition 1 plc and (iii) an aggregate liquidation preference of
$1.7 million.
(2) The outstanding voting preferred stock of Astor Corporation entitles the
holder thereof to an aggregate liquidation preference of $28.5 million and
has a cumulative dividend rate of 12.5% per annum. The holder of such shares
is also entitled to exercise 13.2% of the voting power of the currently
outstanding capital stock of Astor Corporation.
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MANAGEMENT
The following table sets forth the name, age and position of each of the
directors and executive officers of Astor Corporation, Astor Holdings II and the
Parent. Unless otherwise noted, each individual serves in the indicated capacity
at each of Astor Corporation, Astor Holdings II and the Parent. Each director
will hold office until the next annual meeting of stockholders or until his
successor has been elected and qualified. Officers are elected by the Board of
Directors and serve at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---------------------- --- --------------------------------------------------------------------------
<S> <C> <C>
Boyd D. Wainscott 52 Chairman of the Board, Chief Executive Officer, Director
C. Richard Spalton 56 Director, President
Jose C. Houssa 51 Vice President, Chief Technical Officer (1)
John F. Gottshall 49 Vice President, Chief Financial Officer, Treasurer, Assistant Secretary
David E. Hawkins 47 Vice President, Chief Administrative Officer, Secretary
Philip D. Beery 52 President of ADCO Division (1)
Thomas P. Causer 47 Vice President, Wax Manufacturing Operations (1)
Ron B. Hallewell 48 Vice President, Sales and Marketing, America (1)
Adrian Browne 35 Vice President, Controller, Assistant Treasurer, Assistant Secretary (1)
Alan J. Andreini 50 Director
Richard R. Crowell 41 Director
Mark C. Hardy 32 Director
Kurt B. Larsen 32 Director
Justin Maccarone 37 Director
Gerald L. Parsky 54 Director
Richard K. Roeder 48 Director
Charles E. Sax 64 Director (2)
W. Montague Yort 33 Director, Assistant Secretary
</TABLE>
- ------------------------
(1) Individual holds such positions at Astor Corporation and not at Astor
Holdings II or the Parent.
(2) Individual holds such position at the Parent and not at Astor Corporation or
Astor Holdings II.
BOYD D. WAINSCOTT has served as Chairman and Chief Executive Officer of
Astor Corporation since 1994 and as a director of Astor Corporation since June
1995. From 1990 to 1993, Mr. Wainscott served as President and Chief Executive
Officer of Pitman-Moore, a division of the IMCERA Group and a global
manufacturer and marketer of animal health and nutrition products. Prior to
this, Mr. Wainscott held several senior marketing positions within Pitman-Moore
and at Stauffer Chemical Company where he was responsible for sales and
marketing of a division that produces herbicides and industrial products.
C. RICHARD SPALTON has served as President and a director of Astor
Corporation since June 1995. Prior to that, Mr. Spalton was the Managing
Director of Astor Stag Ltd. and ABI since 1974. Mr. Spalton joined ABI in 1971
as a Marketing Manager following nine years with Shell Oil in England.
JOSE C. HOUSSA has been Vice President and Chief Technical Officer of Astor
Corporation since June 1995. From 1989 to June 1995, Mr. Houssa was the Group
Technical Director of ABI's West Drayton facility and a member of the Board of
Directors of Astor Stag Ltd., ABI's English subsidiary. Prior to that he was
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Chief Chemist and Product Director of Astor Stag S.A., ABI's Belgian subsidiary,
and responsible for the marketing and sales of ABI products in the European
community (U.K. excluded). Mr. Houssa has been with ABI since 1970.
JOHN F. GOTTSHALL joined Astor Corporation in 1995 as its Chief Financial
Officer. From 1991 to 1995, Mr. Gottshall served as Vice President and Chief
Financial Officer at Trident NGL, Inc., a natural gas liquids firm. In addition,
Mr. Gottshall was Senior Vice President and Chief Financial Officer of Freeport-
McMoRan Resource Partners L.P., an agricultural products firm from 1987 to 1990
and Treasurer of Freeport-McMoRan, Inc. from 1985 to 1987.
DAVID E. HAWKINS has been the Chief Administrative Officer of Astor
Corporation since 1994. From 1987 to 1993, Mr. Hawkins served in several senior
management positions, including Vice President of Marketing from 1987 to 1989,
and Senior Vice President of Strategic Planning, Mergers and Acquisitions from
1989 to 1993 at Pitman-Moore, a division of the IMCERA Group and a worldwide
manufacturer of animal health and nutrition products.
PHILIP D. BEERY has been the President of the ADCO Division of the Company
since January 1997 and served as the Chief Operating Officer of the ADCO
Division of the Company from October 1996 to December 1996. From 1990 to October
1996, Mr. Beery served as Vice President of Sales and Marketing of ADCO, during
which time he was in charge of all sales and marketing at ADCO, including market
development and new products. From 1983 to 1985, Mr. Beery served in several
senior management positions at ADCO.
THOMAS P. CAUSER has served as Vice President, Wax Manufacturing Operations
of Astor Corporation since 1992. From 1990 to 1992, Mr. Causer was McKean Plant
Manager and Quality Control Manager. Mr. Causer had previously spent 12 years as
Quality Control Manager at Quaker State.
RON B. HALLEWELL has been Vice President of Sales and Marketing, America at
Astor Corporation since consummation of the ABI Acquisition in June 1995. Mr.
Hallewell joined ABI in 1972 and held various management positions in ABI,
including Vice President of Sales and Marketing of Astor Wax Corp., a U.S.
subsidiary of ABI, from August, 1986 to June 1995.
ADRIAN BROWNE has been a Vice President of Astor Corporation since 1996 and
the Controller of Astor Corporation since June 1995. Mr. Browne joined ABI as
Group Finance Director in July 1994. Previously, he spent twelve years with the
London office of KPMG Peat Marwick and was Senior Manager of the Audit
Department from 1992 to 1994, working on audit and corporate finance
assignments. Mr. Browne is a chartered accountant.
ALAN J. ANDREINI has served as a director of Astor Corporation since 1989.
Since 1978, Mr. Andreini has served as Executive Vice President of Comdisco,
Inc., a technology services firm, where he is responsible for budgets, human
resources, venture leasing and compensation and also serves as a director. In
addition, Mr. Andreini currently serves as a director of Hugoton Energy
Corporation, an oil and gas exploration and production firm.
RICHARD R. CROWELL has served as a director of Astor Corporation since June
1995. Mr. Crowell is a founding partner of Aurora Capital Partners L.P. ("ACP")
and has served as a Managing Director of ACP since 1991. Prior to forming ACP,
Mr. Crowell was a Managing Director of Rosecliff, Inc., the management company
for Acadia Partners L.P. In addition, Mr. Crowell currently serves as a director
of Aftermarket Technology Corp., a remanufacturer and distributor of automobile
and truck drivetrain products ("ATC").
MARK C. HARDY has served as a director of Astor Corporation since June 1995.
Mr. Hardy joined ACP in June 1993 as an Associate and has been a Vice President
of ACP since December 1995. Prior to joining ACP, Mr. Hardy was an Associate at
Bain & Company, a consulting firm. In addition, Mr. Hardy currently serves as a
director of ATC.
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<PAGE>
KURT B. LARSEN has served as a director of Astor Corporation since June
1995. Mr. Larsen joined ACP at its founding in 1991 as an Associate and served
as a Vice President of ACP from December 1993 through December 1995, at which
time he became a Principal of ACP. Prior to joining ACP, Mr. Larsen was an
Associate at Drexel Burnham Lambert, Inc. In addition, Mr. Larsen currently
serves as a director of ATC.
JUSTIN MACCARONE was nominated in September 1996 by UBS Partners Inc. ("UBS
Partners") to serve as a director of Astor Corporation pursuant to the terms of
a Stockholders Agreement described below and under "Ownership of Voting
Securities -- Stockholders Agreement." Mr. Maccarone has served as a Managing
Director of UBS Capital LLC ("UBS Capital") since 1993 and as the President and
a Director of UBS Partners since 1995. Mr. Maccarone served as a Senior Vice
President at GE Capital Corporation from 1992 to 1993 and Vice President from
1989 to 1992. Mr. Maccarone also serves as a director of Cinnabon International,
Inc., Peoples Telephone Company, Inc. and American Sports Products Group, Inc.
GERALD L. PARSKY has served as a director of Astor Corporation since 1994.
Mr. Parsky is a founding partner and has been the Chairman and Managing Director
of ACP since its founding in 1991. Mr. Parsky is also the beneficial owner of
Century City 1800 Partners, L.P., a Delaware limited partnership ("CC 1800").
Prior to forming ACP, Mr. Parsky was a Senior Partner and member of the
Executive and Management Committees with the law firm of Gibson, Dunn &
Crutcher.
RICHARD K. ROEDER has served as a director of Astor Corporation since June
1995. Mr. Roeder is a founding partner and has been a Managing Director of ACP
since its founding in 1991. Prior to forming ACP, Mr. Roeder was a partner in
the law firm of Paul, Hastings, Janofsky & Walker, where he served as Chairman
of the firm's Corporate Law Department and a member of its National Management
Committee. In addition, Mr. Roeder currently serves as a director of ATC.
CHARLES E. SAX has served as a director of the Parent since January 1997.
Mr. Sax served as the President of the ADCO Division of the Company from October
1996 to December 1996. From 1985 to October 1996, Mr. Sax served as President of
ADCO and from 1993 to October 1996 he served as a director of ADCO. Mr. Sax
began working for ADCO in 1985, following Nalco's acquisition of ADCO, and spent
a combined 38 years with Nalco and ADCO.
W. MONTAGUE YORT has served as a director of Astor Corporation since June
1995. Mr. Yort joined ACP in April 1993 as an Associate and has been a Vice
President of ACP since December 1995. From June 1992 to April 1993, Mr. Yort was
an Associate at Morgan Stanley & Co. Incorporated.
Under the Stockholders Agreement, dated as of June 27, 1995, among the
Parent and certain of its stockholders, warrant holders and option holders, UBS
Partners, a stockholder of the Parent, became entitled to appoint two members of
the Board of Directors of the Parent and one member of the Boards of Directors
of Astor Corporation and Astor Holdings II after consummation of the
Transactions. Pursuant to the Stockholders Agreement, UBS Partners designated
Justin Maccarone to serve on the Boards of Directors of Astor Corporation, Astor
Holdings II and the Parent. In addition, UBS Partners is entitled to have one
UBS Board nominee serve as a member of each Board committee of Astor
Corporation, Astor Holdings II and the Parent. See "Ownership of Voting
Securities -- Stockholders Agreement."
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EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth the cash compensation paid or awarded by
Astor Corporation to the Chief Executive Officer and the other four most highly
compensated executive officers of Astor Corporation (the "Named Executive
Officers") for the fiscal year ended March 31, 1996.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL --------------
COMPENSATION NUMBER OF
---------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (2) OPTIONS (#)(3) COMPENSATION
- --------------------------- --------- ------------- ------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Boyd D. Wainscott, 1996 $ 270,000 $ 170,482 $ -- 81,818 $ 58,308(4)
Chief Executive Officer
C. Richard Spalton, 1996 178,250 96,487(5) -- 34,091 17,290(6)
President
Jose C. Houssa, 1996 143,800 25,110 -- 10,227 31,168(6)
Chief Technical Officer
John F. Gottshall, 1996 142,500(7) 22,900 -- 10,227 87,168(8)
Chief Financial Officer
David E. Hawkins, 1996 135,000 18,600 -- 6,818 105,947(9)
Chief Administrative
Officer
</TABLE>
- ------------------------
(1) Figures are in U.S. dollars and where appropriate reflect an assumed
exchange rate of L1.00 to $1.55 and 32.00 Belgian francs to $1.00.
(2) Excludes perquisites and other personal benefits which do not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus for any Named
Executive Officer.
(3) Represents options issued by the Parent to purchase securities of the
Parent. All such options were issued pursuant to the 1995 Stock Incentive
Plan of the Parent (the "Stock Incentive Plan"). Pursuant to the Stock
Incentive Plan, the Compensation Committee of the Board of Directors of the
Parent determines the terms and conditions of each option granted.
(4) Reflects the payment of relocation costs in the amount of $55,601 and the
payment of insurance premiums in the amount of $2,707.
(5) Includes a bonus of $46,113 paid by ABI prior to the June 1995 acquisition.
(6) Reflects contributions to pension plan.
(7) Reflects salary from July 1995 (commencement date of employment) to March
1996.
(8) Reflects the payment of relocation costs in the amount of $84,377 and the
payment of insurance premiums in the amount of $2,791.
(9) Reflects the payment of relocation costs in the amount of $102,130 and the
payment of insurance premiums in the amount of $3,817.
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OPTION GRANTS
Shown below is information concerning grants of options issued by the Parent
to the Named Executive Officers for the fiscal year ended March 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL POTENTIAL REALIZABLE
GRANTS VALUE AT ASSUMED
-------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS GRANTED EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME (#)(1) FISCAL YEAR SHARE DATE 5% 10%
- -------------------------------- --------------- --------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Boyd D. Wainscott............... 81,818 42.3% $ 10.00 6/28/05 $ 514,635 $ 1,304,179
C. Richard Spalton.............. 34,091 17.6 10.00 6/28/05 214,432 543,411
Jose C. Houssa.................. 10,227 5.3 10.00 6/28/05 64,328 163,018
John F. Gottshall............... 10,227 5.3 10.00 6/28/05 64,328 163,018
David E. Hawkins................ 6,818 3.5 10.00 6/28/05 42,885 108,679
</TABLE>
- ------------------------
(1) These options were granted under the Stock Incentive Plan.
EXERCISES OF OPTIONS AND AGGREGATE YEAR-END OPTION VALUES
Shown below is information with respect to the year-end values of all
options held by the Named Executive Officers. No named executive officer
exercised any options in the fiscal year ended March 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED AT
OPTIONS AT FISCAL YEAR-END
FISCAL YEAR-END (#) ($)(1)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------- ------------------- --------------------
<S> <C> <C>
Boyd D. Wainscott..................................................... 16,364/65,454 81,820/327,270
C. Richard Spalton.................................................... 6,818/27,273 34,090/136,365
Jose C. Houssa........................................................ 2,045/ 8,182 10,225/ 40,910
John F. Gottshall..................................................... 2,045/ 8,182 10,255/ 40,910
David E. Hawkins...................................................... 1,364/ 5,454 6,820/ 27,270
</TABLE>
- ------------------------
(1) The exercise price of each option is $10.00 per share. The value of the
unexercised options is equal to the fair market value of such Common Stock
as determined by the Board of Directors ($15.00), less the applicable per
share exercise price of the option ($10.00).
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<PAGE>
MANAGEMENT COMPENSATION AND EMPLOYMENT AGREEMENTS
Astor Corporation has entered into an employment agreement with Boyd D.
Wainscott effective as of June 28, 1995, which provides that he will serve as
Chairman and Chief Executive Officer of Astor Corporation for an initial term of
three years, which Astor Corporation can extend for successive one year periods.
Pursuant to the agreement, Mr. Wainscott receives an annual salary of $300,000
subject to increase at the discretion of the Board of Directors of the Company.
In addition, Mr. Wainscott is entitled to receive an annual bonus in an amount
up to 100% of his then annual base salary, subject to the satisfaction of
certain performance conditions and at the sole discretion of the Board of
Directors of Astor Corporation if such conditions are not met. On October 30,
1995 Mr. Wainscott also received stock options to purchase 81,818 shares of
Common Stock of the Parent which vest over a five-year period and become
exercisable upon vesting. If Mr. Wainscott's employment is terminated without
cause by Astor Corporation, he will be entitled to receive as severance an
amount equivalent to his then annual base salary for the remaining three year
initial term of his employment and the accrued portion of any bonus through the
date of the termination.
Astor Corporation has entered into an employment agreement with Charles R.
Spalton effective as of July 1, 1995, which provides that he will serve as
President of Astor Corporation. Astor Corporation may terminate Mr. Spalton's
employment on 24 months notice and Mr. Spalton may terminate his employment on
six months notice, provided that such notice, whether given by Astor Corporation
or Mr. Spalton, may not be effective prior to June 30, 1998. The Company may
terminate Mr. Spalton's employment by giving him at least 24 months written
notice. Pursuant to the agreement, Mr. Spalton receives an annual salary of
L125,000 (or $193,750 at an exchange rate of L1.00 to $1.55), subject to
increase at the discretion of the Board of Directors of the Company. In
addition, Mr. Spalton is entitled to receive an annual bonus in an amount up to
75% of his then annual base salary, subject to the satisfaction of certain
performance conditions and at the sole discretion of the Board of Directors of
Astor Corporation if such conditions are not met. On October 30, 1995 Mr.
Spalton also received stock options to purchase 34,091 shares of Common Stock of
the Parent which vest over a five year period and become exercisable upon
vesting.
Astor Corporation has entered into an employment agreement with Jose C.
Houssa effective as of July 1, 1995, which provides that he will serve as Chief
Technical Officer of Astor Corporation. Astor Corporation may terminate Mr.
Houssa's employment on 24 months notice and Mr. Houssa may terminate his
employment on six months notice, provided that such notice, whether given by
Astor Corporation or Mr. Houssa, may not be effective prior to June 30, 1998.
Pursuant to the agreement, Mr. Houssa receives an annual salary of L90,000 (or
$139,500 at an exchange rate of L1.00 to $1.55), subject to increase at the
discretion of the Board of Directors of Astor Corporation. In addition, Mr.
Houssa is entitled to receive an annual bonus in an amount up to 50% of his then
annual base salary, subject to the satisfaction of certain performance
conditions and at the sole discretion of the Board of Directors of Astor
Corporation if such conditions are not met. On October 30, 1995 Mr. Houssa also
received stock options to purchase 10,227 shares of Common Stock of the Parent
which vest over a five year period and become exercisable upon vesting.
Astor Corporation has entered into an employment agreement with John F.
Gottshall effective as of July 1, 1995, which provides that he will serve as
Chief Financial Officer of Astor Corporation for an initial term of two years,
which Astor Corporation can extend for successive one year periods. Pursuant to
the agreement, Mr. Gottshall receives an annual salary of $190,000, subject to
increase at the discretion of the Board of Directors of Astor Corporation. In
addition, Mr. Gottshall is entitled to receive an annual bonus in an amount up
to 40% of his then annual base salary, subject to the satisfaction of certain
performance conditions and at the sole discretion of the Board of Directors of
Astor Corporation if such conditions are not met. On October 30, 1995 Mr.
Gottshall also received stock options to purchase 10,227 shares of Common Stock
of the Parent which vest over a five year period and become exercisable upon
vesting. If Mr. Gottshall's employment is terminated without cause by Astor
Corporation, he will be entitled to receive as severance (i) any accrued bonus,
(ii) an amount equal to his annual base salary and any bonus for the initial
term of two years as if he were employed for such period, (iii) 24-months of
annual base salary at the time of termination or expiration, commencing as of
the later of the termination date or the expiration of the
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<PAGE>
initial two-year term, with such payments stopping upon Mr. Gottshall's
employment with another employer; provided, however, he receives payment of his
annual base salary for at least 12-months and (iv) an additional 12-months of
bonus credited as if he were employed for the 12-month period following the
later of the date of termination and the initial two-year term.
Astor Corporation has entered into an employment agreement with David E.
Hawkins effective as of July 1, 1995, which provides that he will serve as Chief
Administrative Officer of Astor Corporation for an initial term of one year,
which Astor Corporation can extend for successive one year periods. Astor
Corporation has extended Mr. Hawkins' term of employment through July 1, 1997.
Pursuant to the agreement, Mr. Hawkins receives an annual salary of $140,000,
subject to increase at the discretion of the Board of Directors of Astor
Corporation. In addition, Mr. Hawkins is entitled to receive an annual bonus in
an amount up to 40% of his then annual base salary, subject to the satisfaction
of certain performance conditions and at the sole discretion of the Board of
Directors of Astor Corporation if such conditions are not met. On October 30,
1995 Mr. Hawkins also received stock options to purchase 6,818 shares of Common
Stock of the Parent which vest over a five year period and become exercisable
upon vesting. If Mr. Hawkins' employment is terminated without cause by Astor
Corporation, he will continue to receive his annual salary for six months
following the termination and the accrued portion of any bonus through the date
of termination.
The employment agreement of each of Messrs. Wainscott, Spalton, Houssa,
Gottshall and Hawkins also contains (i) a nondisclosure provision which is
effective for the term of such individual's employment with Astor Corporation
and for an indefinite period thereafter and (ii) noninterference and
non-competition provisions, each of which is effective for the term of such
individual's employment with Astor Corporation and two years thereafter.
1995 STOCK INCENTIVE PLAN OF PARENT
Neither the Company nor Astor Holdings II has a stock incentive plan. The
Parent adopted its 1995 Stock Incentive Plan in June 1995, in order to provide
incentives to employees, directors (including non-employee directors) and
independent contractors of the Parent and its subsidiaries, including the
Company, by granting them awards tied to the Parent's Common Stock. The Stock
Incentive Plan is administered by the Compensation Committee of the Board of
Directors of the Parent, which has broad authority in administering and
interpreting the Stock Incentive Plan. The Board of Directors of the Parent and
the Compensation Committee thereof are identical to those of the Company and are
expected to remain identical for the foreseeable future. Awards are restricted
to stock options ("Awards"). Options granted to employees under the Stock
Incentive Plan may be options intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended, or options
not intended to so qualify. An Award granted under the Stock Incentive Plan to
an employee or independent contractor may include a provision terminating the
Award upon termination of employment under certain circumstances or accelerating
the receipt of benefits upon the occurrence of specified events, including, at
the discretion of the Compensation Committee, any change of control of the
Parent or the Company.
The Parent granted options to purchase an aggregate of up to 204,545 shares
of its Class D Common Stock to officers, employees and consultants of Astor
Corporation following the consummation of the Prior Transactions. The exercise
price of each option is $10.00 per share, the same price per share as paid by
all purchasers of Common Stock of the Parent through the consummation of the
Prior Transactions. The Parent has approved an increase in the number of shares
reserved for issuance under the Plan from 204,545 shares of Class D Common Stock
to 228,545 shares of Class D Common Stock. The Parent is expected to grant, on
or before February 4, 1997, options to purchase up to an aggregate of 20,000
shares of the Parent's Class D Common Stock to officers, employees and
consultants of Astor Corporation at an exercise price of $15.00 per share. Each
option is subject to certain vesting provisions. All options expire on the tenth
anniversary of the date of grant. For certain information regarding these
options granted to officers of Astor, see "Ownership of Voting Securities."
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<PAGE>
1997 INCENTIVE BONUS PROGRAM
Astor Corporation adopted its 1997 Incentive Bonus Program in April 1996, in
order to provide incentives to all salaried employees, but excluding any
participant in the 1997 Management Bonus Plan who is also eligible to
participate in the U.K. Pension Plan (as defined herein), by granting them
awards tied to Astor Corporation's performance objectives calculated in terms of
year-end EBITDA. Salaried employees will receive a bonus based on (i) actual
year-end EBITDA as of March 31, 1997, (ii) a percentage of the individual's
annual salary which increases as year-end EBITDA increases and (iii) the
individual's satisfactory performance. Awards are restricted to cash awards.
1997 MANAGEMENT BONUS PROGRAM
Astor Corporation adopted its 1997 Management Bonus Program in April 1996,
in order to provide incentives to 33 selected members of management, judged to
have the greatest impact on the year's results, by granting these members of
management awards tied to Astor Corporation's performance objectives calculated
in terms of year-end EBITDA. Participants in this program have been assigned a
percentage of their base salary as their bonus target for the 1997 fiscal year.
A participant's specific bonus award, however, is dependent on both Astor's
year-end EBITDA (which will determine the size of the bonus pool) and the
individual's performance contribution. For example, if the year-end actual
EBITDA achieves the planned EBITDA, a manager with a 20% target and superior
performance will receive a bonus equal to 20% of his or her base salary then in
effect. However, because the bonus pool directly correlates with the 1997 fiscal
year-end EBITDA, if year-end EBITDA is less than the target EBITDA, the
participant would receive less than a 20% bonus. The proposed management bonuses
will be presented to the Chief Executive Officer for review, but must be
approved by the Compensation Committee of the Board of Directors of Astor
Corporation. Awards are restricted to cash awards.
RETIREMENT SAVINGS PLANS
Astor Corporation has a profit sharing and savings plan that is qualified
under Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"401(k) Plan"). Any full-time employee of Astor Corporation who has completed
one year of service with Astor Corporation and is at least 18 years of age is
eligible to participate in the 401(k) Plan. Astor Corporation employees may
contribute to the plan up to a maximum of 15% of pay. Participants become
immediately vested in both their voluntary contributions as well as any profit
sharing or matching contributions made by Astor Corporation. Under the profit
sharing component of the 401(k) Plan, the Board of Directors annually determines
in its sole discretion the amount, if any, of Astor Corporation's aggregate
profit sharing contribution which is then allocated among participants based on
the ratio that each eligible participant's compensation bears to the total
compensation paid to all eligible participants for the plan year. Under the
matching contribution component of the Plan, Astor Corporation will match
employee contributions in an amount equal to 100% of the employee's pretax
contributions, up to 3% of the employee's eligible compensation contributed into
the plan for the plan year. For all union employees, Astor Corporation will
contribute 2% of the employee's eligible compensation into the plan as long as
the employee has deferred at least 1% of his or her eligible compensation into
the plan for the plan year. As of February 1, 1997, Astor Corporation will
contribute 3% of the union employee's eligible compensation into the plan as
long as the employee has deferred at least 1% of his or her eligible
compensation into the plan for the plan year.
On consummation of the Transactions, the Company assumed ADCO's
discretionary profit sharing plan, which includes a cash-or-deferred arrangement
under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "ADCO
401(k) Plan"). Presently, any full-time employee of the Company who was formerly
a non-union employee of ADCO and who has completed one year of service with the
Company (including service with ADCO) is eligible to participate in the ADCO
401(k) Plan. The Company currently matches 25% of any employee's contribution to
the plan up to a maximum of 5% of pay. Participants become immediately vested in
both their voluntary contributions as well as the Company's matching
contributions in the profit sharing component of the ADCO 401(k) Plan. In
addition, under the profit sharing component of the ADCO 401(k) Plan, the
Company contributes 2% of a participant's compensation to the plan. Presently,
participants become fully vested in this part of the profit sharing component of
the ADCO 401(k) Plan upon
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completion of seven years of service with the Company (including service with
ADCO). The aggregate total contribution on behalf of all participants to the
ADCO 401(k) Plan may not exceed 15% of total participant compensation.
Astor has a pension plan for which all full-time salaried directors or
senior employees based in the U.K. between the ages of 20 and 65 are eligible
(the "U.K. Pension Plan"). Under this plan, eligible employees must contribute
at least 5% of their pay to a retirement savings account maintained by the U.K.
Pension Plan. Astor contributes to the U.K. Pension Plan based on actuarial
valuations. Upon reaching retirement, the eligible participants are entitled to
use contributions to increase their own pensions, to increase their spouse's
pension or, if the individual has been contributing to the fund since before
April 8, 1987, to provide additional tax-free cash at retirement. A participant
normally receives pension payments monthly, but may, with the Company's consent,
give up part of his or her pension and receive a tax-free lump sum payment.
Pension payments are equal to the product of the participant's final pensionable
salary as of the immediately preceding August 1 and the number of pensionable
service years divided by 60. Certain death benefits are paid in the event of
death.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors are reimbursed for
their out-of-pocket expenses in attending Board meetings. Messrs. Crowell,
Hardy, Larsen, Parsky, Roeder and Yort receive no fees in their capacities as
directors, but see "Certain Transactions" for a description of certain other
arrangements pursuant to which ACP and CC 1800 receive compensation from the
Company. Each of Messrs. Crowell, Hardy, Larsen, Parsky, Roeder and Yort is an
affiliate of or limited partner of or employed by ACP. Mr. Parsky is the sole
limited partner and the sole beneficial owner of the general partner of CC 1800.
See "Management" and "Ownership of Voting Securities."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Andreini, Crowell and Roeder serve as the Compensation Committee of
Astor Corporation and the Parent and administer the Stock Incentive Plan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law (the "DGCL") authorizes
a Delaware corporation to include a provision in its certificate of
incorporation limiting or eliminating the personal liability of its directors to
the corporation and its stockholders for monetary damages for breach of the
directors' fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors exercise an informed business judgment
based on all material information reasonably available to them. Absent the
limitations authorized by such provision, directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Although
Section 102 of the DGCL does not change a director's duty of care, it enables
corporations to limit available relief to equitable remedies such as injunction
or rescission. The Certificate of Incorporation and Bylaws of each of the
Parent, Astor Holdings II and Astor Corporation include provisions which limit
or eliminate the personal liability of its directors to the fullest extent
permitted by Section 102 of the DGCL. Consequently, a director or officer will
not be personally liable to any of the Parent, Astor Holdings II or Astor
Corporation or their respective stockholders for monetary damages for breach of
fiduciary duty as a director, except for (i) any breach of the director's duty
of loyalty to any such corporation or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions, and (iv) any transaction from which the
director derived an improper personal benefit.
The Certificate of Incorporation and Bylaws of each of the Parent, Astor
Holdings II and Astor Corporation also provide, in effect, that, to the fullest
extent and under the circumstances permitted by Section 145 of the DGCL, each
such corporation will indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is a director or officer of such corporation
or is or was serving at the request of any such corporation as a director or
officer of another
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corporation or enterprise. The inclusion of these indemnification provisions in
these Certificates of Incorporation and Bylaws is intended to enable each such
corporation to attract qualified persons to serve as directors and officers who
might otherwise be reluctant to do so. Each of the Parent, Astor Holdings II and
Astor Corporation may, in its discretion, similarly indemnify its employees and
agents.
Depending upon the character of the proceeding, each such corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
any action, suit or proceeding if the person indemnified acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of such corporation and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful. To the
extent that a director or officer of any such corporation has been successful in
the defense of any action, suit or proceeding referred to above, any such
corporation would have the right to indemnify him or her against expenses
(including attorneys' fees) actually and reasonably incurred in connection
therewith.
OWNERSHIP OF VOTING SECURITIES
All of the issued and outstanding common stock of Astor Corporation is owned
by Astor Holdings II, and all of the issued and outstanding preferred stock of
Astor Corporation is owned by ABI Corporation, an indirect subsidiary of Astor
Corporation. All of the issued and outstanding capital stock of Astor Holdings
II is owned by the Parent. See "Acquisition of ADCO -- Corporate Structure." The
Parent's authorized capital stock consists of 1,000,000 shares of Preferred
Stock ("Preferred Stock"), 1,000,000 shares of Class A Common Stock ("Class A
Common Stock"), 1,000,000 shares of Class B Common Stock ("Class B Common
Stock"), 1,000,000 shares of Class C Common Stock ("Class C Common Stock") and
1,000,000 shares of Class D Common Stock ("Class D Common Stock" and
collectively with the Class A Common Stock, Class B Common Stock and Class C
Common Stock, the "Classed Common Stock"). In addition, the Parent's authorized
capital stock includes 4,000,000 shares of Common Stock ("Conversion Common
Stock" and together with the Classed Common Stock, "Common Stock") into which
the Classed Common Stock will convert on a share for share basis upon the
earlier of the affirmative vote of the holders of a majority of each class of
Classed Common Stock each voting as a separate class, the consummation of an
initial underwritten public offering of Common Stock meeting certain
requirements or June 28, 2005. All authorized shares of Preferred Stock and
Common Stock have a par value of $0.01 per share.
At December 31, 1996 there were outstanding 535,715 shares of Class A Common
Stock, 142,857 shares of Class B Common Stock and 71,427 shares of Class C
Common Stock. No shares of Class D Common Stock or Conversion Common Stock were
outstanding at December 31, 1996. The holders of Class A Common Stock, Class B
Common Stock and Class C Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, except that the holders of Class A
Common Stock voting as a separate class are entitled to elect five directors of
the Parent, the holders of Class B Common Stock voting as a separate class are
entitled to elect five directors of the Parent and the holders of Class C Common
Stock voting as a separate class are entitled to elect one director of the
Parent. The Class D Common Stock is nonvoting except as may otherwise be
required by applicable law. Upon issuance, the Conversion Common Stock will be
entitled to one vote per share on all matters submitted to a vote of
stockholders.
Subject to the preferences applicable to the outstanding Preferred Stock,
beneficial owners of Common Stock are entitled to receive ratably those
dividends declared by the Board of Directors out of legally available funds. In
the event of a liquidation, dissolution or winding up of the Parent, the holders
of Common Stock are entitled to share ratably in all assets remaining after all
liabilities and the liquidation preference attributable to the outstanding
Preferred Stock has been paid. The holders of Common Stock have no preemptive
rights or cumulative voting rights and no rights to convert their Common Stock
into any other securities, except that the Classed Common Stock is convertible
into Conversion Common Stock as provided above. All outstanding shares of Common
Stock are fully paid and nonassessable.
The Board of Directors of the Parent is authorized to fix the dividend
rights and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund and any other rights, preferences,
privileges and restrictions applicable to each series of Preferred Stock. As of
December 31, 1996
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the Board of Directors had designated two series of Preferred Stock comprised of
142,500 shares of Series A Redeemable Cumulative Preferred Stock ("Series A
Preferred Stock") and 82,500 shares of Series B Redeemable Cumulative Preferred
Stock ("Series B Preferred Stock"). As of December 31, 1996 there were 142,500
shares of Series A Preferred Stock outstanding and 82,500 shares of Series B
Preferred Stock outstanding. Each share of Series A Preferred Stock and Series B
Preferred Stock has a stated value of $100.00.
The Series A Preferred Stock is entitled to receive dividends at the rate of
14.5% per annum on the stated value of each share of Series A Preferred Stock
when, as and if declared payable by the Board of Directors. If accrued dividends
are not paid, the unpaid dividends accumulate annually and accrue dividends at
the rate of 14.5% per annum. The Parent has not paid any cash dividends on the
Series A Preferred Stock and, due to restrictions in the Notes and the Senior
Bank Facility, does not expect to pay cash dividends on the Series A Preferred
Stock for the foreseeable future. The Parent may redeem the Series A Preferred
Stock at its election in whole or in part at any time upon payment of the stated
value of the shares of Series A Preferred Stock being redeemed plus all accrued
and unpaid dividends thereon. Upon the occurrence of certain events involving a
merger, a sale of all or substantially all of the assets or a change in control
(as defined) of the Parent, the holders of Series A Preferred Stock are entitled
to require the Parent to redeem all (or such lesser part as may be selected by
the holder) shares of Series A Preferred Stock for a redemption price of $100.00
per share plus accrued and unpaid dividends thereon. In addition, the Parent is
required to redeem any Series A Preferred Stock outstanding on June 15, 2007.
Upon the liquidation of the Parent each share of Series A Preferred Stock is
entitled to a liquidation preference of $100.00 plus all accrued and unpaid
dividends thereon.
The Series B Preferred Stock is pari passu with, and has the same rights,
preferences and privileges as, the Series A Preferred Stock, except that the
Series B Preferred Stock is not subject to mandatory redemption on June 15,
2007. Accordingly, each share of Series B Preferred Stock is entitled to
participate pro rata with the holders of Series A Preferred Stock in the payment
of dividends, as well as amounts paid upon redemption or liquidation.
The table below sets forth the beneficial ownership of each class of issued
and outstanding capital stock of the Parent, as of December 31, 1996, by each
director of Astor Corporation, each of the executive officers of Astor
Corporation listed under "Management," the directors and executive officers of
Astor Corporation as a group and each person who at such time beneficially owned
more than 5% of the outstanding shares of any class of voting securities of the
Parent.
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<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
---------------------------------------- -----------------------------------
NUMBER OF NUMBER OF
NAME AND ADDRESS OF BENEFICIAL SHARES AND PERCENTAGE SHARES AND PERCENTAGE OF
OWNER CLASS (1) OF CLASS (1)(2) SERIES (1) CLASS (3)
- ----------------------------------- ---------------------- ---------------- ------------------- --------------
<S> <C> <C> <C> <C>
Petrowax Equity Partners I, L.P. 535,715 Class A 100.0% 58,928 Series B 71.4%
(4)(5)............................
Petrowax Equity Partners II, L.P. 142,857 Class B 100.0 15,714 Series B 19.0
(4)(5)............................
Petrowax Equity Partners III, L.P. 35,714 Class C 50.0 3,929 Series B 4.8
(4)(5)............................
Petrowax Equity Partners IV, L.P. 35,713 Class C 50.0 3,929 Series B 4.8
(4)(5)............................
UBS Partners Inc................... 409,090 Class C(6) 85.1 142,500 Series A 100.0
299 Park Avenue,
New York, NY 10171-0026
Alan J. Andreini (7)............... -- -- -- --
Adrian Browne (8).................. 1,091 Class D(9) 100.0 -- --
Thomas P. Causer (10).............. 1,364 Class D(9) 100.0 -- --
Richard R. Crowell (4)............. -- -- -- --
John F. Gottshall (10)............. 2,045 Class D(9) 100.0 -- --
Ronald B. Hallewell (10)........... 1,364 Class D(9) 100.0 -- --
Mark C. Hardy (4).................. -- -- -- --
David E. Hawkins (10).............. 1,364 Class D(9) 100.0 -- --
Jose C. Houssa (8)................. 2,045 Class D(9) 100.0 -- --
Kurt B. Larsen (4)................. -- -- -- --
Justin Maccarone (11).............. -- -- -- --
Gerald L. Parsky (4)(5)............ 535,715 Class A 100.0 82,500 Series B 100.0
142,857 Class B 100.0
71,427 Class C 100.0
Richard K. Roeder (4).............. -- -- -- --
C. Richard Spalton (8)............. 6,818 Class D(9) 100.0 -- --
Boyd D. Wainscott (10)............. 16,364 Class D(9) 100.0 -- --
W. Montague Yort (4)............... -- -- -- --
All directors and officers as a 82,500 100.0%
group (16 persons)................ 535,715 Class A 100.0
142,857 Class B 100.0
71,427 Class C 100.0
32,455 Class D(9) 100.0
</TABLE>
- ------------------------
(1) The shares of Common Stock underlying options, warrants, rights or
convertible securities that are exercisable as of December 31, 1996 or that
will become exercisable within 60 days thereafter are deemed to be
outstanding for the purpose of calculating the beneficial ownership of the
holder of such options, warrants, rights or convertible securities, but are
not deemed to be outstanding for the purpose of computing the beneficial
ownership of any other person. As a result, the aggregate percentage
ownership of a particular class of Common Stock may exceed 100.0%.
(2) The percentages shown are with respect to the individual classes of Classed
Common Stock.
(3) Percentages shown are with respect to the Series A Preferred Stock and the
Series B Preferred Stock of the Parent.
(4) The address of such beneficial holder is 1800 Century Park East, Suite 1000,
Los Angeles, California 90067.
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(5) The general partner of each of Petrowax Equity Partners I L.P., Petrowax
Equity Partners II L.P., Petrowax Equity Partners III L.P. and Petrowax
Equity Partners IV L.P. (collectively, the "Investment Partnerships") is CC
1800, the sole limited partner of which is Gerald L. Parsky and the general
partner of which is Century City Management Partners L.P., a Delaware
limited partnership ("CCMP"). The sole limited partner of CCMP is Mr. Parsky
and its general partner is a Delaware corporation which is wholly owned by
Mr. Parsky. Due to Mr. Parsky's dispositive power over shares of Common
Stock and Preferred Stock owned by each of the Investment Partnerships, Mr.
Parsky may be deemed to beneficially own all the shares of Common Stock and
Preferred Stock owned by each of the Investment Partnerships.
(6) Represents shares of Class C Common Stock issuable upon the exercise of
409,090 warrants that are immediately exercisable at $10.64 per share.
(7) Mr. Andreini is a limited partner of Petrowax Equity Partners III, L.P.
(8) The address of such beneficial holder is Tavistock Road, West Drayton
Middlesex, UB7 7 RA England.
(9) Represents shares of Class D Common Stock issuable upon the exercise of
immediately exercisable options granted under the 1995 Stock Option Plan of
the Parent.
(10) The address of such beneficial holder is 8521 Six Forks Road, Suite 105,
Raleigh, North Carolina 27615.
(11) Mr. Maccarone is a Director of UBS Partners, the beneficial owner of
142,500 shares of Series A Preferred Stock of the Parent and warrants to
purchase 409,090 shares of Class C Common Stock.
STOCKHOLDERS AGREEMENT
The following is a summary description of the principal terms of the
Stockholders Agreement dated as of June 27, 1995 among the Parent and certain of
its stockholders, optionholders and warrantholders (the "Stockholders
Agreement"). This summary description does not purport to be complete and is
subject to and qualified in its entirety by reference to the definitive
Stockholders Agreement.
The Stockholders Agreement provides that, with certain limited exceptions,
Petrowax Equity Partners I L.P. ("P-1"), Petrowax Equity Partners II L.P.
("P-2"), Petrowax Equity Partners III L.P. ("P-3") and Petrowax Equity Partners
IV L.P. ("P-4" and, collectively with P-1, P-2 and P-3, the "Investment
Partnerships"), and UBS Partners, each of which holds shares of or warrants to
purchase Common Stock and Preferred Stock of the Parent, and certain transferees
of such entities and any other stockholders, option holders and warrantholders
of the Parent described in the Stockholders Agreement (the "Restricted
Stockholders"), are limited in their ability to transfer any of their respective
shares or any interest therein without, in the case of P-1, P-2, P-3 and P-4,
the prior approval of the Parent and UBS Partners (so long as UBS Partners
maintains a certain level of ownership of the Parent's stock).
The Stockholders Agreement provides, subject to certain exceptions, for
certain rights of first refusal in favor of P-1, P-2 and UBS Partners and
certain related entities in the event that any other Restricted Stockholder
desires to transfer his or her shares of Common Stock, Preferred Stock or
Warrants to any person or entity other than an affiliate or associate of such
person, the Parent or a Permitted Transferee (as defined in the Stockholders
Agreement). To the extent that P-1, P-2 and UBS Partners and certain related
entities elect to purchase fewer than all of the shares proposed to be sold by
such selling Restricted Stockholder as provided in the Stockholders Agreement,
the Parent will have a right of first refusal with respect to any such unsold
shares. The first refusal rights will terminate with respect to all shares held
by each Restricted Stockholder upon the effective date of the registration
statement for a qualified initial public offering by the Parent as provided in
the Stockholders Agreement. All first refusal rights of UBS Partners and related
entities will terminate when UBS Partners no longer maintains a certain level of
ownership of the Parent's stock.
Subject to the provisions of the Stockholders Agreement, in the event that
P-1 and P-2 desire to accept a third party offer from a non-affiliate to
purchase all outstanding shares of Common Stock held by them, to effect a
business combination of the Parent and such offeror or an affiliate thereof or
to purchase all or substantially all of the assets of the Parent, the other
Restricted Stockholders will be required to sell all of their shares of Common
Stock of the Parent and securities exercisable or convertible into Common Stock
of the Parent to such Offeror on the terms set forth in such acquisition
proposal or to vote all of their shares in
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favor of such acquisition proposal, as the case may be, and to take all actions
necessary or appropriate to cause the Parent to consummate the transaction. The
rights and obligations described in this paragraph will terminate with respect
to all shares held by each Restricted Stockholder upon the earlier of (i) the
effective date of the registration statement for a qualified initial public
offering by the Parent as described in the Stockholders Agreement or (ii) if UBS
Partners so elects, the occurrence of a change in control of the Parent as
described in the Stockholders Agreement.
In the event that any of the Investment Partnerships desire to transfer any
shares of Common Stock and/ or Preferred Stock held by them, the other
Restricted Stockholders (other than the Investment Partnerships) will be
entitled to require, as a condition of such sale, that the proposed buyer
purchase shares of Common Stock or Preferred Stock from each such other
Restricted Stockholder on a pro rata basis. The rights and obligations described
in this paragraph will terminate with respect to all shares (other than Prefered
Stock) held by such other Restricted Stockholders upon the effective date of the
registration statement for a qualified initial public offering by the Parent.
All Restricted Stockholders will be entitled to certain "piggy-back"
registration rights with respect to shares of Common Stock in connection with a
qualified initial public offering by the Parent and in connection with certain
secondary public offerings effected by the Parent, as described in the
Stockholders Agreement. The Parent will bear all expenses incident to any such
registration, including but not limited to the reasonable fees and expenses of a
single counsel retained by the holders of a majority of such shares being
registered; however, each selling stockholder will be responsible for the
underwriting discounts and commissions and transfer taxes in connection with
shares sold by such stockholder. Each selling stockholder and the underwriters
through whom shares are sold on behalf of a selling stockholder will be entitled
to indemnification from the Parent against certain liabilities, including
liabilities under the Securities Act. UBS Partners is entitled to certain
"demand" registration rights with respect to certain shares of Common Stock or
shares of Series A Preferred Stock, subject to certain limitations. UBS Partners
may exercise this right two times, but no earlier than the earlier of June 27,
2002 or nine months after a qualified initial public offering by the Parent.
The Stockholders Agreement provides certain preemptive rights to UBS
Partners and certain related entities if the Parent proposes to sell or issue
shares of Common Stock or Preferred Stock or any securities exercisable for or
convertible into such stock or if a subsidiary of the Parent proposes to sell or
issue any equity securities or securities exercisable for or convertible into
equity securities, such that UBS Partners and cetain related entities will be
allowed priority to purchase shares, subject to certain limited exceptions,
necessary to maintain the equity ownership level of UBS Partners and such
related entities immediately prior to such issuance. Such rights will terminate
upon the effective date of the registration statement for a qualified initial
public offering by the Parent.
After UBS Partners, UBS or their respective affiliates are no longer
creditors of the Parent or its subsidiaries with respect to commercial loan or
revolving credit facility indebtedness and provided UBS Partners maintains a
certain level of ownership of the Parent's stock, UBS Partners will be entitled
to nominate two directors to the Board of Directors of the Parent and one member
of each board of directors of Astor Holdings II and Astor Corporation. The
Restricted Stockholders have agreed to vote their shares of Class A Common Stock
in whatever manner is necessary in order to elect one such nominee to the Board
of Directors of the Parent during such period and to vote their shares of Class
B Common Stock in whatever manner is necessary in order to elect a second such
nominee to the Board of Directors of the Parent during such period.
The Stockholders Agreement may be amended only by a written agreement
executed by the Parent, P-1, P-2 and UBS Partners, if then a stockholder. With
the exception of certain provisions thereof which shall survive, the
Stockholders Agreement will terminate on the earlier to occur of June 27, 2005
and the written approval of P-1, P-2 and UBS Partners, if then a stockholder.
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CERTAIN TRANSACTIONS
The Company believes the transactions described below that were entered into
by Astor Holdings II and Astor Corporation and its subsidiaries were beneficial
to the respective companies, and were no less favorable to the respective
companies as could have been obtained from unaffiliated third parties pursuant
to arms-length negotiations.
TRANSACTIONS WITH CC 1800 AND ITS AFFILIATES
In connection with the acquisition of ABI by Astor Coporation, an indirect
subsidiary of Astor Corporation paid ACP a financial advisory fee in the
aggregate amount of $1.2 million. ACP is a limited partnership, the general
partner of which is controlled by and the limited partners of which are Messrs.
Crowell, Parsky and Roeder, each of whom is a director of the Parent, Astor
Holdings II and Astor Corporation. Messrs. Hardy, Larsen and Yort, each of whom
is also a director of the Parent, Astor Holdings II and Astor Corporation, are
also employees of ACP. In connection with the acquisition of Astor Corporation
by the Parent, Astor paid CC 1800, a financial advisory fee of $500,000. Mr.
Parsky, a director of the Parent, Astor Holdings II and Astor Corporation, is
the sole limited partner and the sole beneficial owner of the general partner of
CC 1800. See "Management," "Ownership of Voting Securities" and "Prior
Reorganization."
CC 1800 was a secured and unsecured creditor in the Petrowax bankruptcy and
received certain payments in connection with the Petrowax reorganization
totaling $3.5 million. In addition, WSGP International, Inc., an affiliate of CC
1800, was a creditor in the Petrowax bankruptcy and received payments of
$751,754 on its pre-filing claims totaling $944,048 in connection therewith.
Immediately prior to the Effective Date of Petrowax's Reorganization Plan, CC
1800 was the beneficial owner of 42.5% of Petrowax's outstanding common stock.
All of the then outstanding equity interests of Petrowax were canceled upon
effectiveness of the Reorganization Plan. On the Effective Date of the
Reorganization Plan, the Investment Partnerships (all of which are controlled by
CC 1800) acquired newly issued Common Stock and Preferred Stock of the Parent
for $15.8 million, and Astor Holdings II acquired all the newly issued capital
stock of Petrowax for $10.0 million upon Petrowax's emergence from bankruptcy
and its change of name to Astor Corporation. In addition, on the Effective Date
of the Reorganization Plan, Astor Holdings II and Astor became wholly-owned
subsidiaries of the Parent. See "Prior Reorganization." For information
regarding the ownership interest of CC 1800 and its affiliates in the Parent see
"Ownership of Voting Securities."
CC 1800 has entered into a Management Services Agreement with the Parent and
UBS Capital pursuant to which CC 1800 earns management fees from the Parent in
the amount of approximately $412,000 annually. These management fees are subject
to annual increases to reflect increases in the Consumer Price Index. Under the
terms of the Management Services Agreement, the Parent will also (i) pay CC 1800
a transaction fee equal to 1.4% of the aggregate acquisition consideration in
connection with merger and acquisition services rendered in connection with
acquisitions made by the Parent or any of the Parent's affiliates in which the
Parent has an ownership interest and (ii) reimburse CC 1800 for all reasonable
out-of-pocket costs and expenses incurred in connection with the performance of
its obligations under the Management Services Agreement. No such payment of
compensation shall be made if prohibited by the Senior Bank Facility. Concurrent
with the consummation of the Offering and the ADCO Acquisition, the Parent will
pay CC 1800 a closing fee of $761,800 for financial advisory services. The
Management Services Agreement also provides that the Parent will provide CC 1800
and its directors, officers, employees, partners and affiliates with customary
indemnification against all actions not involving gross negligence or willful
misconduct, or in criminal proceedings, if there was no reasonable cause to
believe the alleged conduct was unlawful.
Historically, Astor Corporation has paid certain administrative expenses of
P-1, P-2, P-3 and P-4 aggregating less than $28,000 annually and expects to
continue to pay such expenses in the future.
TRANSACTIONS WITH UBS AND ITS AFFILIATES
In connection with the Prior Transactions, UBS provided $77.5 million to
Astor consisting of a term loan facility in the amount of $57.5 million and a
revolving credit facility in the amount of $20.0 million (the "UBS Credit
Facility"). The outstanding indebtedness under the UBS Credit Facility was
repaid upon the
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consummation of the Transactions out of a portion of the proceeds of the
Offering. The term loan had a maturity of seven years, with a stated
amortization schedule and an additional annual paydown based on cash flow. The
outstanding principal balance of the term loan facility bore interest at the per
annum rate of LIBOR plus 2.25%. The revolving facility had a term of seven
years, with all outstanding principal to be paid at maturity. The outstanding
principal balance of the revolving facility bore interest at a per annum rate
equal to LIBOR plus 2.25%. The loans were secured by substantially all of the
assets of Astor. In connection with the Prior Transactions, the Parent paid UBS
Capital financial advisory fees in the amount of $815,000. In connection with
the Prior Transactions, the Parent also sold UBS Partners, an affiliate of UBS
Capital, 142,500 shares of its Series A Preferred at a per share price of
$100.00 (the same price offered to and paid by other investors) and warrants to
purchase 409,090 shares of its Class C Common Stock exercisable at $10.00 per
share (the same price per share offered to and paid by the other investors) for
an aggregate consideration of $700,000.
UBS Capital is a party to the Parent's Management Services Agreement with CC
1800. Under the terms of the Management Services Agreement, the Parent will (i)
pay to UBS Capital a transaction fee equal to 0.6% of the aggregate acquisition
consideration for merger and acquisition services rendered in connection with
acquisitions made by the Parent or any of the Parent's affiliates in which the
Parent has an ownership interest and (ii) reimburse UBS Capital for all
reasonable out-of-pocket costs and expenses incurred in connection with the
performance of its obligations under the Management Services Agreement.
Concurrent with the consummation of the Offering and the ADCO Acquisition, the
Parent paid UBS Capital a closing fee of $326,500 for financial advisory
services. The Management Services Agreement also provides that the Parent shall
provide UBS Capital and its directors, officers, employees, partners and
affiliates with customary indemnification against all actions not involving
gross negligence or willful misconduct, or in criminal proceedings, if there was
no reasonable cause to believe the alleged conduct was unlawful.
TAX SHARING AGREEMENT
The Parent intends to elect to file a consolidated Federal income tax return
which will include Astor Holdings II, Astor Corporation and its direct and
indirect subsidiaries. Under Federal tax law, Astor Holdings II, Astor
Corporation and each of its subsidiaries can be held severally liable for all
the Federal income tax liabilities with respect to each consolidated Federal
income tax return of the Parent in which Astor Holdings II, Astor Corporation or
its subsidiaries, respectively, are included.
In order to allocate the tax liabilities among them, the Parent and its
subsidiaries have entered into a Tax Sharing Agreement (the "Tax Sharing
Agreement"), which provides in general that, so long as the Parent is required
to file consolidated Federal income tax returns which include Astor Corporation
or any of its subsidiaries, Astor will be responsible for paying to the Parent
the Federal tax liability that would be payable by Astor as though it filed a
consolidated Federal income tax return that included only Astor. Similar
provisions will apply with respect to the filing of combined or consolidated
state income or franchise tax returns and the payment of tax on such returns.
Under the Tax Sharing Agreement, the Parent will determine the reporting of
all items on its consolidated federal income tax returns and will be responsible
for all audits and controversies. The tax liability of Astor will be adjusted to
reflect adjustments resulting from resolved audits or other controversies and
appropriate payments or reimbursements will be made.
OTHER
For a discussion of certain indebtedness repaid to Alan J. Andreini, a
director of the Parent, Astor Holdings II and Astor Corporation, pursuant to the
Petrowax Reorganization Plan, see "Prior Reorganization."
PRIOR REORGANIZATION
Astor Corporation was incorporated as a new venture in 1989 in the State of
Delaware under the name Petrowax for the purpose of developing a wax production
business. As part of its start-up plan of operations,
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Petrowax acquired two lube oil and wax production facilities from Quaker State.
Shortly after the completion of the acquisition in 1990 and prior to the
acquisition of ABI and the contemplated acquisition of ADCO, Petrowax
encountered a number of operational and financial difficulties. First,
management of Petrowax had approved the acquisition of the Quaker State
facilities based on its belief that strong demand existed for microcrystalline
waxes, a high melt point specialty wax, and that one of the Quaker State
facilities could be converted and operated, in a cost-efficient manner, to
process the waxy components of A/B Crude, the principal raw material used in the
production of microcrystalline wax. The conversion of one of such Quaker State
facilities, however, proved significantly more costly and time consuming than
anticipated, and management underestimated the learning curve necessary to
produce microcrystalline wax to required specifications. Second, Petrowax had
entered into an exclusive marketing contract with a reseller of microcrystalline
wax. The contract provided that the reseller would buy microcrystalline wax for
resale at prices that assured compelling production economics. However, the long
lead times required to secure customer approvals, the reseller's inability to
perform its obligations to purchase the wax from Petrowax and the delay in
converting one of the facilities resulted in surplus inventory at Petrowax.
Third, Petrowax's management at the time was unable to develop downstream,
high-margin products due to Petrowax's then lack of extensive process knowledge
and limited product development capabilities. Finally, Petrowax had insufficient
working capital to implement its business plan and was forced to liquidate
inventory to fund day-to-day operations. As a result of these and other
difficulties and inefficiencies, Petrowax voluntarily filed for relief pursuant
to Chapter 11 of the U.S. Bankruptcy Code on February 25, 1992. For the year
ended March 31, 1992, Petrowax had an EBITDA loss of $18.3 million, a net loss
of $25.9 million and cash used by operating activities of $35.4 million.
Following the Filing, Petrowax took a number of steps to improve its
competitive position. Perhaps most importantly, Petrowax retained a turnaround
management team, which undertook a number of corrective actions, including the
renegotiation of substantially all of Petrowax's material contracts. These
corrective actions included (i) the renegotiation of Petrowax's primary supply
contract to provide for improved pricing and the delivery of higher quality waxy
components of A/B Crude oil, (ii) the termination of Petrowax's exclusive
marketing contract with its reseller, the establishment of a number of
non-exclusive reseller arrangements and the increase of Petrowax's direct sales
of its products, (iii) the arrangement of debtor-in-possession financing and
additional working capital to provide for short-term working capital needs, (iv)
the renegotiation of various transportation and terminaling contracts and (v)
the implementation of a number of overhead reduction measures. These steps by
the new management team resulted in (i) the tailoring of Petrowax's products to
meet market demands, (ii) the expansion of Petrowax's customer base and the sale
of its products at improved prices, (iii) the securing of raw materials for
longer, more efficient production runs and the elimination of inventory
liquidation, (iv) the reduction of Petrowax's transportation and terminaling
costs and (v) the streamlining of operations and the general reduction of
overhead costs. For the year ended March 31, 1994, Petrowax had EBITDA of $0.1
million, a net loss of $32.5 million and generated cash flow from operating
activities of $391,000. Included in the net loss was a provision of $25.9
million, representing the write-down of property, plant and equipment and other
intangible assets in order to recognize a permanent impairment of value.
After the above described corrective measures were taken, Petrowax focused
on its emergence from bankruptcy and improving its strategic position in the
marketplace. In June 1994, Mr. Boyd Wainscott, an experienced multinational
chemical company manager, joined Petrowax to lead it in developing and
implementing a strategic business plan. This strategic business plan included
(i) improving marketing functions and product distribution, (ii) developing more
higher-margin, value-added products, (iii) improving manufacturing operations
and increasing manufacturing capacity and (iv) pursuing acquisition
opportunities in the consolidating specialty chemicals industry. By implementing
this strategic plan, Petrowax was able to achieve EBITDA of $3.2 million, a net
loss of $1.5 million and generated cash flow from operating activities of
$859,000 for the year ended March 31, 1995. See "Business -- Recent History."
To further its strategic plan, simultaneously with its emergence from
bankruptcy and its recapitalization pursuant to the Reorganization Plan as of
June 28, 1995, Petrowax acquired ABI and changed its name from Petrowax to Astor
Corporation, a trade name of ABI. ABI had $11.4 million in EBITDA for the year
ended March 31, 1995.
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The combination of Astor and ABI created one of the largest producers of
specialty waxes in the world, based on sales, and a recognized U.K. manufacturer
of adhesives and sealants. The acquisition of ABI furthered Astor's strategic
plan by providing enhanced marketing capabilities and industry-recognized
product development capabilities. The acquisition and recapitalization also (i)
enabled Astor to increase its capital expenditures resulting in improved
production capacity and reliability, (ii) improved Astor's in-house marketing
and packaging capabilities resulting in improved product placement and (iii)
improved Astor's applied research and product development capabilities resulting
in the development of better uses for lower-valued production streams.
The following summary provides additional information concerning the key
elements of the Reorganization Plan. It reflects only certain basic elements of
the Reorganization Plan, which are more fully set forth in the Disclosure
Statement and the Reorganization Plan, copies of which are available from the
Company upon request.
FORMATION OF PARENT. CC 1800, a then-existing creditor and indirect
stockholder of Petrowax, organized the Parent for the purpose of (i) acquiring
100% of the common stock of Petrowax and (ii) simultaneously therewith acquiring
not less than 90% of the capital stock of ABI. Immediately prior to the
Effective Date of the Reorganization Plan, CC 1800 and its affiliates were the
beneficial owners of approximately 42.5% of the outstanding common stock of
Petrowax, had the power to elect all of the directors of Petrowax and were
creditors of Petrowax with claims aggregating approximately $12.9 million. CC
1800 is the general partner of each of the Investment Partnerships that own all
of the outstanding Common Stock of the Parent and all of the Series B Preferred
Stock of the Parent and is itself controlled by Gerald L. Parsky, a director of
the Parent, Astor Holdings II and Astor Corporation. See "Ownership of Voting
Securities."
CAPITAL INFUSION. Immediately prior to the Effective Date, the Parent
issued its currently outstanding shares of Common Stock and Preferred Stock for
an aggregate of $30.7 million. Of this amount $10.0 million was used to purchase
shares of capital stock of Petrowax, $17.2 million was contributed to the
capital of corporations that became subsidiaries of Astor Corporation upon
consummation of the ABI Acquisition, and the balance was used to pay a portion
of the fees and expenses incurred in connection with the Prior Transactions.
Pursuant to the Reorganization Plan, the shares of capital stock of Petrowax
were canceled without the payment of any consideration, and thus after the
effectiveness of the Reorganization Plan, the reorganized entity was a
wholly-owned subsidiary of the Parent. In connection with the effectiveness of
the Reorganization Plan and the Prior Transactions, Astor Corporation and
certain of its subsidiaries entered into the UBS Credit Facility, which included
a term loan facility in the principal amount of $57.5 million and a revolving
facility in the principal amount of $20.0 million. See "Certain Transactions."
PURCHASE OF ASTOR AND ABI. On the Effective Date, the Parent, through its
subsidiaries, acquired all of the outstanding shares of ABI for L40.0 million,
including the issuance of approximately L3.7 million of 8% Subordinated Notes
due 2003 (the "ABI Acquisition"). As a result of a series of subsequent
reorganization transactions, all of the U.S. assets and businesses of ABI were
transferred to Astor Corporation.
TREATMENT OF CREDITORS. The Reorganization Plan provided for the following
resolution and treatment of specific types and classes of claims:
(i) PRIORITY CLAIMS. Priority claims of the kind described in Sections
507(a)(1) through 507(a)(7) of the Bankruptcy Code, consisting generally of
professional fees and taxes, totaled approximately $1.6 million and were
paid in full under the Reorganization Plan.
(ii) SECURED CLAIMS OF SANWA. In connection with borrowings by Petrowax
under a loan agreement with Sanwa Business Credit Corporation ("Sanwa"),
Sanwa and Petrowax agreed, based on the value of certain collateral for this
indebtedness, that Sanwa had a secured claim of $7.6 million and an
unsecured claim of approximately $29.8 million. In satisfaction of Sanwa's
secured claim, Sanwa received $7.6 million in cash under the Reorganization
Plan.
(iii) SECURED AND ADMINISTRATIVE CLAIMS OF CC 1800. In connection with
borrowings by Petrowax from CC 1800 under a revolving loan facility entered
into in October 1990 and a debtor-in-possession financing entered into in
February 1992, CC 1800 and Petrowax agreed, based on the value of certain
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collateral for this indebtedness, that CC 1800 had secured and
administrative claims of approximately $3.5 million and a total unsecured
claim of approximately $9.4 million. In full satisfaction of CC 1800's
secured and administrative claims, CC 1800 received $3.5 million in cash
under the Reorganization Plan plus cash in an amount equal to the accrued
but unpaid interest owed on the debtor-in-possession financing.
(iv) SECURED AND ADMINISTRATIVE CLAIMS OF BRIDGE LENDERS. In connection
with borrowings in April 1990 by Petrowax under a bridge loan agreement with
certain bridge lenders (including WSGP International, Inc. (an affiliate of
CC 1800) and Alan J. Andreini, a director of the Parent, Astor Holdings II
and Astor Corporation) the bridge lenders and Petrowax agreed, based on the
value of certain collateral for this indebtedness, that the bridge lenders
had secured and administrative claims of $4.75 million and an unsecured
claim of approximately $1.3 million. In full satisfaction of their secured
and administrative claims, the bridge lenders received $4.75 million in cash
under the Reorganization Plan plus cash in an amount equal to the accrued
but unpaid interest owed on the bridge loan.
(v) UNSECURED CLAIMS. Unsecured claims consisting of trade claims,
claims for damages arising from the rejection of executory contracts,
contingent claims, certain environmental claims, litigation awards,
deficiency claims and all other unsecured claims totaled an estimated $48
million. Each holder of an unsecured claim received its pro rata share of
$875,000, payable in cash, except that no payments were made to Sanwa, CC
1800 or the bridge lenders, whose unsecured claims totaled approximately
$29.8 million, $9.4 million and $1.3 million, respectively.
The above-described reorganization transactions undertaken pursuant to the
Reorganization Plan, including the establishment of the UBS Credit Facility and
the completion of the ABI Acquisition, are collectively referred to in this
Memorandum as the "Prior Transactions."
SENIOR BANK FACILITY
Astor Corporation has entered into a Senior Secured Credit Agreement (the
"Senior Bank Facility") with The Chase Manhattan Bank (the "Bank") providing for
a six-year term loan (the "Bank Term Loan") denominated in eurosterling in an
amount not exceeding the U.S. dollar equivalent of $20.0 million and a six-year
revolving credit facility (the "Revolving Credit Facility") in an amount not
exceeding the U.S. dollar equivalent of $30.0 million (subject to borrowing base
limitations), which will be available in U.S. dollars or eurosterling on a
revolving basis. The Bank, which is acting as agent for the lenders (the
"Lenders"), is an affiliate of one of the Initial Purchasers. The following
description summarizes the principal terms of the Senior Bank Facility and is
qualified in its entirety by reference to such agreement.
The Bank Term Loan was made in a single drawing concurrent with the closing
of the Transactions and all of the proceeds were lent by Astor Corporation to
Astor Stag Ltd. and used to repay to UBS existing indebtedness of Astor Stag
Ltd. and ABI Acquisition 2 plc, both of which are subsidiaries of Astor
Corporation based in the U.K. The note evidencing the intercompany loan (the
"Intercompany Term Loan") by Astor Corporation to Astor Stag Ltd. is secured by
substantially all the assets of Astor Stag Ltd. and pledged in favor of the
Lenders. The Bank Term Loan is repayable in 21 quarterly installments, beginning
with a $1,000,000 installment on October 31, 1997 and continuing with
installments totaling $1,500,000 in 1998, $2,500,000 in 1999, $4,500,000 in
2000, $4,500,000 in 2001 and $6,000,000 in 2002. The final maturity of the Bank
Term Loan is October 31, 2002. The Intercompany Term Loan is repayable on
demand.
Subject to the satisfaction of customary conditions and meeting certain
borrowing base requirements, advances under the Revolving Credit Facility may be
made at any time prior to October 31, 2002 (the "Termination Date") to be used
(i) to finance permitted acquisitions, (ii) to refinance existing indebtedness
of Astor Corporation, ABI Acquisition 2 plc and Astor Stag Ltd. and (iii) to
finance the working capital needs of the Astor Corporation and its subsidiaries.
Up to $10.0 million of the Revolving Credit Facility will be available for
letters of credit. The funds available to be advanced may not exceed the
aggregate of 85% of the eligible accounts receivable of Astor Corporation and
certain of its subsidiaries and 50% of the eligible inventory of Astor
Corporation and its U.S. subsidiaries and certain of its foreign subsidiaries,
in each case as
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defined in the Senior Bank Facility and provided that eligible inventory cannot
constitute over half the borrowing base. All amounts advanced under the
Revolving Credit Facility become due and payable on the Termination Date. Astor
Corporation may pre-pay outstanding advances in whole or in part without
incurring any premium or penalty. Proceeds from revolver advances to be used by
subsidiaries in Europe will be lent by Astor Corporation to Astor Stag Ltd. and
the note evidencing such intercompany advances (the "Intercompany Advances")
will be secured and pledged on the same basis as the note evidencing the
Intercompany Term Loan. The Intercompany Advances will be repayable on demand
and there can be no assurance that they will remain outstanding at any time.
The Senior Bank Facility is secured by a first priority security interest in
all assets of Astor Corporation, all of the capital stock of Astor Corporation's
direct and indirect U.S. subsidiaries, 65% of the voting capital stock and 100%
of the non-voting capital stock of ABI Acquisition 2 plc and all of the capital
stock of Astor Corporation. The obligations of Astor Corporation under the
Senior Bank Facility are guaranteed on a senior secured basis by each of Astor
Corporation's existing and future U.S. subsidiaries.
The Bank Term Loan bears interest at the Eurosterling Rate plus 2.5%. At
Astor Corporation's election, amounts advanced under the Revolving Credit
Facility will bear interest at (i) the Alternate Base Rate plus 1.25%, (ii) the
Eurodollar Rate plus 2.5% or (iii) the Eurosterling Rate plus 2.5%. The
foregoing margins are subject to reduction to specified amounts if the ratio of
Total Debt to EBITDA (as such terms are defined in the Senior Bank Facility) is
3.5 or lower for the most recent four-quarter period. The "Alternate Base Rate"
is equal to the highest of (a) the Bank's prime rate, (b) the secondary market
rate for three-month certificates of deposit plus 1.0% and (c) the federal funds
rate plus 0.5%, in each case as in effect from time to time. The "Eurodollar
Rate" is the rate offered to the Bank for eurodollar deposits for one, three or
six months (as selected by Astor Corporation) in the interbank eurodollar market
in the approximate amount of the Bank's share of the advance under the Revolving
Credit Facility. The "Eurosterling Rate" is the rate offered to the Bank for
eurosterling deposits for one, three or six months (as selected by Astor
Corporation) in the interbank eurosterling market in the approximate amount of
the Bank's share of the Bank Term Loan or the advance under the Revolving Credit
Facility. Interest payments on advances which bear interest based upon the
Alternate Base Rate are due quarterly in arrears and on the Termination Date,
and interest payments on the Bank Term Loan or advances which bear interest
based upon the Eurodollar Rate or the Eurosterling Rate are due on the last day
of each relevant interest period (or, if such period exceeds three months,
quarterly after the first day of such period).
Astor Corporation is required to prepay the Bank Term Loan (or if the Bank
Term Loan is fully repaid, to repay and permanently reduce the Revolving Credit
Facility) with (i) 100% of the net proceeds of sales of equity or incurrence of
certain indebtedness (provided that up to 50% of the net proceeds of any
issuance of equity may be used by the Parent to repurchase its preferred stock),
(ii) 100% of the net proceeds of asset sales (with exceptions set forth in the
Senior Bank Facility) and (iii) 50% of annual excess cash flow (as defined in
the Senior Bank Facility) of Astor Corporation and its subsidiaries, beginning
with the fiscal year ended March 31, 1999.
The Senior Bank Facility contains extensive affirmative and negative
covenants, including among others, covenants relating to leverage, interest and
fixed charge coverage and certain limits on, among other things, the ability of
Astor to incur indebtedness, make capital expenditures, create liens, engage in
mergers and consolidations, make restricted payments, make asset sales, make
capital expenditures or investments, make optional payments and modifications of
subordinated and other debt instruments, engage in transactions with affiliates,
engage in sale/leasebacks, effect changes in fiscal year end, grant negative
pledges or agree to restrictions on Astor subsidiaries' ability to pay dividends
or make distributions. The Senior Bank Facility also contains customary events
of default provisions, including upon a change of control. Astor Corporation
will pay various fees and closing costs in connection with the arrangement of
the Senior Bank Facility customary for transactions of this type.
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DESCRIPTION OF NOTES
Set forth below is a summary of certain provisions of the Notes. The Notes
will be issued pursuant to an indenture (the "Indenture"), dated as of October
8, 1996, by and among the Company, the Guarantor and State Street Bank and Trust
Company, as trustee ( the "Trustee"). The terms of the Indenture are also
governed by certain provisions contained in the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The following summaries of certain
provisions of the Indenture are summaries only, do not purport to be complete
and are qualified in their entirety by reference to all of the provisions of the
Indenture. Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to them in the Indenture. Wherever particular provisions
of the Indenture are referred to in this summary, such provisions are
incorporated by reference as a part of the statements made, and such statements
are qualified in their entirety by such reference. A copy of the Indenture is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The definitions of certain terms used in the following summary are set
forth below under "-- Certain Definitions."
The description of the Notes contained herein assumes that all Old Notes are
exchanged for Notes in the Offer. To the extent that Old Notes remain
outstanding after the consummation of the Offer, Old Notes and Notes will be
repurchased PRO RATA purusant to the repurchase provisions contained herein.
GENERAL
The Notes will be unsecured senior subordinated obligations of the Company,
limited in aggregate principal amount to $110.0 million, subordinated in right
of payment to all existing and future Senior Debt of the Company, including
Indebtedness pursuant to the Senior Bank Facility, and will be fully and
unconditionally Guaranteed by the Guarantors on a senior subordinated basis
pursuant to Note Guarantees that will be subordinated in right of payment to all
Senior Debt of the Guarantors. The Notes will be effectively subordinated to all
indebtedness and liabilities of the Company's Subsidiaries which are not
Guarantors. See "-- Subordination."
As of the Issue Date, all of the Company's Subsidiaries will be Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $110.0 million
and will mature on October 15, 2006. Interest on the Notes will accrue at the
rate of 10 1/2% per annum and will be payable semi-annually in arrears on each
October 15 and April 15, commencing on April 15, 1997, to Noteholders of record
on the immediately preceding October 1 and April 1. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of and, premium, if any, and interest and Liquidated Damages (as
defined herein), if any, on the Notes will be payable at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest may be made by check
mailed to the Noteholders at their respective addresses set forth in the
register of Noteholders. Interest payable on the Notes held through DTC will be
available to DTC participants (as defined herein) on the business day following
payment thereof by the Company. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
in principal amount and integral multiples thereof; provided that Notes will
initially be issued only to Institutional Accredited Investors (as defined
herein) in denominations of $250,000 of principal amount and any integral
multiple of $1,000 in excess thereof.
NOTE GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally Guaranteed by Astor Holdings II and Restricted Subsidiaries that
become Subsidiary Guarantors in accordance with the Indenture after the Issue
Date (collectively, the "Guarantors"). See "-- Certain Covenants -- Future
Subsidiary
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Guarantors." The Note Guarantee of each Guarantor will be subordinated to the
prior payment in full of all Senior Debt of such Guarantor on substantially the
same terms as the Notes are subordinated to the Senior Debt of the Company. The
obligations of each Subsidiary Guarantor under its Note Guarantee will be
limited so as not to constitute a fraudulent conveyance under applicable law.
The obligations of any future Restricted Subsidiary of the Company that
Guarantees the Notes may be subject to avoidance under state or federal
fraudulent transfer laws in the event of the bankruptcy, insolvency or other
financial difficulty of such Guarantor. Under those laws, if a court in a
lawsuit by an unpaid creditor (or representative of creditors of such Guarantor,
such as a trustee in bankruptcy or such Guarantor as debtor-in-possession) were
to find that at the time such Guarantor incurred its obligations under its Note
Guarantee, (a) it did not receive reasonably equivalent value for incurring such
Guarantee and (b) it either (i) was insolvent, (ii) was rendered insolvent,
(iii) was engaged in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital or (iv) intended to
incur or believed that it would incur debts beyond its ability to pay as such
debts matured, such court could avoid the Guarantee and such Guarantor's
obligations thereunder and direct the return of any amounts paid thereunder to
the Guarantor or to a fund for the benefit of its creditors. In addition,
regardless of the factors identified in the foregoing clauses (a) and (b), the
court could avoid the Note Guarantee and direct such repayment if it found that
the Note Guarantee was entered into with actual intent to hinder, delay or
defraud such Guarantor's creditors. The measure of insolvency for purposes of
the foregoing will vary depending on the law of the jurisdiction being applied.
Generally, however, an entity would be considered insolvent if the sum of its
debts (including contingent, disputed and unliquidated debts) is greater than
all of its property at a fair valuation or if the present fair salable value of
its assets is less then the amount that will be required to pay its probable
liability on its existing debts as they become due.
SUBORDINATION
The payment by the Company of principal of, and premium, if any, interest
and Liquidated Damages, if any, on the Notes, and by the Guarantors of such
amounts under their respective Note Guarantees (pursuant to the terms thereof or
by acceleration), will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Debt of such obligor,
whether outstanding on the Issue Date or thereafter incurred. As of June 30,
1996, on a pro forma basis after giving effect to the issuance of the Old Notes
and the application of the estimated net proceeds therefrom, the completion of
the ADCO Acquisition, the funding of the Senior Bank Facility and the repayment
of amounts outstanding under the UBS Credit Facility, the aggregate amount of
outstanding Senior Debt of the Company and its Subsidiaries would be $21.8
million.
Upon any distribution to creditors of the Company or any Guarantor in a
liquidation or dissolution of the Company or such Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or such Guarantor or its property, any assignment for the benefit of
creditors or any marshalling of the assets and liabilities of the Company or
such Guarantor, the holders of Senior Debt of such entity will be entitled to
receive payment from such entity in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not
payable or allowable in such proceeding) before the Noteholders will be entitled
to receive any payment or distribution with respect to the Notes, and until all
Obligations of such entity with respect to Senior Debt are paid in full, any
payment or distribution to which the Noteholders would be entitled shall be made
to the holders of Senior Debt of such entity (except Noteholders may receive
Permitted Junior Securities and payments made from the trust described under "--
Legal Defeasance and Covenant Defeasance").
The Company and each Guarantor also may not make any payment upon or in
respect of the Notes, including the principal of, premium, if any, or interest
on the Notes, or to repurchase or redeem any Notes or to pay any Liquidated
Damages (except in such Permitted Junior Securities or from the trust described
under "Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Debt (or, in the case of Senior Debt under the Senior Bank Facility, any other
monetary obligations in respect thereof) occurs and is continuing beyond any
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applicable period of grace (whether at maturity, at a date of required
prepayment, by declaration or otherwise) or (ii) any other default occurs and is
continuing with respect to Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity (or, in the case of letters of credit, to require cash
collateralization) and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or the holders of any Designated Senior Debt.
Payments on the Notes may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in case
of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received, unless the maturity of any Designated
Senior Debt has been accelerated (or cash collateral is required for letters of
credit). No new period of payment blockage under clause (ii) above may be
commenced pursuant to a Payment Blockage Notice unless and until 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice.
The Indenture further requires that the Company promptly notify holders of
Designated Senior Debt if payment of the Notes is accelerated because of an
Event of Default. Neither the Company nor any Guarantor may pay the Notes until
five Business Days after such holders receive notice of acceleration and,
thereafter, may not pay the Notes unless the subordination provisions of the
Indenture otherwise permit payment at that time.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company or any Guarantor (other than Permitted
Junior Securities) shall be received by the Trustee or the Noteholders at a time
when such payment or distribution is prohibited by the subordination provisions
of the Indenture, such payment or distribution shall be held in trust for the
benefit of the holders of such Senior Debt, and shall be paid or delivered by
the Trustee or such Noteholders, as the case may be, to the holders of such
Senior Debt remaining unpaid or to their representative or representatives, or
to the trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Debt may have been issued, ratably according to
the aggregate principal amounts remaining unpaid on account of such Senior Debt
held or represented by each, for application to the payment of all such Senior
Debt in full after giving effect to any concurrent payment or distribution to
the holders of such Senior Debt.
As a result of the subordination provisions described above, in the event of
a liquidation, insolvency or similar proceeding, Noteholders may recover less
ratably than creditors of the Company or a Guarantor who are holders of Senior
Debt of the Company or such Guarantor or who are not subject to similar
subordination provisions. See "Risk Factors -- Subordination of the Notes and
the Guarantee."
OPTIONAL REDEMPTIONS
The Notes will not be redeemable at the Company's option prior to October
15, 2001, except in connection with Public Equity Offerings as set forth below.
Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below, together with accrued and unpaid interest and Liquidated
Damages thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on October 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ -----------
<S> <C>
2001.................................................................... 105.25%
2002.................................................................... 103.50%
2003.................................................................... 101.75%
2004 and thereafter..................................................... 100.00%
</TABLE>
Until October 15, 1999, upon one or more Public Equity Offerings, up to $35.0
million aggregate principal amount of the Notes may be redeemed at the option of
the Company within 75 days after such Public Equity Offering, on not less than
30 days' but not more than 60 days' notice to each holder of the Notes to be
redeemed, with cash from the net cash proceeds of such Public Equity Offering in
the case of an offering by
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the Company, or from such proceeds invested directly or indirectly by the Parent
or Astor Holdings II in Qualified Capital Stock in the case of an offering by
the Parent or Astor Holdings II, as the case may be, at 109.5% of principal,
together with accrued and unpaid interest to the date of redemption; PROVIDED
that immediately following each such redemption not less than $75.0 million
aggregate principal amount of the Notes is outstanding.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a PRO RATA basis, by lot
or by such other method as the Trustee deems fair and appropriate; PROVIDED that
no Notes with a principal amount of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Noteholder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note 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
Noteholder thereof upon cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption.
Except as set forth below under "-- Change of Control" and "-- Certain
Covenants -- Asset Sales and Sales of Subsidiary Stock," the Company is not
required to make any mandatory redemption or sinking fund payments with respect
to the Notes.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Noteholder will have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Noteholder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control, the Company
will mail a notice to each Noteholder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes pursuant
to the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Notes as
a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the foregoing provisions, the
Company shall comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the Change of Control
provisions in the Indenture.
On the date upon which the Company is to make a Change of Control Payment
(the "Change of Control Payment Date"), the Company will, to the extent lawful,
(1) accept for payment all Notes or portions thereof properly tendered pursuant
to the Change of Control Offer, (2) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Notes or portions
thereof so tendered and (3) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Noteholder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each
Noteholder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any, PROVIDED that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of Notes required by this covenant. The Company may be
prohibited in certain circumstances,
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including, without limitation, if it fails to obtain such requisite consents,
from making such repurchases. In addition, there can be no assurance that the
Company would have sufficient resources to repay all outstanding Senior Debt and
to repurchase the Notes tendered for repurchase by the Noteholders. See "Risk
Factors -- Control by Indirect Stockholder; Consequences of Change of Control."
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Noteholders to require that the Company repurchase or
redeem the Notes in the event of a takeover, recapitalization or similar
restructuring.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole,
of the assets of Astor Holdings II, the Company and its Restricted Subsidiaries
taken as a whole and of the assets of the Parent, Astor Holdings II, the Company
and its Restricted Subsidiaries taken as a whole. Although there is a developing
body of case law interpreting the phrase "substantially all," there is no
precise established definition of the phrase under applicable law. Accordingly,
the ability of a Noteholder to require the Company to repurchase such Notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole, of the assets of Astor Holdings II, the Company and its Restricted
Subsidiaries taken as a whole and of the assets of the Parent, Astor Holdings
II, the Company and its Restricted Subsidiaries taken as a whole to another
Person or group may be uncertain.
CERTAIN COVENANTS
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, and Astor Holdings II will not, directly or
indirectly, create, incur, issue, assume, Guarantee or otherwise become directly
or indirectly liable with respect to (collectively, "incur") any Indebtedness
(including as a result of an acquisition) and will not issue any Disqualified
Stock; PROVIDED that the Company and the Subsidiary Guarantors may incur
Indebtedness or issue shares of Disqualified Stock if (i) no Default or Event of
Default shall have occurred and be continuing at the time of, or would occur
after giving effect on a pro forma basis to, such incurrence of Indebtedness or
issuance of Disqualified Stock and (ii) the Fixed Charge Coverage Ratio for
Astor Holdings II's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least (x) 2.0 to 1 if such incurrence or issuance
occurs on or before October 8, 1998 or (y) 2.25 to 1 if such incurrence or
issuance occurs at any time thereafter, in each case determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom) as if
the additional Indebtedness had been incurred or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and any Domestic Restricted Subsidiary
of Indebtedness pursuant to the Senior Bank Facility in a maximum amount not
to exceed at any time (A) an aggregate principal amount of $20.0 million (or
its foreign currency equivalent) under the Bank Term Loan LESS the aggregate
amount of all Net Proceeds applied to permanently reduce principal
Indebtedness under the Bank Term Loan pursuant to the covenant entitled
"Asset Sales and Sales of Subsidiary Stock" and (B) in the case of other
Indebtedness under the Senior Bank Facility consisting of revolving credit,
working capital and/or letters of credit issued thereunder, in an aggregate
principal amount (with letters of credit being deemed to have a principal
amount equal to the maximum reimbursement obligation of the Company or the
relevant Restricted Subsidiary thereunder) outstanding at any time not
greater
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than the greater of (such greater amount, the "Working Capital Amount") (1)
$30.0 million (or its foreign currency equivalent), LESS the amount of all
Net Proceeds applied to permanently reduce the commitments under the
Revolving Credit Facility and (2) the Borrowing Base; PROVIDED that a change
in currency exchange rates which causes the amount of Indebtedness of the
Company and its Domestic Restricted Subsidiaries outstanding to exceed the
levels specified above shall not be deemed an incurrence of Indebtedness;
(ii) the incurrence by the Company and any Restricted Subsidiary of
Indebtedness that is fully secured by letters of credit permitted pursuant
to clause (i)(B) above or clause (vi) below;
(iii) the incurrence by the Company and any Guarantor of Indebtedness
represented by the Notes and the Note Guarantees;
(iv) the incurrence by the Company or any Restricted Subsidiary of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund
Existing Indebtedness, Existing Disqualified Stock or other Indebtedness
that was permitted by the Indenture to be incurred;
(v) the incurrence (a) by any Wholly Owned Restricted Subsidiary of
Indebtedness owing to and held by the Company, (b) by the Company or any
Wholly Owned Restricted Subsidiary of Indebtedness owing to and held by any
Wholly Owned Restricted Subsidiary or (c) by ABI Acquisition 2 plc of
Indebtedness owing to and held by ABI Acquisition 1 plc, by ABI Acquisition
1 plc of Indebtedness owing to and held by Astor Holdings II or by Astor
Holdings II of Indebtedness owing to and held by the Parent, in each case
pursuant to the provisions of the ABI Shareholder Intercompany Notes;
PROVIDED that such Indebtedness owed by the Company or any Wholly Owned
Restricted Subsidiary that is a Guarantor to any Wholly Owned Restricted
Subsidiary that is not a Guarantor is made expressly subordinate to the
payment in full of all Obligations with respect to the Notes and the Note
Guarantees;
(vi) the incurrence by Restricted Subsidiaries, other than Domestic
Restricted Subsidiaries, of Indebtedness incurred for working capital
purposes and any Guarantee thereof by the Company or Astor Holdings II in an
aggregate outstanding principal amount for all such Indebtedness permitted
solely pursuant to this clause (vi), and together with the aggregate
outstanding principal amount of Indebtedness permitted pursuant to clause
(i)(B) above, does not exceed at any time the Working Capital Amount; and
(vii) the incurrence by the Company, Astor Holdings II or any Restricted
Subsidiary of Indebtedness (in addition to Indebtedness permitted by clauses
(i) - (vi)) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $10 million (or its
foreign currency equivalent).
For purposes of this covenant each of the following events (but not solely
the following events) shall be deemed to constitute an "incurrence" of
Indebtedness upon the happening thereof: (i) any event that causes any
Unrestricted Subsidiary to be a Restricted Subsidiary shall be deemed to be the
incurrence of such former Unrestricted Subsidiary's Indebtedness by such
Restricted Subsidiary and (ii) any sale of equity or other event that results in
any Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted
Subsidiary or a transfer of any such Indebtedness by the Company to a Person
that is not the Company, or by a Wholly Owned Restricted Subsidiary to a Person
that is not a Wholly Owned Restricted Subsidiary, shall be deemed to be an
incurrence by such former Wholly Owned Restricted Subsidiary or such Person upon
the happening of such event.
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, and Astor Holdings II will not, directly or
indirectly; (i) declare or pay any dividend or make any other payment or
distribution on account of any Equity Interests of Astor Holdings II, the
Company or any Restricted Subsidiary including, without limitation, any payment
in connection with any merger or consolidation involving the Company (other than
(x) dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company, Astor Holdings II or a Restricted Subsidiary
and (y) dividends or distributions payable to the Company or any other
Restricted Subsidiary (and, if such Restricted Subsidiary
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has shareholders other than the Company or another Restricted Subsidiary, to its
other shareholders on a PRO RATA basis to such other shareholders); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of Astor Holdings II, the Company or any Restricted Subsidiary; (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes, except at
the original final maturity thereof or in accordance with the scheduled
mandatory redemption or repayment provisions set forth in the documentation
governing such Indebtedness at the Issue Date or, if later, the date such
Indebtedness was incurred or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto (including, in the case of a Restricted
Investment, the pro forma effect thereof) as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified
Stock;" and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and any Restricted Subsidiary and
Astor Holdings II, without duplication, after the Issue Date (excluding
Restricted Payments permitted by any of clauses (ii), (iv), (v)(B), (vi),
(vii) and (viii) of the next succeeding paragraph), is less than the sum of
(1) 50% of the Consolidated Net Income for the period (taken as one
accounting period) from the beginning of the fiscal quarter during which the
Indenture is executed to the end of Astor Holdings II's most recently ended
fiscal quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, minus 100% of such deficit) PLUS (2) 100% of the
aggregate net cash proceeds received by the Company from the issue or sale
since the Issue Date of Equity Interests of the Company or of debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or convertible debt securities) sold
to a Restricted Subsidiary and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock) or by way of
other capital contributions to the Company PLUS (3) to the extent that any
Restricted Investment that was made after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (A) the cash return
of capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted
Investment; PROVIDED that no amounts received by the Company by way of
capital contributions will be counted in determining the amount available
for Restricted Payments under this clause (c) to the extent such proceeds or
amounts are excluded in accordance with clause (ii) of the next succeeding
paragraph.
The foregoing provisions will not prohibit the following:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the defeasance, redemption or repurchase of subordinated
Indebtedness with (A) the proceeds from an incurrence of Permitted
Refinancing Indebtedness or (B) the proceeds from the substantially
concurrent sale (other than to a Subsidiary of the Parent) of Equity
Interests of the Parent received by the Company by way of capital
contributions; PROVIDED that the amounts of any such capital contributions
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(2) of the preceding paragraph;
(iii) the payment of dividends by the Company or ABI Acquisition 1 plc
to Astor Holdings II and by Astor Holdings II to the Parent, solely in
amounts and at the times necessary, to permit payment of amounts required
for any repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of the Parent (or of Equity Interests of Astor
Holdings II) held by any member of the
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Company's, Astor Holdings II's or the Parent's management pursuant to any
management equity subscription agreement or stock option agreement or
similar agreement, or otherwise upon their death, disability, retirement or
termination of employment or departure from the Board of Directors of the
Parent, Astor Holdings II or the Company; PROVIDED that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed (A) $500,000 in any twelve-month period and (B)
$2.0 million in the aggregate from and after the Issue Date;
(iv) the repurchase or other acquisition of Existing Disqualified Stock
held by ABI Corporation or Astor Holdings II;
(v) the payment of dividends by the Company or ABI Acquisition 1 plc to
Astor Holdings II, or by Astor Holdings II to the Parent, in amounts and at
times necessary to permit payment of (A) unless prohibited and not waived by
or on behalf of the lenders under the Senior Bank Facility, amounts payable
by the Parent under the Management Services Agreement, consisting of (1)
management fees in aggregate amount not to exceed $412,000 in any
twelve-month period (as adjusted in proportion to increases in the consumer
price index), (2) transaction fees equal to not more than 2% of the
aggregate acquisition consideration (as the amount of such consideration is
determined in accordance with the Management Services Agreement as in effect
on the Issue Date) in connection with merger and acquisition services
rendered by certain financial advisors in connection with acquisitions by
Astor Holdings II and its Subsidiaries and (3) certain reasonable expenses
incurred by such advisors in connection with the performance of their
obligations under such Management Services Agreement, (B) amounts due under
the Tax Sharing Agreement, (C) administrative fees in respect of certain
partnerships that are investors in the Parent, in an aggregate amount not
exceeding $28,000 in any twelve-month period, and (D) operating expenses of
the Parent and Astor Holdings II incurred in the ordinary course of business
in an aggregate amount not to exceed $50,000 in any twelve-month period PLUS
audit fees and fees paid with respect to filings by the Parent or Astor
Holdings II with the Commission;
(vi) the payment of dividends on Existing Disqualified Stock owned by
ABI Corporation or Astor Holdings II;
(vii) subject to the subordination provisions contained in the ABI
Shareholder Intercompany Notes, payments under the ABI Shareholder
Intercompany Notes by ABI Acquisition 2 plc to ABI Acquisition 1 plc, by ABI
Acquisition 1 plc to Astor Holdings II and by Astor Holdings II to the
Parent, in each case of amounts due and payable under the terms of the ABI
Shareholder Notes and necessary for any required repurchase, payment of
principal or payment of interest of or on the ABI Shareholder Notes; and
(viii) the purchase of the remaining Equity Interests of Rheochem owned
by RCI such that Rheochem becomes a Wholly Owned Restricted Subsidiary that
is a Subsidiary Guarantor pursuant to the Rheochem Shareholders' Agreement,
if the Company delivers to the Trustee an Officer's Certificate certifying
that such purchase has been approved by a majority of the disinterested
members of the Board of Directors and attaching a resolution of the Board of
Directors (A) to such effect and (B) to the effect that it has determined in
good faith that such purchase is at a price no less favorable to the Company
than the fair market value of such Equity Interests;
PROVIDED that, in the case of clauses (ii), (iii), (iv), (v)(C) and (vi) of this
paragraph, no Default or Event of Default shall have occurred or be continuing
at the time of such Restricted Payment or would occur as a consequence thereof.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and any Restricted Subsidiary and Astor Holdings II
(except to the extent repaid in cash) in the Subsidiary so designated will be
deemed to be Restricted Payments at the time of such designation and will reduce
the amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount
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equal to the greater of (x) the net book value of such Investments at the time
of such designation and (y) the fair market value of such Investments at the
time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Not later than the date of making any Restricted Payment under the
provisions described in the first paragraph of "Restricted Payments," the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations shall be based upon the Astor Holdings II's latest available
financial statements; PROVIDED that the Company shall not have to deliver such
an Officer's Certificate in connection with Restricted Payments of less than
$200,000 in aggregate amount in any twelve-month period.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, and Astor Holdings II will not, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to: (i)(a) pay dividends or make any other distributions to the
Company or any Restricted Subsidiary (1) on its Capital Stock or (2) with
respect to any other interest or participation in, or measured by, its profits
or (b) pay any Indebtedness owed to the Company or any Restricted Subsidiary;
(ii) make loans or advances to the Company or any Restricted Subsidiary; or
(iii) transfer any of its properties or assets to the Company or any Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reasons of (a) Existing Indebtedness; (b) the Senior Bank Facility as in effect
on the Issue Date and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
PROVIDED that the applicable restrictions in such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are not materially more restrictive with respect to such
transactions than those contained in the Senior Bank Facility as in effect on
the Issue Date; (c) the Indenture, the Note Guarantees, the Notes, Pari Passu
Debt and any notes with substantially identical terms as the Notes issued in
exchange for the Notes or the Pari Passu Debt; (d) applicable law; (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any Restricted Subsidiary, as in effect at the time of acquisition
(except to the extent such Indebtedness was incurred in connection with, or in
contemplation of, such acquisition), which encumbrance or restriction is not
applicable to the Company, any Restricted Subsidiary (other than the Person
acquired) or Astor Holdings II, or the properties or assets thereof (other than
the properties or assets of the Person so acquired), PROVIDED that, in the case
of Indebtedness, such Indebtedness was permitted by the terms of the Indenture
to be incurred; (f) by reason of customary non-assignment or no-subletting
provisions in leases or other contracts entered into in the ordinary course of
business and consistent with past practices; (g) purchase money obligations or
Capital Lease Obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired; (h) Permitted Liens on assets securing permitted
Senior Debt; (i) Permitted Refinancing Indebtedness, PROVIDED that the
applicable restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are not materially more restrictive than those
contained in the agreements governing the Indebtedness being refinanced; (j)
restrictions with respect solely to a Restricted Subsidiary imposed pursuant to
a binding agreement which has been entered into for the sale or disposition
(including by merger or consolidation) of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary, PROVIDED such
restrictions apply solely to the Capital Stock or assets of such Restricted
Subsidiary; or (k) the agreement governing Indebtedness permitted pursuant to
the provision described in clause (vi) of the second paragraph of "Incurrence of
Indebtedness and Issuance of Disqualified Stock" to the extent such agreement
restricts transfers of collateral securing such Indebtedness.
ANTI-LAYERING
The Indenture provides that (i) the Company will not incur, create, issue,
assume, Guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior
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Debt and senior in any respect in right of payment to the Notes, (ii) no
Guarantor will incur, create, issue, assume, Guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
its Senior Debt and senior in any respect in right of payment to the Note
Guarantee executed by such Guarantor and (iii) no Restricted Subsidiary which is
not a Guarantor will incur, create, issue, assume, Guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
its Senior Debt (other than Indebtedness owing to Astor Holdings II, the Company
or any Restricted Subsidiary as permitted under the Indenture).
ASSET SALES AND SALES OF SUBSIDIARY STOCK
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, and Astor Holdings II will not, engage in any Asset
Sale unless (i) the Company delivers to the Trustee an Officers' Certificate
stating that such officers have determined in good faith that the Company, the
Restricted Subsidiary or Astor Holdings II, as the case may be, will receive
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Sale at least equal to the fair market value of the assets or
Equity Interests issued or sold or otherwise disposed of and (ii) at least 80%
of the consideration therefor (excluding contingent liabilities assumed by the
transferee of any such assets) received by the Company, such Restricted
Subsidiary or Astor Holdings II, as the case may be, is in the form of cash paid
at the closing thereof, PROVIDED that the amount of (x) any liabilities as shown
on the most recent balance sheet of the Company or such Restricted Subsidiary or
Astor Holdings II, as the case may be (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any Guarantee
thereof) that are assumed by the transferee of any such assets pursuant to an
agreement that releases the Company or such Restricted Subsidiary or Astor
Holdings II, as the case may be, from further liability with respect thereto
will be deemed to be cash for purposes of this provision and (y) any notes,
securities or other items of property received by the Company or any such
Restricted Subsidiary or Astor Holdings II, as the case may be, from such
transferee that are promptly and in any event within 30 days converted by the
Company or such Restricted Subsidiary or Astor Holdings II, as the case may be,
into cash (to the extent of the cash received) will be deemed to be cash for
purposes of this provision and (iii) the Company delivers to the Trustee (a)
with respect to any Asset Sale or series of related Asset Sales involving
aggregate consideration in excess of $1.0 million, an Officers' Certificate
certifying that such Asset Sale has been approved by a majority of the
disinterested members of the applicable Board of Directors, and attaching a
resolution of such Board of Directors (x) to such effect and (y) to the effect
that it has determined in good faith that the consideration to be received by
the Company, the Restricted Subsidiary or Astor Holdings II at the time of such
Asset Sale is at least equal to the fair market value of the assets or Equity
Interests to be issued or otherwise disposed of and (b) with respect to any
Asset Sale or series of related Asset Sales involving aggregate consideration in
excess of $5.0 million, a written opinion as to the fairness to the Company or
such Restricted Subsidiary or Astor Holdings II, as the case may be, of such
Asset Sale from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing. Notwithstanding the foregoing
provision, if the Company is required to sell all of its Equity Interests in
Rheochem in accordance with the terms of the Rheochem Shareholders' Agreement,
the consideration received by the Company therefor shall be deemed to be fair
market value, and the Company shall not have to provide any evidence to the
Trustee as to the fairness of the consideration so received.
Within 300 days after the receipt of any Net Proceeds from an Asset Sale,
the Company and Astor Holdings II may or may cause the relevant Restricted
Subsidiary to apply such Net Proceeds, at the Company's option, (a) to
permanently reduce Indebtedness under the Senior Bank Facility (and, in the case
of revolving Indebtedness under the Senior Bank Facility, to permanently reduce
the commitments thereunder), (b) to permanently reduce Senior Debt of the
Company or a Subsidiary Guarantor or (c) to make an investment in a Permitted
Business or to make capital expenditures or to acquire other long-term/tangible
assets, in each case, engaged or used in a Permitted Business (or make a binding
commitment to make such investment, subject only to reasonable and customary
closing conditions, and in fact to make such investment within 60 additional
days). Pending the final application of any such Net Proceeds, the Company or
Astor
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Holdings II may or may cause the relevant Restricted Subsidiary to temporarily
reduce revolving indebtedness under the Senior Bank Facility or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
two immediately preceding sentences of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
received by the Company, if any, any Restricted Subsidiary, if any, and Astor
Holdings II, if any, exceeds $5.0 million, Astor Holdings II and the relevant
Restricted Subsidiaries will pay to the Company all Excess Proceeds, and the
Company will be required to make an offer to all Noteholders and to holders of
Pari Passu Debt (an "Asset Sale Offer") to purchase, on a PRO RATA basis from
the Noteholders and the holders of Pari Passu Debt, the maximum principal amount
of Notes and Pari Passu Debt that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the principal amount
thereof PLUS accrued and unpaid interest and liquidated damages, if any, thereon
to the date of purchase, in accordance with the procedures set forth in the
Indenture (the "Excess Proceeds Payment"). The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with such a repurchase of the Notes. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes and Pari
Passu Debt surrendered by Noteholders and holders of Pari Passu Debt exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes and Pari Passu
Debt to be purchased on a PRO RATA basis. Upon completion of such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero. In certain
circumstances, the Company may be prohibited from purchasing the Notes. See
"Risk Factors -- Subordination of the Notes and the Guarantee" and "Risk Factors
- -- Control by Indirect Stockholder; Consequences of Change of Control."
LIENS
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, and Astor Holdings II will not, directly or
indirectly, create, incur, assume or suffer to exist any Lien on any property or
asset now owned or hereafter acquired, or on any income or profits therefrom or
assign or convey any right to receive income therefrom except Permitted Liens,
unless the Obligations due under the Indenture and the Notes are secured, on an
equal and ratable basis (or on a senior basis, in the case of Obligations under
Indebtedness subordinated in right of payment to the Notes), with the
Obligations so secured.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, and Astor Holdings II will not, make any payment to,
or sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or Guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary or Astor Holdings II, as the case may
be, than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary or Astor Holdings II, as the case may be,
with an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $500,000, an Officers'
Certificate certifying that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors, and attaching a
resolution of the Board of Directors (x) to such effect and (y) to the effect
that it has determined in good faith that such transaction complies with clause
(i) above, and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a written opinion as to the fairness to the Company or such
Restricted Subsidiary or Astor Holdings II, as the case may be, of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing; provided that
transactions with Rheochem in the ordinary course of business consistent with
past practice will not be subject to clause (ii) above (see "Business --
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Rheochem Joint Venture"), and PROVIDED FURTHER that the following shall not be
deemed Affiliate Transactions: (a) any reasonable and customary employment
agreement, employment benefit plan or other compensation plan entered into by
the Company or any Restricted Subsidiary or Astor Holdings II, as the case may
be, in the ordinary course of business, (b) reasonable and customary directors'
fees and indemnification arrangements in the ordinary course of business, (c)
reasonable and customary payment of compensation to employees, officers,
directors or consultants in the ordinary course of business, (d) loans or
advances to officers or employees of the Company or any Restricted Subsidiary to
pay business related travel expenses or reasonable relocation costs of such
officers or employees in connection with their employment by the Company or any
Restricted Subsidiary, (e) transactions between or among any combination of the
Company and the Guarantors, (f) any transfer of tax benefits and any tax sharing
or tax loss surrender arrangements and any intercompany sales of inventory
between or among any combination of the Company, Astor Holdings II and any
Restricted Subsidiary or between or among one or more Restricted Subsidiaries,
(g) payments under the Management Services Agreement, (h) payments under the Tax
Sharing Agreement, (i) payment of administrative fees in respect of certain
partnerships that are investors in the Parent, in an aggregate amount not
exceeding $28,000 per twelve-month period, (j) payments to the Parent or Astor
Holdings II to pay operating expenses of the Parent and Astor Holdings II
incurred in the ordinary course of business in an aggregate amount not to exceed
$50,000 in any twelve-month period, (k) payments made to the Parent or Astor
Holdings II to reimburse the Parent or Astor Holdings II for costs, fees and
expenses incident to a registration of any of the capital stock of the Parent or
Astor Holdings II for an offering under the Securities Act, so long as (A) a
portion of the proceeds of such offering (if it is completed) are contributed
to, or otherwise used for the benefit of, the Company and (B) the costs, fees
and expenses are allocated among the Parent or Astor Holdings II and any selling
shareholders in such proportions as is required by the Stockholders Agreement as
in effect on the Issue Date or, if or to the extent that the Stockholders
Agreement is not applicable, as is appropriate to reflect the relative proceeds
received by the Parent or Astor Holdings II and such selling shareholders and
(l) Restricted Payments permitted by the provisions of the Indenture described
above under clauses (i), (iii), (iv), (v), (vi) and (vii) of the second
paragraph of the covenant entitled "Restricted Payments."
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company and Astor Holdings II may not
consolidate or merge with or into (whether or not the Company or Astor Holdings
II, as the case may be, is the surviving entity), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions to, another corporation, Persons
or entity unless (i) the Company or Astor Holdings II, as the case may be, is
the surviving corporation or entity or the Person formed by or surviving any
such consolidation or merger (if other than the Company or Astor Holdings II, as
the case may be) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company or Astor Holdings II, as the
case may be) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of the Company or Astor Holdings II, as the case may be, under the
Notes and the Indenture pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction, no
Default or Event of Default exists; and (iv) except in the case of a merger of
the Company or Astor Holdings II, as the case may be, with or into the Company
or Astor Holdings II, as the case may be, or the entity or Person formed by or
surviving any such consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made (A) will
have Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company or Astor Holdings II, as
the case may be, immediately preceding the transaction and (B) will, at the time
of such transaction after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified
Stock."
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Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company or Astor Holdings II in accordance with the
foregoing, the successor corporation formed by such consolidation or into which
the Company or Astor Holdings II is merged or to which such transfer is made,
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company or Astor Holdings II, as the case may be, under the Indenture
with the same effect as if such successor corporation had been named therein as
the Company or Astor Holdings II, as the case may be, and the Company or Astor
Holdings II, as the case may be, shall be released from the obligations under
the Notes, the Note Guarantees and the Indenture except with respect to any
obligations that arise from, or are related to, such transaction.
LINE OF BUSINESS
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business. Astor Holdings II will
hold the Capital Stock of and certain instruments representing the Indebtedness
of the Company and/or Restricted Subsidiaries, but will not have any other
assets.
FUTURE SUBSIDIARY GUARANTORS
The Indenture provides that if the Company shall acquire or create after the
Issue Date, directly or indirectly, another Domestic Restricted Subsidiary
(including upon any Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary and becoming a Domestic Restricted Subsidiary), then such newly
acquired or created Domestic Restricted Subsidiary shall execute a Note
Guarantee and deliver an opinion of counsel in accordance with the terms of the
Indenture. The Company may elect, from time to time, on or after the Issue Date,
to cause one or more other Restricted Subsidiaries to become a Subsidiary
Guarantor by executing a Note Guarantee and delivering an opinion of counsel in
accordance with the terms of the Indenture.
As of the Issue Date, (i) ABI Corporation holds Capital Stock of the Company
and (ii) ABI Acquisitions 1 plc holds Capital Stock of a Restricted Subsidiary
and certain instruments representing Indebtedness of ABI Acquisition 2 plc. The
Indenture provides that the Company will not permit either of ABI Corporation or
ABI Acquisition 1 plc to have any other assets or to conduct any other business
activities until such time as such entity executes a Note Guarantee in
accordance with the terms of the Indenture.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the capital stock of such Subsidiary Guarantor) or the corporation acquiring
the property (in the event of a sale or other disposition of all of the assets
of such Subsidiary Guarantor) will be released and relieved of any obligations
under its Note Guarantee, PROVIDED that such sale or other disposition is
permitted by and the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "-- Certain
Covenants -- Asset Sales and Sales of Subsidiary Stock."
STATUS AS INVESTMENT COMPANY
The Indenture prohibits the Company and its Subsidiaries and Astor Holdings
II from being required to register as an "investment company" (as that term is
defined in the Investment Company Act of 1940, as amended) or from otherwise
becoming subject to regulation under the Investment Company Act.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, Astor Holdings II will furnish to the
Noteholders (at their addresses set forth in the Register of Notes) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if Astor
Holdings II were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of Astor Holdings II
and its Consolidated Subsidiaries and, with respect to the annual information
only, a report thereon by Astor Holdings II's certified independent accountants
and (ii) all
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current reports that would be required to be filed with the Commission on Form
8-K if Astor Holdings II were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission, Astor
Holdings II will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the Guarantors
will be required, for so long as any Notes remain outstanding, to furnish to the
Noteholders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, on the Notes (whether or not prohibited by the
subordination provisions of the Indenture);
(ii) default in payment when due of principal of, or premium, if any,
on the Notes when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise (whether or not prohibited by the
subordination provisions of the Indenture) including, without limitation,
payments of any required Change of Control Payment or Excess Proceeds
Payment;
(iii) failure by the Company or any Guarantor to comply with its
obligations with respect to the making of a Change of Control Offer or an
Asset Sale Offer as described under "Change of Control" or under "Asset
Sales and Sales of Subsidiary Stock";
(iv) failure by the Company or any Guarantor to comply with its other
obligations described under "Change of Control" or "Asset Sales and Sales of
Subsidiary Stock" or its obligations described under "Incurrence of
Indebtedness and Issuance of Disqualified Stock" or "Restricted Payments"
and such failure continues for a period of 30 consecutive days after written
notice by the Trustee or the holders of at least 25% in aggregate principal
amount of the Notes then outstanding;
(v) failure by the Company or any Guarantor to comply with its other
agreements in the Indenture or the Notes and such failure continues for 60
consecutive days after written notice by the Trustee or the holders of at
least 25% in aggregate principal amount of the Notes then outstanding;
(vi) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted Subsidiary
or Astor Holdings II (or the payment of which is Guaranteed by the Company
or any Restricted Subsidiary or Astor Holdings II) whether such Indebtedness
or Guarantee exists on the Issue Date, or is created after the Issue Date,
which default (a) is caused by a failure to pay any such Indebtedness at its
stated final maturity after giving effect to any grace period provided in
such Indebtedness on the date of such default (the amount of such missed
payment of principal, a "Payment Default Amount") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the aggregate principal amount of all such Indebtedness referred to in
clause (b) together with the aggregate Payment Default Amount at such time
aggregates $5.0 million or more;
(vii) failure by the Company or any Restricted Subsidiary or Astor
Holdings II to pay final judgments aggregating in excess of $5.0 million,
which judgments are not stayed, bonded or discharged within 60 days after
their entry;
(viii) except as permitted by the Indenture, any Note Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Note Guarantee; and
(ix) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries or Astor Holdings II.
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If any Event of Default occurs and is continuing, the Trustee or the
Noteholders holding at least 25% in aggregate principal amount of the then
outstanding Notes may declare, by notice in writing to the Company (and to the
Trustee if given by Noteholders) all the Notes to be due and payable
immediately. If any Senior Debt is outstanding pursuant to the Senior Bank
Facility, upon a declaration of such acceleration, such principal and interest
shall be due and payable upon the earlier of (x) the day that is five Business
Days after the provision to the Company and the Agent under the Senior Bank
Facility of such written notice, unless such Event of Default is cured or waived
prior to such date and (y) the date of acceleration of any Senior Debt under the
Senior Bank Facility. Noteholders holding more than 50% in aggregate principal
amount of the then outstanding Notes generally are authorized to rescind any
acceleration if all existing Events of Default, other than the non-payment of
the principal of, premium, if any, and interest on the Notes which have become
due solely by such acceleration, have become cured or waived. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to (i) the Company, (ii) any Subsidiary
that would constitute a Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary or (iii) Astor
Holdings II, all outstanding Notes will become due and payable without further
action or notice. Noteholders holding the Notes may not enforce the Indenture or
the Notes except as provided in the Indenture. Subject to certain limitations,
Noteholders holding more than 50% in aggregate principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
October 15, 2001 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to October 15, 2001, then the
premium specified in the Indenture with respect to an optional redemption of the
Notes shall also become immediately due and payable to the extent permitted by
law upon the acceleration of the Notes.
The Noteholders of at least 50% in aggregate principal amount of the Notes
then outstanding, by notice to the Trustee, may on behalf of the Noteholders of
all of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture, except a continuing Default or Event of
Default in the payment of interest, premium or Liquidated Damages on, or
principal of, the Notes. The Trustee may withhold from Noteholders notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in such Noteholders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with certain provisions of the Indenture, and the Company
is required upon becoming aware of any Default or Event of Default to deliver to
the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, direct or indirect stockholder
or affiliate (other than the Company and the Guarantors) as such of the Company
or any Guarantor shall have any liability for any obligations of the Company or
any Guarantor under the Notes, the Note Guarantees or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Noteholder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations with respect to the outstanding Notes and all of the Guarantor's
obligations with respect to the Note Guarantees discharged
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("Legal Defeasance") except for (i) the rights of Noteholders of outstanding
Notes to receive payments in respect of the principal of, and premium, if any,
and interest and Liquidated Damages, if any, on such Notes when such payments
are due from the trust referred to below, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and the Guarantors released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Noteholders of the outstanding Notes, cash in U.S. dollars, noncallable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, and premium, if any, and interest and
Liquidated Damages, if any, on the outstanding Notes on the stated maturity or
on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance prior to April 15, 2006,
the Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the Issue Date there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Noteholders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred; (iii) in the case
of Covenant Defeasance prior to April 15, 2006, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the Noteholders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or, insofar as certain insolvency-related Events of Default
specified in the Indenture are concerned, at any time in the period ending on
the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of or constitute a default
under any material agreement or instrument (other than the Indenture) to which
Astor Holdings II, the Company or any Restricted Subsidiary is a party or by
which any of such Persons is bound; (vi) the Company must deliver to the Trustee
an Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the Noteholders over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (vii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been met.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Noteholder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Noteholder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
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The registered Noteholder of a Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Noteholders of
at least a majority in aggregate principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes).
Without the consent of each Noteholder affected, however, an amendment or
waiver may not (with respect to any Note held by a non-consenting Noteholder):
(i) reduce the principal amount of Notes whose Noteholders must consent to an
amendment, supplement or waiver; (ii) reduce the principal of or change the
fixed maturity of any Note; (iii) reduce the rate of or change the time for
payment of interest on any Notes; (iv) waive a Default or Event of Default in
the payment of principal of or premium, if any, or interest or Liquidated
Damages, if any, on the Notes (except that the Noteholders of more than 50% in
aggregate principal amount of the Notes may rescind acceleration of the Notes
and waive the payment default that resulted from such acceleration); (v) make
any Note payable in money other than that stated in the Notes; (vi) reduce the
price (including any premium) payable upon or change the time (other than
changes required by applicable law) of any required redemption or repurchase
with respect to any Note; or (vii) release any Note Guarantee. In addition, any
amendment to the provisions of Article XII of the Indenture (which relate to
subordination) and any amendment or waiver which would alter the provisions
(other than a change of time not required by applicable law or a reduction of
price) obligating the Company to purchase Notes described under "Change of
Control" and "Asset Sales and Sales of Subsidiary Stock" will require the
consent of the Noteholders of at least 75% in aggregate principal amount of the
Notes then outstanding if such amendment should adversely affect the rights of
Noteholders.
Notwithstanding the foregoing, without the consent of any Noteholder, the
Company and the Trustee may amend or supplement the Indenture or the Notes or
the Note Guarantees to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
provide for additional Guarantors of the Notes or the release, in accordance
with the Indenture, of any Guarantor or the Note Guarantees, to provide for the
assumption of the Company's or any Guarantor's obligations to Noteholders of the
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Noteholders of the Notes or
that does not adversely affect the legal rights under the Indenture of any such
Noteholder, or to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions with the Company; PROVIDED that, if the Trustee acquires any
conflicting interest, it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as Trustee or resign.
The Noteholders of at least 50% in aggregate principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur and not be cured, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Noteholder unless such Noteholder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company at 8521
Forks Road, North Carolina 27615, Attention: Corporate Secretary.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Notes will be issued in fully registered
form without interest coupons. Notes sold in offshore transactions in reliance
on Regulation S under the Securities Act will initially be represented by one or
more permanent global Notes in definitive, fully registered form without
interest coupons (each a "Regulation S Global Note") and will be deposited with
the Trustee as custodian for, and registered in the name of, a nominee of The
Depository Trust Company ("DTC") for the accounts of Euroclear and Cedel. Prior
to the commencement of the Exchange Offer or the effectiveness of a Shelf
Registration Statement with respect to the Notes, beneficial interests in the
Regulation S Global Note may only be held through Euroclear or Cedel, and any
resale or transfer of such interests to U.S. Persons shall not be permitted
during such period unless such resale or transfer is made pursuant to Rule 144A
or Regulation S under the Securities Act.
Notes sold in reliance on Rule 144A will be represented by one or more
permanent global Notes in definitive, fully registered form without interest
coupons (each a "Restricted Global Note", and together with the Regulation S
Global Note, the "Global Notes") and will be deposited with the Trustee as
custodian for, and registered in the name of, a nominee of DTC.
Each Global Note (and any Notes issued in exchange therefor) will be subject
to certain restrictions on transfer set forth therein as described under "Notice
to Investors." Except in the limited circumstances described below under
"Certificated Notes," owners of beneficial interests in a Restricted Global Note
will not be entitled to receive physical delivery of Certificated Notes (as
defined below).
Notes originally purchased by or transferred to Institutional Accredited
Investors who are not QIBs ("Non-Global Purchasers") will be in registered form
without interest coupons ("Certificated Notes"). Upon the transfer of
Certificated Notes initially issued to a Non-Global Purchaser to a QIB, such
Certificated Notes will, unless the Restricted Global Note has previously been
exchanged in whole for Certificated Notes, be exchanged for an interest in such
Restricted Global Note. For a description of the restrictions on the transfer of
Certificated Notes, see "Notice to Investors."
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interest in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). QIBs may hold their interests in a Restricted
Global Note directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
Investors may hold their interests in a Regulation S Global Note directly
through Cedel or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such systems. Upon the
commencement of the Exchange Offer, but not earlier, investors may hold such
interests through organizations other than Cedel or Euroclear that are
participants in the DTC system. Cedel and Euroclear will hold interests in the
Regulation S Global Notes on behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or holder 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 such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture and, if applicable, those of Euroclear and Cedel.
Payments of the principal of, and premium, if any, interest and Liquidated
Damages, if any, on a Global Note will be made to DTC or its nominee, as the
case may be, as the registered owner thereof. Neither the
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Company, the Trustee nor any Paying Agent will have any responsibility or
liability for any aspects of the records relating to or payments made on account
of beneficial ownership interests in a Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest or Liquidated Damages, if any, in respect
of a Global Note, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Note as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
such Global Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
The Company expects that DTC will take any action permitted to be taken by a
Noteholder only at the direction of one or more participants to whose account
the DTC interests in a Global Note is credited and only in respect of such
portion of the aggregate principal amount of the Note as to which such
participant or participants has or have given direction. However, if there is an
Event of Default under the Notes, DTC will exchange the applicable Global Note
for Certificated Notes, which it will distribute to its participants and which
may be legended as set forth under the heading "Notice to Investors."
DTC had advised the Company that it is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and to facilitate the clearance and settlement of securities transactions
between participants through electronic book-entry changes in accounts of its
participants. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as depositary for the
Global Notes and a successor depositary is not appointed by the Company within
90 days, the Company will issue Certificated Notes in exchange for the Global
Notes. Holders of an interest in a Restricted Global Note may receive
Certificated Notes, which may bear the legend referred to under "Notice to
Investors," in accordance with the DTC's rules and procedures in addition to
those provided for under the Indenture.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definitions are provided.
"ABI CORPORATION" means ABI Corporation, a Delaware corporation, and its
successors and assigns.
"ABI SHAREHOLDER INTERCOMPANY NOTES" means the amended and restated notes
dated October 1, 1996 of ABI Acquisition 2 plc, ABI Acquisition 1 plc and Astor
Holdings II to ABI Acquisition 1 plc, Astor
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Holdings II and the Parent, respectively, in connection with the acquisition of
ABI and each in a principal amount equal to L3,736,295 PLUS the principal amount
of all ABI Shareholder Notes issued from time to time in payment of interest on
the then outstanding ABI Shareholder Notes pursuant to the terms thereof.
"ABI SHAREHOLDER NOTES" means the Series A L2,285,307 8% Subordinated Notes
due 2003 and the Series B L1,450,988 8% Subordinated Notes due 2003 issued by
the Parent to the former shareholders of Associated British Industries Limited.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"AGENT" means The Chase Manhattan Bank and its successors and assigns under
the Senior Credit Facility.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
(PROVIDED that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of Astor Holdings II or of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
the Indenture described above under the covenant entitled "Change of Control"
and/or the provisions described above under the covenant entitled "Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant) and (ii) the issue or sale by Astor Holdings II of Equity Interests of
the Company or any Restricted Subsidiary or by the Company or any Restricted
Subsidiary of Equity Interests of any Restricted Subsidiary, in the case of
either of the foregoing clauses, whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of $250,000 or
(b) for net proceeds in excess of $250,000. Notwithstanding the foregoing the
following will not be deemed to be Asset Sales: (i) a transfer of assets by the
Company to a Guarantor, by a Guarantor or a Subsidiary to the Company or to
another Guarantor or by a Restricted Subsidiary that is not a Guarantor to
another Restricted Subsidiary or the Company, (ii) the sale, lease, conveyance
or other disposition of inventory or cash management or hedging investments by
the Company or a Restricted Subsidiary of the Company in the ordinary course of
business, (iii) the sale, lease, conveyance or other disposition of property or
equipment that has become worn out, obsolete or damaged or otherwise unusable
for use in connection with the business of the Company or any Restricted
Subsidiary, as the case may be, (iv) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to any Guarantor, (v) a sale or other
disposition pursuant to and permitted by the covenant described above entitled
"Merger, Consolidation or Sale of Assets," (vi) the transfer by the Company to
any Restricted Subsidiary, or by any Restricted Subsidiary to the Company or any
other Restricted Subsidiary, of non-exclusive rights to use proprietary product
formulations, (vii) the merger of a Restricted Subsidiary into a Subsidiary
Guarantor or into the Company (provided that the Person surviving any such
merger must be either a Subsidiary Guarantor or the Company), (viii) the merger
of a Restricted Subsidiary that is not a Subsidiary Guarantor into another
Restricted Subsidiary that is not a Subsidiary Guarantor, and (ix) a Restricted
Payment that is permitted by the covenant described above entitled "Restricted
Payments."
"ASTOR HOLDINGS II" means Astor Holdings II, Inc., a Delaware corporation,
and its successors and assigns.
"BANK TERM LOAN" means the term loan facility provided under the Senior Bank
Facility.
"BORROWING BASE" means, as of any date of determination (and expressed in
dollars or foreign currency as appropriate), the sum of (i) 85% of the aggregate
unpaid portions of accounts receivable of the Company and its Restricted
Subsidiaries arising in the ordinary course of business from the sale of
products or the provision of services (after allowance for doubtful accounts and
net of any credits, rebates, offsets and similar adjustments) and (ii) 50% of
the value (determined at the lower of cost or market on a basis
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consistent with the consolidated financial statements of the Company, after
appropriate write-downs for obsolescence, quality problems and the like) of
inventories of the Company and its Restricted Subsidiaries held in the ordinary
course of business; PROVIDED that the amount determined pursuant to clause (ii)
above shall not constitute over 50% of the sum of the foregoing clauses.
"CAPITAL LEASE OBLIGATION" means rental obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of indebtedness represented by such obligations shall be
the capitalized amount of such obligations as determined in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CASH EQUIVALENT" means (i) securities issued or directly and fully
Guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits,
certificates of deposit and money market deposits issued by and commercial paper
issued by the parent corporation of, any domestic commercial bank of recognized
standing having capital and surplus in excess of $500 million and commercial
paper issued by others rated at least A-2 or the equivalent thereof by S&P or at
least P-2 or the equivalent thereof by Moody's and in each case maturing within
one year after the date of acquisition, (iii) repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clause (i) or deposits of the type described in clause (ii) above entered into
with a bank meeting the qualifications described in clause (ii) above and (iv)
investments in money market funds substantially all of whose assets comprise
securities of the types described in clauses (i), (ii) and (iii) above.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of (A) the Company and its Restricted
Subsidiaries taken as a whole or (B) Astor Holdings II, the Company and its
Restricted Subsidiaries taken as a whole or (C) the Parent, Astor Holdings II,
the Company and its Restricted Subsidiaries taken as a whole to any "person" (as
defined in Section 13(d)(3) of the Exchange Act) or "group" (as defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) unless the "beneficial
owners" (as defined in Rule 13d-3 under the Exchange Act) of the Voting Stock of
the Parent, Astor Holdings II or the Company immediately prior to such
transaction own, directly or indirectly, more than 50% of the total Voting Stock
of such person immediately after such transaction, (ii) the adoption of a plan
for the liquidation or dissolution of the Parent, Astor Holdings II or the
Company, (iii) the Parent, Astor Holdings II or the Company consolidates with,
or merges with or into, another "person" (as defined above) or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any "person" (as defined above) or "group" (as defined above) in a
transaction or series of related transactions in which the Voting Stock of the
Parent, Astor Holdings II or the Company is converted into or exchanged for
cash, securities or other property, other than any transaction where (A) the
outstanding Voting Stock of the Parent, Astor Holdings II or the Company is
converted into or exchanged for (1) Voting Stock (other than Disqualified Stock)
of the surviving or transferee corporation and/or (2) cash, securities and other
property in an amount which could be paid by Astor Holdings II or the Company as
a Restricted Payment under the Indenture and (B) the "beneficial owners" (as
defined in Rule 13d-3 under the Exchange Act) of the Voting Stock of the Parent,
Astor Holdings II or the Company immediately prior to such transaction own,
directly or indirectly, more than 50% of the total Voting Stock of the surviving
or transferee corporation immediately after such transaction, (iv) the
consummation of any transaction or series of related restrictions (including,
without limitation, by way of merger or consolidation) the result of which is
that any "person" (as defined above) or "group" (as defined above), other than
Excluded Persons, becomes the "beneficial owner" (as defined above) of more than
50% of the Voting Stock of the Parent, Astor Holdings II or the Company or (v)
the first day on which a majority of the members of the Board of Directors of
the Parent, Astor Holdings II or the Company are not Continuing Directors.
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"COMPANY" means Astor Corporation, a Delaware corporation, and its
successors and assigns.
"CONSOLIDATED NET INCOME" means, for any period, the aggregate of the Net
Income of Astor Holdings II and its Consolidated Subsidiaries for such period,
on a consolidated basis, determined in accordance with GAAP, PROVIDED that (i)
the Net Income (but not loss) of any Person that is not a Consolidated
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to Astor Holdings II or a Consolidated Subsidiary thereof, (ii) the Net
Income of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not, at the date of determination, permitted
without any prior governmental approval (which has not been obtained) or
directly or indirectly by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its Consolidated Subsidiaries as of such date plus, (ii) the respective
amounts reported on, such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that is
outstanding on the date of this Indenture or, if not then outstanding, by its
terms is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to the Issue Date in the book value of
any asset owned by such Person or a Consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments) and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing being determined in accordance with GAAP.
"CONSOLIDATED SUBSIDIARY" means, as to any Person at any date, the
Subsidiaries of such Person the accounts of which would be consolidated with
those of such Person in accordance with GAAP at such date, but excluding any
Unrestricted Subsidiary (except that the interest of Astor Holdings II, the
Company or any Restricted Subsidiary in any Unrestricted Subsidiary shall be
acccounted for as an investment).
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Parent, Astor Holdings II or the Company who (i)
was a member of such Board of Directors on the Issue Date or (ii) was nominated
for election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED SENIOR DEBT" means (i) so long as the Company has any Obligation
under the Senior Bank Facility, the Senior Bank Facility and (ii) any other
Senior Debt of the Company permitted under the Indenture the aggregate principal
amount of which is $5.0 million or more and that has been designated by the
Company by notice to the Trustee as "Designated Senior Debt."
"DISQUALIFIED STOCK" means (a) 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, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to date on
which the Notes mature and (b) with respect to any Restricted Subsidiary, any
Capital Stock other than any common stock with no preference, privilege, or
redemption or repayment provisions.
"DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary that is
incorporated or organized under the laws of a jurisdiction in the United States
of America.
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"EBITDA" means, for any period, the Consolidated Net Income of Astor
Holdings II for such period PLUS (i) an amount equal to any extraordinary loss
plus any net loss realized in connection with an Asset Sale (to the extent such
losses were deducted in computing such Consolidated Net Income) PLUS (ii)
provision for taxes based on income or profits of Astor Holdings II and its
Consolidated Subsidiaries for such period to the extent that such provision for
taxes was included in computing such Consolidated Net Income PLUS (iii)
consolidated interest expense of Astor Holdings II and its Consolidated
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized but without duplication (including, without limitation, amortization
of original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
operating leases, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, the interest
expense actually paid on Indebtedness of another Person that is Guaranteed by,
or secured by a Lien on assets of Astor Holdings II or a Consolidated Subsidiary
and net payments (if any) pursuant to Hedging Obligations) to the extent that
any such expense was deducted in computing such Consolidated Net Income PLUS
(iv) depreciation and amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) of Astor Holdings II and its Consolidated Subsidiaries for
such period to the extent that such depreciation and amortization were deducted
in computing such Consolidated Net Income, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization of, a Consolidated Subsidiary shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating such
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended (or paid pursuant to the Tax Sharing
Agreement) to Astor Holdings II by such Consolidated Subsidiary without prior
approval (that has not been obtained) pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for Capital Stock).
"EXCLUDED PERSON" means (a) the Parent, (b) Astor Holdings II, (c) the
Company, (d) Century City 1800 Partners L.P. (provided the current general
partner of Century City 1800 Partners L.P. remains the general partner or
controls the general partner of such partnership), (e) any partnership of which
Century City 1800 Partners L.P. is the general partner or controls the general
partner of such partnership (provided the current general partner of Century
City 1800 Partners L.P. remains the general partner or controls the general
partner of Century City 1800 Partners L.P.) and (f) all Related Persons of any
of the foregoing.
"EXISTING DISQUALIFIED STOCK" means Disqualified Stock in existence on the
Issue Date of the Company or any Restricted Subsidiary or Astor Holdings II
until such Disqualified Stock is redeemed or retired.
"EXISTING INDEBTEDNESS" means Indebtedness in existence on the Issue Date of
the Company and its Restricted Subsidiaries and Astor Holdings II until such
amounts are repaid.
"FIXED CHARGES" means, for any period, the sum of (i) the consolidated
interest expense of Astor Holdings II and its Consolidated Subsidiaries for such
period, whether paid or accrued and whether or not capitalized but without
duplication (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to operating leases,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, the interest expense actually paid
on Indebtedness of another Person that is Guaranteed by, or secured by a Lien on
assets of Astor Holdings II or a Consolidated Subsidiary and net payments (if
any) pursuant to Hedging Obligations) and (ii) the product of (a) all cash
dividend payments (other than dividends on the Disqualified Stock of the Company
owned by ABI Corporation to the extent such dividends are returned by dividends
to the Company) on any series of Disqualified Stock of Astor Holdings II, the
Company or any Restricted Subsidiary that is not owned by Astor Holdings II, the
Company
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or a Restricted Subsidiary, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of Astor Holdings II, expressed as a decimal,
in each case, on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of EBITDA for
such period to Fixed Charges for such period. In the event that Astor Holdings
II or any Consolidated Subsidiary incurs, assumes, Guarantees or repays or
redeems any Indebtedness (other than revolving Indebtedness under the Senior
Bank Facility) or issues or redeems Disqualified Stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment or redemption of
Indebtedness, or such issuance or redemption of Disqualified Stock (and the
application of the proceeds therefrom to the extent used to refinance or retire
other Indebtedness or Disqualified Stock), as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by Astor Holdings II or any Consolidated Subsidiary, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and EBITDA for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, (ii) the EBITDA
attributable to discontinued operations as determined in accordance with GAAP
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed or
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of
Astor Holdings II or any Consolidated Subsidiary following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America which are in effect on the Issue
Date.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
Guaranteed by the United States of America for the payment of which Guarantee or
obligations the full faith and credit of the United States of America is
pledged.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness. The term "Guarantee" used as a verb has a corresponding meaning.
"GUARANTORS" means Astor Holdings II and all Restricted Subsidiaries that
become Subsidiary Guarantors in accordance with the Indenture after the Issue
Date.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such person against fluctuations in interest
rates.
"INDEBTEDNESS" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments, (ii) letters of
credit (or reimbursement agreements in respect thereof), (iii) Capital Lease
Obligations, (iv) the balance deferred and unpaid of the purchase price of any
property, (v) any Hedging Obligations and Oil and Currency Obligations, other
than Hedging Obligations and Oil and Currency Obligations incurred in accordance
with such Person's customary practices for bona fide risk hedging purposes and
not for speculative purposes, (vi) Indebtedness referred to in the preceding
clauses of others secured by a Lien on any asset
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of such Person (whether or not such Indebtedness is assumed by such Person) and
(vii) to the extent not otherwise included, any Guarantee by such Person of any
Indebtedness referred to in the preceding clauses of any other Person. The
principal amount of Indebtedness represented by letters of credit shall be
deemed to be equal to the maximum potential liability thereunder. With respect
to the Company, issuances by the Company of subordinated promissory notes in an
aggregate principal amount not to exceed $2.75 million to Quaker State Company
in respect of certain environmental liabilities of the Company under the Asset
Purchase and Sale Agreement dated as of March 30, 1990, as amended by the
Amendment Agreement and Joint Release dated April 22, 1994 between the Company
and Quaker State Company shall not be deemed to be an incurrence of
Indebtedness. Notwithstanding the foregoing, items referred to in clauses (i),
(iii) and (iv) above shall not constitute Indebtedness to the extent that such
items constitute an accrued expense or trade payable of such Person arising in
the ordinary course of business, and items referred to in clauses (i), (iii) and
(iv) above shall constitute Indebtedness of such Person only if and to the
extent any of such Indebtedness would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP at such time.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees or other Indebtedness but excluding
Guarantees and other Indebtedness permitted by the covenant described in
"Incurrence of Indebtedness and Issuance of Disqualified Stock"), advances or
capital contributions (excluding commission, travel, relocation and similar
loans or advances to officers and employees, accounts receivable and bank demand
deposits made or arising in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; PROVIDED that
an acquisition of Indebtedness, Equity Interests or other securities by the
Company for consideration consisting of Equity Interests (other than
Disqualified Stock) of the Company or Astor Holdings II shall not be deemed to
be an Investment and a redemption or repurchase of the Notes or other
Indebtedness of the Company or any Restricted Subsidiary or Astor Holdings II
shall not be deemed an Investment. If the Company or any Restricted Subsidiary
sells or otherwise disposes of any Equity Interests of any Restricted Subsidiary
or Wholly Owned Restricted Subsidiary such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted Subsidiary or a
Wholly Owned Restricted Subsidiary (as the case may be), the Company and/or such
Restricted Subsidiary making such sale or disposition shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such former Restricted Subsidiary not
sold or disposed of.
"ISSUE DATE" means the date and time at which the Notes are originally
issued under the Indenture.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement (other than
precautionary filings by lessors in respect of operating leases) under the
Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"MANAGEMENT SERVICES AGREEMENT" means the Management Services Agreement
dated June 28, 1995 among the Parent, UBS Capital Corporation and Century City
1800 Partners, L.P., a Delaware limited partnership, as in effect on the Issue
Date and as it may be amended from time to time; PROVIDED that no such amendment
shall increase any obligation thereunder in a manner that would create a
Restricted Payment.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any deduction in
respect of Disqualified Stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale or (b) the disposition of
any securities by such Person or the extinguishment of any Indebtedness of such
Person and (ii) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
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"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any Restricted Subsidiary or Astor Holdings II in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits, tax loss
carryforwards or deductions and any tax sharing arrangements), amounts required
to be applied to the repayment of Indebtedness (other than Senior Debt) secured
by a Lien on the asset or assets that were the subject of such Asset Sale and
any reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary nor Astor Holdings II (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any Restricted Subsidiary or
Astor Holdings II to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any Restricted
Subsidiary or Astor Holdings II.
"NOTE GUARANTEES" means the Guarantees of Astor Holdings II and any
Restricted Subsidiaries that become Subsidiary Guarantors in accordance with the
Indenture after the Issue Date with respect to the Company's payment obligations
under the Notes.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICER" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers.
"OIL AND CURRENCY OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) agreements designed to protect such Person
against fluctuations in the price of oil or oil-related products and (ii)
agreements designed to protect such Person against fluctuations in foreign
currencies.
"PARENT" means Astor Holdings, Inc., a Delaware corporation, and its
successors and assigns.
"PARI PASSU DEBT" means Indebtness that is PARI PASSU with the Notes
maturing on the same day as the Notes.
"PERMITTED BUSINESS" means any business engaged in the development,
manufacture, distribution or sale of (i) adhesives and sealants, (ii) special
waxes and other waxes or (iii) specialty chemicals; and businesses that are
reasonable extensions or reasonably incidental to the foregoing.
"PERMITTED INVESTMENTS" means (i) any Investment in the Company or in a
Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary, (ii) any
Investment in Cash Equivalents, (iii) any Investments by the Company or any
Restricted Subsidiary in a Person if, as a result of such Investment, (a) such
Person becomes a Subsidiary Guarantor that is a Wholly Owned Restricted
Subsidiary, or (b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets (or all or
substantially all the assets of a Subsidiary or operating division) to, or is
liquidated into, the Company or a Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary, (iv) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described under "Asset Sales and Sales of
Subsidiary Stock," (v) Investments received as part of the settlement of
litigation or in satisfaction of extensions of credit to any Person otherwise
permitted under the Indenture pursuant to the reorganization, bankruptcy or
liquidation of such Person or a good faith settlement of debts with such Person,
(vi) any Investment in a Restricted Subsidiary, other than a Domestic
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Restricted Subsidiary, which Investment is represented by a Guarantee of
Indebtedness incurred by such Restricted Subsidiary pursuant to and in
compliance with the provision described in clause (vi) of the second paragraph
of "Incurrence of Indebtedness and Issuance of Disqualified Stock," (vii) any
Investment not permitted by the foregoing clauses of this definition by the
Company or its Restricted Subsidiaries in a Person that is, or immediately after
giving effect to such Investment becomes, a Wholly Owned Restricted Subsidiary
that is not a Subsidiary Guarantor in aggregate amount not exceeding $9.0
million (or its foreign currency equivalent) and (viii) any Investment not
permitted by the foregoing clauses of this definition by the Company or its
Restricted Subsidiaries in (a) a Person in which the Company and/or its
Restricted Subsidiaries owns, or immediately after giving effect to such
Investment will own, more than 20% of such Person's outstanding Capital Stock
(but which Person is not, and will not be, after giving effect to such
Investment, a Subsidiary) and (b) an Unrestricted Subsidiary in aggregate amount
for all such Investments permitted solely by this clause (viii) not exceeding
$1.0 million (or its foreign currency equivalent).
"PERMITTED JUNIOR SECURITIES" means any Qualified Capital Stock and debt
securities of the Company or any Guarantor, as the case may be, that (i) are
subordinated at least to the same extent as the Notes to Senior Debt of the
Company or the Note Guarantee of such Guarantor to the Senior Debt of such
Guarantor, as the case may be, and (ii) have no scheduled installment of
principal due, by redemption, sinking fund payment or otherwise, on or prior to
the stated maturity of the Notes; PROVIDED that the effect of any such security
is not to cause the Notes to be treated in any case or proceeding or similar
event related to bankruptcy, insolvency or receivership as part of the same
class of claims as the Senior Debt or any class of claims on a parity with or
senior to the Senior Debt for any payment or distribution and, PROVIDED FURTHER,
that if any such security includes any shares of stock of the Company or any
Guarantor as reorganized or readjusted, or securities of the Company or any
Guarantor or any other corporation provided for by a plan of arrangement,
reorganization or readjustment, (a) the Senior Debt is assumed by the new
corporation, if any, resulting from any such arrangement, reorganization or
adjustment, and (b) the rights of the holders of the Senior Debt are not,
without the consent of such holders, altered by such arrangement, reorganization
or readjustment.
"PERMITTED LIENS" means (i) Liens on assets securing Senior Debt permitted
under the Indenture; (ii) Liens on assets securing Indebtedness incurred
pursuant to and in compliance with clause (vi) or (vii) of the second paragraph
of "Incurrence of Indebtedness and Issuance of Disqualified Stock"; (iii) Liens
in favor of the Company, (iv) Liens on assets of any Restricted Subsidiary that
is not a Subsidiary Guarantor in favor of Astor Holdings II or a Subsidiary
Guarantor; (v) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted Subsidiary,
PROVIDED, that such Liens (x) were not incurred in connection with, or in
contemplation of, such merger or consolidation and (y) do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or such Restricted Subsidiary; (vi) Liens on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary
(including (A) Liens securing or comprising Capital Lease Obligations and (B)
Liens securing Oil and Currency Obligations that do not constitute Indebtedness;
PROVIDED that such Liens do not extend to any assets of the Company or any
Restricted Subsidiary other than the property that is the subject of such Oil
and Currency Obligations); (vii) Liens to secure the performance of statutory
obligations, surety or appeal bonds or performance bonds, or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's or other like
Liens, in any case incurred in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as is
required by GAAP shall have been made therefor; (viii) Liens existing on the
Issue Date; (ix) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; PROVIDED
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (x) Liens securing
Indebtedness incurred to refinance Indebtedness that has been secured by a Lien
permitted under the Indenture; PROVIDED that (a) any such Lien shall not extend
to or cover any assets or property not securing the Indebtedness so refinanced
and (b) the refinancing Indebtedness secured by such Lien shall have been
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<PAGE>
permitted to be incurred under the covenant entitled "Incurrence of Indebtedness
and Issuance of Disqualified Stock"; and (xi) Liens to secure the Obligations
under the Notes, the Indenture or the New Notes (or Indebtedness evidenced by
instruments that rank PARI PASSU in right of payment with the Notes as permitted
under the Indenture).
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness or Disqualified
Stock of the Company or any Restricted Subsidiary of the Company or Astor
Holdings II issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other Indebtedness or
Disqualified Stock of the Company or any Restricted Subsidiary or Astor Holdings
II, as the case may be, or constituting an amendment, modification or supplement
thereto (but such new or modified Indebtedness shall have only the same obligor
or obligors as the Indebtedness so extended, refinanced, renewed, replaced,
defeased, refunded, amended, modified or supplemented); PROVIDED that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness or the liquidation value of
Disqualified Stock so extended, refinanced, renewed, replaced, defeased,
refunded, amended, modified or supplemented (plus the amount of reasonable
expenses incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness or Disqualified Stock
being extended, refinanced, renewed, replaced, defeased, refunded, amended,
modified or supplemented and (iii) if the Indebtedness or Disqualified Stock
being extended, refinanced, renewed, replaced, defeased, refunded, amended,
modified or supplemented is subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness has a final maturity date not earlier than
and is subordinated in right of payment to the Notes on terms at least as
favorable to the Noteholders as those contained in the documentation governing
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"PUBLIC EQUITY OFFERING" means an underwritten offering of common stock of
the Company, Astor Holdings II or the Parent pursuant to an effective
registration statement under the Securities Act after which the common stock of
the Company, Astor Holdings II or the Parent, as applicable, is listed on a
national securities exchange or quoted on the Nasdaq National Market.
"QUALIFIED CAPITAL STOCK" means any Capital Stock of the Company that is not
Disqualified Stock.
"RCI" means Rheochem Inc., a New Jersey corporation, and its successors and
assigns.
"RELATED PERSON" means, with respect to any Excluded Person, (a) any Person
who controls, is controlled by or under common control with such Excluded
Person; PROVIDED that for purposes of this definition "control" means the
beneficial ownership of more than 50% of the total voting power of a Person
normally entitled to vote in the election of directors, managers or trustees, as
applicable of a Person and (b) as to any natural person, (i) such Person's
spouse, parents and descendants (whether by blood or adoption, and including
stepchildren) and the spouses of any of such natural persons and (ii) any
corporation, partnership, trust or other Person in which no one has any interest
(directly or indirectly) except for any of such natural person, such spouse,
parents and descendants (whether by blood or adoption, and including
stepchildren) and the spouses of any of such natural persons.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means a Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITY" means the revolving credit facility provided
under the Senior Bank Facility.
"RHEOCHEM" means Rheochem Technologies, Inc., a Delaware corporation, and
its successors and assigns.
"RHEOCHEM SHAREHOLDERS' AGREEMENT" means the Rheochem Shareholders'
Agreement dated as of June 30, 1994 by and among ABI Corporation, Rheochem Inc.
and Rheochem, as in effect on the Issue Date and as it may be amended from time
to time; PROVIDED that no such amendment shall increase any obligation
thereunder in a manner that would create a Restricted Payment.
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"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"SENIOR BANK FACILITY" means the credit agreement, dated on October 8, 1996,
by and among the Company, The Chase Manhattan Bank, as administrative agent, and
the lenders (and their successors and assigns) from time to time party thereto,
including any related notes, Guarantees, collateral documents, instruments and
agreements executed in connection therewith and in each case as amended,
modified, renewed, extended, refunded, replaced or refinanced from time to time,
whether or not with the same agent, trustee, representative lenders or holders
and irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Senior Bank Facility" shall
include agreements in respect of Hedging Obligations entered into with respect
to loans thereunder with lenders party to the Senior Bank Facility and shall
also include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to any Senior Bank Facility and all
refundings, refinancings and replacements of any Senior Bank Facility, including
any agreement (i) extending the maturity of any Indebtedness incurred thereunder
or contemplated thereby, (ii) adding or deleting borrowers, issuers or
guarantors thereunder, (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder or (iv) otherwise altering the
terms and conditions thereof.
"SENIOR DEBT" means (i) with respect to the Company (A) Obligations under
the Senior Bank Facility and (B) any other Indebtedness permitted to be incurred
by the Company under the terms of the Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is PARI PASSU
with or subordinated in right of payment to the Notes and (ii) with respect to
any Guarantor (A) Obligations under the Senior Bank Facility and (B) any other
Indebtedness permitted to be incurred by such Guarantor under the terms of the
Indenture unless the instrument under which such Indebtedness is incurred
expressly provides that such Indebtedness is PARI PASSU with or subordinated in
right of payment to the Note Guarantee of such Guarantor, including in any event
in the case of all such Obligations of the Company or any Guarantor, interest
accruing on Indebtedness after the filing of a petition initiating any
proceeding under any bankruptcy, insolvency or similar law, whether or not
allowable as a claim in any such proceeding. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (w) any liability for
federal, state, local or other taxes, (x) any Indebtedness of the Company or any
Guarantor to any Affiliates, (y) any trade payables or (z) that portion of any
Indebtedness that is incurred in violation of the Indenture.
"SIGNIFICANT SUBSIDIARY" means, with respect to any Person, any Subsidiary
of such Person that would be a "significant subsidiary" as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such
Regulation is in effect on the date hereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof). ABI
Acquisition 1 plc shall be deemed to be a Subsidiary of the Company for all
purposes of this Agreement at any time if at such time it is a Subsidiary (as
determined above) of the Company and/or Astor Holdings II. Because on the Issue
Date, the Company owns, directly or indirectly, no more than 50% of the Voting
Stock of Rheochem, on the Issue Date Rheochem is not a Subsidiary of the
Company.
"SUBSIDIARY GUARANTOR" means any Restricted Subsidiary that executes a Note
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement dated June 28, 1995
among the Parent, Astor Holdings II and the Company.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company that at the
time of determination shall be designated by the Board of Directors of the
Company as an Unrestricted Subsidiary pursuant to a Board Resolution, but only
if such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is
not
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<PAGE>
party to any material agreement, contract, arrangement or understanding with the
Company or any Restricted Subsidiary unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; and (c) is a Person with respect
to which neither the Company nor any Restricted Subsidiary has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results. Any such designation by
the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
entitled "Restricted Payments." If, at any time, any Unrestricted Subsidiary,
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant entitled "Incurrence
of Indebtedness and Issuance of Disqualified Stock," the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant entitled "Incurrence of Indebtedness and
Issuance of Disqualified Stock," and (ii) no Default or Event of Default would
be in existence following such designation.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have or might have, voting power by reason of the
happening of any contingency).
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the total of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means a Restricted Subsidiary all of
the outstanding Capital Stock or other ownership interests of which (other than
directors' qualifying shares or one share held by a director for statutory
purposes) shall at the time be owned by the Company, Astor Holdings II or by one
or more Wholly Owned Restricted Subsidiaries of the Company, or by the Company,
Astor Holdings II and one or more Wholly Owned Restricted Subsidiaries.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Notes for its own account pursuant to the
Offer (a "Participating Broker") must acknowledge that it will deliver a
prospectus in connection with any resale of such Notes. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker in connection with any resale of Notes received in exchanged for Old
Notes where such Old 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 from the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any Participating Broker for use in connection with
any such resale. In addition, until , 1996 (90 days from the date of
this Prospectus), all dealers effecting transactions in the Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Notes by
broker-dealers. Notes received by any Participating Broker 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 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 and/or the purchasers of any such Notes.
Any Participating Broker that resells Notes that were received by it for its own
account pursuant to the Offer and any broker or dealer that participates in a
distribution of such Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of Notes and any
commissions 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 as required, a Participating Broker will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days from the Expiration Date, the Company will send a
reasonable number of additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker that requests such
documents in the Letter of Transmittal. The Company will pay all the expenses
incident to the Offer (which shall not include the expenses of any Holder in
connection with resales of the Notes). The Company has agreed to indemnify
Holders of the Notes, including any Participating Broker, against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby and the Guarantee will be passed
upon for the Company by Gibson, Dunn & Crutcher LLP, Los Angeles, California.
INDEPENDENT AUDITORS
The Consolidated Financial Statements of Astor Holdings II as of March 31,
1995 and 1996 and for each of the three years ended March 31, 1996 included in
this Prospectus have been audited by Ernst & Young LLP, independent auditors, as
stated in their report appearing herein. The Consolidated Financial Statements
of Associated British Industries Limited for the periods ended June 30, 1993 and
March 31, 1994 and 1995 included in this Memorandum have been audited by KPMG,
independent auditors, as stated in their report appearing herein. The
Consolidated Financial Statements of Adco Technologies, Inc. as of December 31,
1994 and 1995 and for each of the two years ended December 31, 1995 and the
period of May 14, 1993 to December 31, 1993 included in this Memorandum have
been audited by Ernst & Young LLP, independent auditors, as stated in their
report appearing herein. The Consolidated Financial Statements of Adco Products,
Inc. for the period January 1, 1993 to May 13, 1993 (date of sale) included in
this Memorandum have been audited by Ernst & Young LLP, independent auditors, as
stated in their report appearing herein.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ASTOR HOLDINGS II, INC.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets at March 31, 1995 and 1996..................................................... F-3
Consolidated Statements of Operations for the years ended March 31, 1994, 1995 and 1996.................... F-5
Consolidated Statements of Stockholder's Equity (Deficit) for the years ended March 31, 1994, 1995 and
1996...................................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1994, 1995 and 1996.................... F-7
Notes to Consolidated Financial Statements................................................................. F-8
Consolidated Balance Sheets at September 30, 1995 and 1996 (unaudited)..................................... F-22
Consolidated Statements of Operations and Retained Earnings (Deficit) for the six months ended September
30, 1995 and 1996 (unaudited)............................................................................. F-24
Consolidated Statements of Cash Flows for the six months ended September 30, 1995 and 1996 (unaudited)..... F-25
Notes to Consolidated Financial Statements................................................................. F-26
ASSOCIATED BRITISH INDUSTRIES LIMITED
Report of Independent Auditors............................................................................. F-27
Consolidated Profit and Loss Account for the periods ended March 31, 1994 and 1995 and June 30, 1993....... F-28
Consolidated Cash Flow Statement for the periods ended March 31, 1994 and 1995 and June 30, 1993........... F-29
Notes...................................................................................................... F-30
ADCO TECHNOLOGIES INC.
Report of Independent Auditors............................................................................. F-38
Consolidated Balance Sheets at December 31, 1994 and 1995.................................................. F-39
Consolidated Statements of Income for the period May 14, 1993 to December 31, 1993 and for the years ended
December 31, 1994 and 1995................................................................................ F-41
Consolidated Statements of Redeemable Preferred Stock of Subsidiary and Stockholders' Equity for the period
May 14, 1993 to December 31, 1993 and for the years ended December 31, 1994 and 1995...................... F-42
Consolidated Statements of Cash Flows for the period May 14, 1993 to December 31, 1993 and for the years
ended December 31, 1994 and 1995.......................................................................... F-43
Notes to Consolidated Financial Statements................................................................. F-44
Consolidated Balance Sheets at September 30, 1995 and 1996 (unaudited)..................................... F-52
Consolidated Statements of Income for the nine months ended September 30, 1995 and 1996 (unaudited)........ F-53
Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1996 (unaudited).... F-54
Notes to Consolidated Financial Statements................................................................. F-55
ADCO PRODUCTS, INC.
Report of Independent Auditors............................................................................. F-57
Statement of Income for the period January 1, 1993 to May 13, 1993......................................... F-58
Statement of Stockholders' Equity for the period January 1, 1993 to May 13, 1993........................... F-59
Statement of Cash Flows for the period January 1, 1993 to May 13, 1993..................................... F-60
Notes to Financial Statements.............................................................................. F-61
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Astor Holdings II, Inc.
We have audited the accompanying consolidated balance sheets of Astor
Holdings II, Inc. (formerly Petrowax PA Inc.) as of March 31, 1995 and 1996, and
the related consolidated statements of operations, stockholder's equity, and
cash flows for each of the three years in the period ended March 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Astor Holdings
II, Inc. at March 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Buffalo, New York
June 7, 1996
F-2
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1995 1996
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 718,744 $ 1,156,622
Cash escrow..................................................................... 102,169 --
Accounts receivable (net of allowance for doubtful accounts of $208,000 and
$725,638, respectively)........................................................ 4,651,366 23,810,998
Receivable from Rheochem Technologies, Inc...................................... -- 566,000
Inventory....................................................................... 7,434,825 18,586,188
Prepaid expenses................................................................ 410,019 1,754,867
Other current assets............................................................ 157,724 1,603,917
------------- --------------
Total current assets.......................................................... 13,474,847 47,478,592
Restricted cash................................................................... 175,000 --
Deposits.......................................................................... 51,000 --
Property, plant and equipment:
Land and improvements........................................................... 582,084 7,441,900
Buildings and improvements...................................................... 1,240,273 7,078,157
Machinery and equipment......................................................... 14,197,717 40,895,658
------------- --------------
Total cost........................................................................ 16,020,074 55,415,715
Less accumulated depreciation................................................... (1,344,115) (4,461,309)
------------- --------------
Property, plant and equipment -- net.............................................. 14,675,959 50,954,406
Investment in Rheochem Technologies, Inc.......................................... -- 4,039,987
Goodwill.......................................................................... -- 29,940,493
Other intangible assets........................................................... 1,789,547 6,572,429
Deferred tax asset................................................................ -- 3,919,644
------------- --------------
Total assets.................................................................. $ 30,166,353 $ 142,905,551
------------- --------------
------------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................... $ 3,717,141 $ 16,271,224
Accrued interest payable....................................................... 618,086 815,953
Accrued reorganization costs................................................... 1,008,019 --
Accrued wages and other payroll related items.................................. 443,147 1,408,614
Accrued vacation............................................................... 673,349 1,090,684
Accrued taxes.................................................................. 147,331 746,411
Accrued professional fees...................................................... -- 1,245,901
Other accrued liabilities...................................................... -- 1,278,060
PCDR inventory financing....................................................... 3,600,000 --
Current portion of long-term debt.............................................. 3,500,000 4,746,683
-------------- --------------
Total current liabilities.................................................... 13,707,073 27,603,530
Long-term debt................................................................... 6,436,721 66,069,960
Due to affiliated company........................................................ -- 5,435,662
Deferred income taxes............................................................ -- 4,781,652
Other long-term liabilities...................................................... -- 2,657,076
Prepetition liabilities subject to compromise.................................... 54,137,966 --
Stockholder's Equity (Deficit):
Redeemable preferred stock:
Senior preferred, par value $.0001 per share; authorized, 260,000 shares;
issued and outstanding, 190,000 shares in 1995 at stated value, $100 per
share....................................................................... 19,000,000 --
Junior preferred, par value $.0001 per share; authorized, issued and
outstanding, 100,000 shares in 1995 at stated value, $100 per share......... 10,000,000 --
-------------- --------------
Total redeemable preferred stock............................................... 29,000,000 --
Common stock:
Par value $.01 per share; authorized 10,000 shares; issued and outstanding,
1,000 shares in 1996........................................................ -- 10
Class A, par value $.0001 per share; authorized, 1,000,000 shares; issued and
outstanding, 102,779 shares in 1995......................................... 10 --
Class B, par value $.0001 per share; non-voting; authorized, 100,000 shares;
issued and outstanding, 2,164 shares in 1995................................ -- --
Class C, par value $.0001 per share; non-voting; authorized, 1,000,000
shares; no shares issued and outstanding in 1995............................ -- --
Additional paid-in capital..................................................... 1,157,924 36,670,838
Retained earnings (deficit) -- net of transfer of $23,863,808 accumulated
deficit as a result of the March 31, 1996 quasi-reorganization................ (74,273,341) --
Foreign currency translation adjustment........................................ -- (313,177)
-------------- --------------
Total stockholder's equity (deficit)......................................... (44,115,407) 36,357,671
-------------- --------------
Total liabilities and stockholder's equity................................. $ 30,166,353 $ 142,905,551
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1994 1995 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Sales............................................................. $ 54,665,017 $ 61,852,091 $ 135,418,195
Cost of goods sold................................................ 50,906,000 54,549,640 108,176,220
-------------- ------------- --------------
Gross profit before depreciation and amortization................. 3,759,017 7,302,451 27,241,975
Selling, general and administrative expenses...................... 3,652,121 4,132,225 13,767,202
Depreciation and amortization..................................... 4,041,275 1,992,559 5,416,228
Asset impairment write-down....................................... 25,882,953 -- --
-------------- ------------- --------------
Operating income (loss)........................................... (29,817,332) 1,177,667 8,058,545
Income from Rheochem Technologies, Inc............................ -- -- 91,000
Interest expense.................................................. (1,470,716) (1,605,985) (5,251,079)
Reorganization expense............................................ (1,255,660) (1,087,944) (856,335)
-------------- ------------- --------------
Income (loss) before taxes and extraordinary item................. (32,543,708) (1,516,262) 2,042,131
Benefit from income taxes......................................... -- -- 3,434,166
-------------- ------------- --------------
Income (loss) before extraordinary item........................... (32,543,708) (1,516,262) 5,476,297
Extraordinary item -- gain on cancellation of debt................ -- -- 44,933,236
-------------- ------------- --------------
Net income (loss)................................................. $ (32,543,708) $ (1,516,262) $ 50,409,533
-------------- ------------- --------------
-------------- ------------- --------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
REDEEMABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ ------------------------------------------------ PAID-IN
SENIOR JUNIOR CLASS A CLASS B CLASS C CAPITAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1993................. $19,000,000 $10,000,000 $ 10 $ -- $ -- $ -- $ 1,157,924
Net loss................................. -- -- -- -- -- -- --
----------- ----------- ----------- ----- ----- --------- -----------
Balance at March 31, 1994................ 19,000,000 10,000,000 10 -- -- -- 1,157,924
Net loss................................. -- -- -- -- -- -- --
----------- ----------- ----------- ----- ----- --------- -----------
Balance March 31, 1995................... 19,000,000 10,000,000 10 -- -- -- 1,157,924
Cancellation of shares upon adoption of
plan of reorganization.................. (19,000,000) (10,000,000) (10) -- -- -- 29,000,010
Sale of common stock..................... -- -- -- -- -- 10 30,376,712
Net income............................... -- -- -- -- -- -- --
Foreign currency translation
adjustment.............................. -- -- -- -- -- -- --
Effect of quasi-reorganization as of
March 31, 1996.......................... -- -- -- -- -- (23,863,808)
----------- ----------- ----------- ----- ----- --------- -----------
Balance March 31, 1996................... $ -- $ -- $ -- $ -- $ -- $ 10 $36,670,838
----------- ----------- ----------- ----- ----- --------- -----------
----------- ----------- ----------- ----- ----- --------- -----------
<CAPTION>
FOREIGN TOTAL
CURRENCY RETAINED STOCKHOLDER'S
TRANSLATION EARNINGS EQUITY
ADJUSTMENT (DEFICIT) (DEFICIT)
----------- ----------- ------------
<S> <C> <C> <C>
Balance at April 1, 1993................. $ -- $(40,213,371) ($10,055,437)
Net loss................................. -- (32,543,708) (32,543,708)
----------- ----------- ------------
Balance at March 31, 1994................ -- (72,757,079) (42,599,145)
Net loss................................. -- (1,516,262) (1,516,262)
----------- ----------- ------------
Balance March 31, 1995................... -- (74,273,341) (44,115,407)
Cancellation of shares upon adoption of
plan of reorganization.................. -- -- --
Sale of common stock..................... -- -- 30,376,722
Net income............................... -- 50,409,533 50,409,533
Foreign currency translation
adjustment.............................. (313,177) -- (313,177)
Effect of quasi-reorganization as of
March 31, 1996.......................... -- 23,863,808 --
----------- ----------- ------------
Balance March 31, 1996................... $(313,177) $ -- $36,357,671
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1994 1995 1996
-------------- ------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................. $ (32,543,708) $ (1,516,262) $ 50,409,533
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization................................... 4,041,275 1,992,559 5,416,228
Income from debt cancellation................................... -- -- (44,933,236)
Write down for impairment of assets............................. 25,882,953 -- --
Equity in income of Rheochem Technologies, Inc.................. -- -- (91,000)
Changes in operating assets and liabilities (net of business
acquired in 1996):
Cash escrow................................................... (31,901) 25,082 102,169
Accounts receivable........................................... (394,973) (921,870) (2,322,833)
Receivable from Rheochem Technologies, Inc.................... -- -- (566,000)
Inventory..................................................... 539,055 (290,077) (17,668)
Prepaid and other current assets.............................. (937,968) 472,402 641,478
Deposits...................................................... -- -- 51,000
Accounts payable.............................................. 2,458,141 1,161,213 1,326,103
Accrued reorganization costs.................................. 815,567 192,452 (1,008,019)
Deferred taxes................................................ -- -- (4,452,809)
Other long-term liabilities................................... -- -- (508,000)
Accrued interest payable...................................... 14,493 603,593 335,854
Accrued expenses.............................................. 548,267 (860,225) (3,026,198)
-------------- ------------- --------------
Net cash provided by operating activities......................... 391,201 858,867 1,356,602
INVESTING ACTIVITIES
Additions to property, plant and equipment........................ (259,819) (273,979) (4,639,815)
Acquisition of business, net of cash acquired of $1,510,342....... -- -- (60,830,982)
Dividends received from Rheochem Technologies, Inc................ -- -- 110,000
Decrease in restricted cash....................................... -- -- 175,000
-------------- ------------- --------------
Net cash used in investing activities............................. (259,819) (273,979) (65,185,797)
FINANCING ACTIVITIES
Capital lease payments............................................ (146,996) (113,594) (95,040)
Increase in deferred debt issuance costs.......................... (40,000) -- (6,800,561)
Proceeds from long-term debt...................................... -- -- 70,321,438
Payments of long-term debt........................................ -- -- (26,656,840)
Issuance of stock, net of fees.................................... -- -- 30,376,722
Decrease in PCDR inventory financing.............................. -- -- (3,600,000)
Decrease in post-petition debt.................................... (14,330) -- --
Decrease in pre-petition liabilities.............................. (306,388) -- --
Decrease in due to affiliated company............................. -- -- (510,278)
-------------- ------------- --------------
Net cash provided by (used in) financing activities............... (507,714) (113,594) 63,035,441
Effect of exchange rate changes on cash........................... -- -- 1,231,632
-------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents.............. (376,332) 471,294 437,878
Cash and cash equivalents at beginning of period.................. 623,782 247,450 718,744
-------------- ------------- --------------
Cash and cash equivalents at end of period........................ $ 247,450 $ 718,744 $ 1,156,622
-------------- ------------- --------------
-------------- ------------- --------------
Supplementary cash flows data:
Interest paid................................................... $ 1,461,000 $ 1,002,000 $ 5,053,000
Income taxes paid............................................... -- -- $ 2,411,000
Noncash investing and financing activities:
Assets acquired by incurring notes payable...................... -- -- $ 5,945,940
</TABLE>
See accompanying notes.
F-7
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Astor Holdings II, Inc. ("Astor Holdings II") is a wholly-owned subsidiary
of Astor Holdings, Inc. (the "Parent") and the holding company of Astor
Corporation. Astor Holdings II's operations primarily include the manufacturing
of specialty wax products for sale to end users, in a diverse range of
industries both domestically and internationally, whose applications require
specialized products and blends. Astor Holdings II performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral.
Astor Corporation was incorporated in 1989 as Petrowax PA Inc. ("Petrowax").
On June 28, 1995 certain investors (including certain former stockholders of
Petrowax) contributed $30.7 million to capitalize MSC Holdings I, Inc. (whose
name was subsequently changed to Astor Holdings, Inc.) which then capitalized
MSC Holdings II, Inc. (whose name was subsequently changed to Astor Holdings II,
Inc.) and paid $0.3 million in fees. Astor Holdings II then acquired shares of
common stock of Petrowax for $10 million and the shares of common stock held by
the former stockholders of Petrowax were cancelled for no consideration. Astor
Holdings II also contributed $17.2 million to capitalize ABI Acquisition 1 plc
and paid $3.2 million in fees. ABI Acquisition 1 plc then used the funds to
indirectly acquire Associated British Industries Limited. As a result, Astor
Corporation is a wholly-owned subsidiary of Astor Holdings II. Petrowax had
operated as a debtor-in-possession under Chapter 11 of the United States
Bankruptcy Code from February 1992 until June 1995. Effective June 28, 1995,
Petrowax emerged from bankruptcy. The funds necessary to pay claims in
accordance with Petrowax's plan of reorganization ("Reorganization Plan") were
generated from the $10 million capital contribution noted above and term loan
borrowings of $14 million. As a result of implementing the Reorganization Plan,
Petrowax recorded a gain on the forgiveness of debt of $44.9 million, net of the
write-off of related deferred financing costs of $1.6 million. The net gain has
been recorded as an extraordinary item in the accompanying statement of
operations. Subsequent to the implementation of the Reorganization Plan,
Petrowax's name was changed to Astor Corporation.
2. ACQUISITION OF ASSOCIATED BRITISH INDUSTRIES LIMITED
On June 28, 1995, Astor Holdings II through its wholly-owned subsidiaries,
purchased 100% of the outstanding stock of Associated British Industries Limited
("ABI") for cash of $57.4 million plus expenses of $5.0 million and notes of
$5.9 million. ABI is a United Kingdom manufacturer of petroleum wax blends
marketed to end users located throughout the world. ABI included the following
wholly-owned active subsidiaries at the date of the acquisition: Astor Stag Ltd.
(United Kingdom) and its wholly-owned subsidiary Astor Stag SA (Belgium), and
ABI Corporation (United States).
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price of $68.3 million has been
allocated to the assets purchased in the amount of $75.0 million and the
liabilities assumed in the amount of $37.6 million based upon the fair values at
the date of acquisition. The excess of the purchase price over the fair values
of the net assets acquired of $30.9 million has been recorded as goodwill, which
is being amortized on a straight-line basis over 25 years.
The operating results of this acquired business have been included in the
consolidated statement of operations from the date of the acquisition. If the
acquisition had taken place at the beginning of fiscal 1996 rather than at June
28, 1995, pro forma consolidated net sales would have been $158.8 million for
fiscal 1996. Consolidated pro forma income before extraordinary item would have
been $6.1 million for fiscal 1996. If the acquisition had taken place at the
beginning of fiscal 1995 pro forma consolidated net sales would have been $146.7
million and pro forma consolidated net income would have been $1.5 million for
fiscal 1995. Such pro forma amounts are not necessarily indicative of what the
actual consolidated results of operations might have been if the acquisition had
been effective at the beginning of fiscal 1996.
3. QUASI-REORGANIZATION
Effective March 31, 1996, having attained consistent earnings for the
nine-month period since its emergence from bankruptcy, Astor Holdings II, with
stockholder approval, effected a quasi-reorganization.
F-8
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. QUASI-REORGANIZATION (CONTINUED)
Astor Holdings II revalued its assets and liabilities resulting in no
significant adjustments to the financial statements and transferred its retained
earnings deficit of $23.9 million to additional paid-in capital. As a result,
retained earnings had a zero balance at March 31, 1996 and in the future will
represent accumulated earnings from that date forward.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Astor Holdings
II and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
INVENTORY
Inventory is stated at the lower of cost or market, with cost determined
using the first-in, first-out (FIFO) method of inventory valuation.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less the recognition of
permanent impairment and depreciation recorded subsequent to such recognition.
Depreciation is provided principally on the straight-line method over the
respective estimated useful lives of the assets. The estimated useful lives of
buildings are 20 to 50 years and the estimated useful lives of machinery and
equipment are generally 10 to 16 years. Capital leases are amortized over the
estimated useful life of the asset or lease term, as appropriate, using the
straight-line method. Depreciation expense includes amortization of assets
recorded under capital leases. For income tax purposes, accelerated methods of
depreciation are used. Depreciation expense for the years ended March 31, 1994,
1995 and 1996 was $1,941,000, $1,078,000 and $3,528,000, respectively.
DEFERRED COSTS
The costs related to the issuance of debt and certain organizational costs
of Astor Holdings II have been deferred and are being amortized on a straight
line basis over 7 years, which is the life of the loan agreement, and 5 years,
respectively. The straight line method of amortization is materially the same as
the effective interest method.
GOODWILL
Goodwill represents the excess of acquisition cost over the value of net
assets acquired and is being amortized over a period of 25 years. At March 31,
1996, accumulated amortization amounted to $926,000. The carrying value of
goodwill will be reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, Astor Holdings II's carrying value of the
goodwill will be reduced by the estimated shortfall of cash flows.
REVENUE RECOGNITION
Revenue is recognized when products are delivered or when title is passed to
the customers.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency for the majority of Astor Holdings II's and its
subsidiaries' foreign operations is the applicable local currency. The
translation from the applicable foreign currency to U.S. dollars is performed
for balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using a weighted average
exchange rate during the period. Translation adjustments resulting from such
translation are included as a separate component of stockholder's equity. Gains
or losses resulting from foreign currency transactions are included in income.
F-9
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH ESCROW
Cash escrow represents segregated cash funds to satisfy tax obligations, in
accordance with the bankruptcy code.
RESTRICTED CASH
Restricted cash includes cash pledged as collateral for an irrevocable
letter of credit in favor of one of Astor Holdings II's feedstock suppliers.
CASH EQUIVALENTS
Astor Holdings II considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
INCOME TAXES
Astor Holdings II accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), ACCOUNTING FOR INCOME
TAXES. Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect of a change in tax rates is recognized in the period that includes the
enactment date.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred. Research
and development expenses approximated $903,000 in fiscal year 1996. The Company
did not incur research development expense prior to fiscal year 1996.
STOCK OPTIONS
Astor Holdings II has elected to follow Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
compensation expense is recognized when the exercise price of employee stock
options is less than the market price of the underlying stock on the date of
grant. See Note 12 for information regarding the Parent's stock option plan.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In estimating the fair value of its fixed rate long-term debt instruments,
Astor Holdings II used a discounted cash flow analysis, based upon the current
incremental borrowing rate for similar types of borrowing arrangements. At March
31, 1996, the carrying amounts of debt instruments approximate fair value.
INTEREST RATE SWAP AGREEMENTS
Astor Holdings II enters into interest rate swap agreements to effectively
convert a portion of its variable-rate borrowings into fixed-rate obligations.
The interest rate differential to be received or paid is recognized over the
lives of the agreements as an adjustment to interest expense. Astor Holdings II
is exposed to credit risk in the event of default by counterparties to the
extent of any amounts that have been recorded in the balance sheet and market
risk as a result of potential future decreases in LIBOR.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-10
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVENTORY
Inventory consists of the following at March 31:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Raw materials.................................................. $ 1,666,271 $ 7,428,538
Work-in-progress............................................... 4,138,785 4,761,551
Finished goods................................................. 1,749,769 6,766,970
Allowance for inventory obsolescence........................... (120,000) (370,871)
------------- -------------
$ 7,434,825 $ 18,586,188
------------- -------------
------------- -------------
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consists of the following at March 31:
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Trade names...................................................... $ -- $ 479,986
Deferred organization costs...................................... -- 24,482
Deferred debt issuance costs..................................... 5,532,079 6,800,561
------------ -------------
5,532,079 7,305,029
Less accumulated amortization.................................... (3,742,532) (732,600)
------------ -------------
$ 1,789,547 $ 6,572,429
------------ -------------
------------ -------------
</TABLE>
Amortization expense for the years ended March 31, 1994, 1995 and 1996 was
$806,000, $915,000 and $732,600, respectively. During the fiscal year ended
March 31, 1996, the $1,789,547 deferred debt issuance costs that remained
unamortized at March 31, 1995 was written off upon the emergence of Petrowax
from bankruptcy and concurrent forgiveness of debt. In addition, during the
fiscal year ended March 31, 1996, $6,800,561 of deferred debt issuance costs
were recorded in connection with Astor Corporation's incurrence of debt related
to the emergence from bankruptcy and the acquisition of ABI.
7. LONG-TERM DEBT
Long-term debt at March 31, 1996 consists of the following:
<TABLE>
<S> <C>
Term Note payable to Union Bank of Switzerland ("UBS") up to
$37,500,000 plus L12,500,000 ($19,096,250) in the aggregate.
The term note matures on June 28, 2002. Interest is due on the
last day of each interest period and on the date three months
after the first date of such interest period in the case of
interest periods of six months. Interest set at a LIBOR based
rate plus 2.25% (L12,282,625, ($18,764,166) at 8.875%,
$18,195,550 at 7.6875% and $18,000,000 at 7.875% at March 31,
1996). Astor Corporation has entered into swap agreements, the
effect of which is to fix the interest rate on notional amounts
of L9,000,000 ($13,749,300) at 9.48%, $10,000,000 at 8.22%, and
$18,000,000 at 8.23% through September 1998. The net effect of
the swap agreements on interest expense in the year ended March
31, 1996 resulted in additional interest expense of $67,570.
Principal is due in equal quarterly payments commencing
December 28, 1995.............................................. $54,959,916
</TABLE>
F-11
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C>
Revolving Credit Note payable to UBS up to $20,00,000 in the
aggregate. Revolving Credit Facility matures on June 28, 2002.
Interest is due on the last day of each interest period and on
the date three months after the first date of such interest
period in the case of interest periods of six months. Interest
set at prime plus 1%, or LIBOR plus 2.25% (L2,400,000, or
($3,666,480), at 8.5% and $9,800,000 at 7.875%)................ 13,466,480
Swing Line Credit Note payable to UBS. Interest at prime plus
1.75% (10.25%). Principal due April 4, 1996.................... 700,000
Subordinated environmental note payable to Quaker State
Corporation. Principal due in one installment on December 31,
2008. Interest due monthly at the rate of 9%................... 148,097
Obligations under capital leases............................... 172,430
Mortgage....................................................... 150,000
Revolving line of credit....................................... 1,219,720
----------
Long term debt................................................. 70,816,643
Less current portion........................................... (4,746,683)
----------
$66,069,960
----------
----------
</TABLE>
On June 16, 1995 ABI Acquisition 2 plc ("ABI A2") and Astor Corporation
entered into a facility agreement (the "facility") with UBS. A term loan
facility in the amounts of $23,500,000 and L12,500,000, or ($19,062,250), was
granted to ABI A2. The term loans were intended for the purpose of financing
part of the purchase of the entire issued share capital of ABI, the payment of
interest on such borrowings and the payment of transaction fees and expenses up
to $7,500,000. A term loan facility in the amount of $14,000,000 was granted to
Astor Corporation for the purpose of paying claims in accordance with the
Reorganization Plan.
A revolving credit and letter of credit facility in an aggregate principal
amount of $20,000,000 was granted to Astor Corporation and any additional
borrower provided that the dollar amount of the revolving advances made or to be
made by way of the issue of a letter of credit shall at no time exceed
$5,000,000 and any swing-line advances made shall reduce the revolving advances
available. The facility was intended for the purpose of refinancing certain
existing indebtedness of ABI and its subsidiaries up to a maximum aggregate
amount of $9,500,000, for the general working capital requirements of each
borrower, to refinance swing-line advances, to pay transaction fees and expenses
up to $400,000 in connection with the merger of the U.S. subsidiaries of ABI
into Astor Corporation, and to pay transaction fees and expenses of up to
$1,500,000 in connection with the acquisition of ABI. Availability is subject to
a borrowing base for each borrower. The borrowing base shall equal a percentage
to be established by UBS from time to time in its sole reasonable discretion
(initially 80% and 50%, respectively) of certain accounts receivable and
inventory, subject to eligibility requirements and reserves to be established
and revised by UBS from time to time in its sole discretion. At March 31, 1996,
the borrowing base was $21.7 million.
A swing-line credit facility in an aggregate principal amount of $2,000,000
was granted to Astor Corporation for its general working capital requirements.
The above domestic facilities are secured by substantially all of the
domestic assets of Astor Corporation and its subsidiaries, while the foreign
facilities are secured by substantially all of the worldwide assets of Astor
Corporation and its subsidiaries.
F-12
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
The facility agreement subjects Astor Corporation and its subsidiaries to
various affirmative and negative covenants and prohibits, among other things,
the payment of dividends on any class of stock. As of March 31, 1996, Astor
Corporation and its subsidiaries were in compliance with these covenants.
Scheduled maturities on long-term debt for each of the next five years as of
March 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending March 31, 1997..................................... $4,746,683
1998....................................... 6,711,070
1999....................................... 7,383,704
2000....................................... 9,598,781
2001....................................... 11,075,439
Thereafter................................. 31,300,966
----------
$70,816,643
----------
----------
</TABLE>
8. LONG-TERM POST-PETITION DEBT
Long-term post-petition debt consisted of the following at March 31, 1995:
<TABLE>
<S> <C>
Debtor in possession financing from Century City 1800 Partners
LP ("CC1800").................................................. $3,500,000
Assumed obligations -- bridge loan.............................. 6,038,624
Notes payable, secured.......................................... 250,000
Environmental note.............................................. 148,097
---------
9,936,721
Less current portion............................................ 3,500,000
---------
$6,436,721
---------
---------
</TABLE>
On February 29, 1992, Petrowax entered into a secured debtor-in-possession
financing arrangement ("DIP loan") pursuant to which Petrowax borrowed $3.5
million which was secured by liens on Petrowax's accounts receivable and
inventory. The DIP loan was repaid upon reorganization of Petrowax.
On April 27, 1990, Petrowax entered into a bridge loan agreement pursuant to
which the bridge lenders loaned Petrowax $5.0 million. The principal amount
outstanding under this facility was $4.75 million at March 31, 1995. The bridge
lenders' asserted secured claim relating to this facility, which included
accrued interest and fees, totaled $6,038,624 at March 31, 1995. This obligation
was settled upon reorganization of Petrowax.
9. PCDR INVENTORY FINANCING
In November 1992, Petrowax entered into a tolling agreement with PCDR, an
affiliated entity. The agreement allowed PCDR to purchase selected crude oil and
inventories aggregating $3.6 million from Petrowax, for later re-sale back to
Petrowax. This agreement resulted in increased working capital available to
Petrowax for use in its manufacturing operations. The agreement required
Petrowax to re-purchase all inventories upon confirmation of a plan of
reorganization. For financial reporting purposes at March 31, 1995, the
agreement is considered a financing arrangement, and the inventory and
corresponding PCDR borrowings are included in the balance sheet. The PCDR
borrowings were paid upon the reorganization of Petrowax.
F-13
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PRE-PETITION LIABILITIES
Pre-petition liabilities consisted of the following at March 31, 1995:
<TABLE>
<S> <C>
Secured debt................................................... $45,398,186
Unsecured debt................................................. 1,366,354
Taxes payable.................................................. 196,377
Capital lease obligations...................................... 29,471
Unsecured trade payables....................................... 7,147,578
----------
$54,137,966
----------
----------
</TABLE>
These liabilities were settled upon reorganization of Petrowax.
11. LEASES
Astor Corporation is obligated under noncancelable operating leases expiring
on various dates through March 31, 2003. Future minimum annual lease payments as
of March 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending March 31, 1997...................................... $1,656,000
1998....................................... 1,528,000
1999....................................... 1,179,000
2000....................................... 936,000
2001....................................... 923,000
</TABLE>
Rent expense for all operating leases for the years ended March 31, 1994,
1995 and 1996 was $1.3 million, $1.4 million and $1.6 million, respectively.
12. STOCK OPTIONS AND WARRANTS
Effective June 28, 1995, Astor Holdings, Inc. adopted its 1995 Option
Incentive Plan (the "Plan"). The Plan reserved 204,545 shares of the Parents'
Class D common stock for purchase by management. On June 28, 1995 ("date of
grant"), the Parent issued options for 204,545 shares of its Class D common
stock to members of management at a purchase price of $10 per share, which was
the fair market value of the Class D common stock at that date. Accordingly,
there was no compensation expense recorded in the financial statements related
to the granting of the options. On each of the first, second, third, fourth and
fifth anniversaries of the date of grant ("vesting date"), the options become
exercisable to purchase at a rate of 20% per annum. The vesting of each option
is contingent upon the Parent meeting certain target financial performance goals
for the fiscal year immediately preceding such vesting date. If these goals are
not met, the committee of the Board of Directors, in its sole discretion, may
cause the vesting of all or any portions of the options. If both of the previous
two conditions are not met in a particular year, the options subject to vesting
for such vesting date will not vest, but shall automatically vest upon the next
succeeding vesting date for which the financial performance goals are met or at
the sole discretion of the committee of the Board of Directors. No awards shall
be made under this Plan after June 28, 2005 and no Class D common stock shall be
issued under this Plan after June 28, 2015. There have been no options exercised
under the Plan as of March 31, 1996.
The Parent has elected not to adopt early the provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), ADOPT ACCOUNTING FOR
STOCK-BASED COMPENSATION. The Parent will adopt the reporting provisions of SFAS
No. 123 in fiscal year 1997. The Parent expects the adoption to have no effect
on its financial condition or results of operations.
F-14
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES
The components of income before taxes and extraordinary item are as follows
at March 31:
<TABLE>
<CAPTION>
1994 1995 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Domestic...................................... $ (32,543,708) $ (1,516,262) $ 2,053,901
Foreign....................................... -- -- (11,770)
-------------- ------------- --------------
$ (32,543,708) $ (1,516,262) $ 2,042,131
-------------- ------------- --------------
-------------- ------------- --------------
</TABLE>
In 1994 and 1995, no provision for federal income taxes was recorded as
Astor Holdings II incurred net losses for financial reporting as well as income
tax purposes. Income tax expense (credits) consist of the following at March 31,
1996:
<TABLE>
<S> <C>
Current:
Federal....................................................... $ 339,350
State......................................................... 312,520
Foreign....................................................... 200,662
Deferred:
Federal....................................................... (4,865,981)
State......................................................... 946,337
Foreign....................................................... (367,054)
----------
$(3,434,166)
----------
----------
</TABLE>
Deferred taxes available to Astor Holdings II as of March 31 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------- -------------- -----------------------------
DOMESTIC DOMESTIC DOMESTIC FOREIGN
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Property, plant and equipment.......... $ -- $ -- $ (4,229,030) $ (4,156,585)
Intangible assets...................... -- -- -- (881,000)
Other.................................. -- -- (8,231) (135,110)
------------- -------------- ------------- --------------
$ -- $ -- $ (4,237,261) $ (5,172,695)
Deferred tax assets:
Federal net operating loss
carryforward.......................... $ 15,095,000 $ 14,620,000 $ 8,413,560 $ --
Accounts receivable.................... -- -- 145,278 70,704
Inventory.............................. -- -- 32,000 88,434
Property, plant and equipment.......... 6,110,000 5,408,000 -- --
Intangible assets...................... 3,174,000 3,046,000 -- --
Accrued expenses and other long-term
liabilities........................... -- -- 1,151,067 231,905
Other.................................. 374,000 487,000 -- --
Valuation allowance.................... (24,753,000) (23,561,000) (1,585,000) --
------------- -------------- ------------- --------------
$ -- $ -- $ 8,156,905 $ 391,043
------------- -------------- ------------- --------------
Net deferred taxes....................... $ -- $ -- $ 3,919,644 $ (4,781,652)
------------- -------------- ------------- --------------
------------- -------------- ------------- --------------
</TABLE>
At March 31, 1996, Astor Holdings II had an operating loss carryforward for
tax reporting purposes of approximately $24 million expiring in years 2007
through 2009, which was available to offset future federal taxable income. The
utilization of the net operating losses would be limited under Section 382 of
the Internal Revenue Code (the "Code") if Astor Corporation were to undergo, or
is deemed to have previously
F-15
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
undergone, an ownership change. Although Astor Corporation has completed
transactions that have involved substantial changes to its equity ownership,
Astor Corporation believes that an ownership change, as defined by the Code, has
not occurred since June 1991. Approximately $4.6 million of net operating losses
generated prior to the June 1991 change in control could potentially be subject
to annual limitation of future use. The deferred tax asset related to these June
1991 and prior net operating losses has been offset by a valuation allowance of
$1,585,000 as of March 31, 1996.
Astor Corporation had incurred operating losses through fiscal year 1995 and
therefore had recorded a valuation allowance for the entire deferred tax asset.
In fiscal year 1996, as a result of several positive factors, Astor Corporation
determined it could eliminate the valuation allowance, with the exception of the
amount required for the 1991 and prior net operating losses noted above. The
positive factors included the emergence from bankruptcy, the achievement of
operational efficiencies, the acquisition of ABI which has a consistent history
of positive earnings, and the achievement of consolidated net income for the
fiscal year. In addition to generating a profit in fiscal year 1996, Astor
Corporation determined it would have been profitable in 1995 had the
reorganization and acquisition of ABI taken place at the beginning of that year.
As a result, Astor Corporation believes it is more likely than not that the
deferred tax asset will be realized.
The deferred tax valuation allowance decreased by $21,976,000 in fiscal 1996
as a result of the following:
<TABLE>
<S> <C>
Impact of gain on cancellation of debt......................... $15,277,000
Realization of net operating losses previously subject to
valuation allowance........................................... 920,091
Reduction of the valuation allowance on unused net operating
loss carryforward as of March 31, 1996........................ 4,865,981
Impact of state income taxes and other......................... 912,928
----------
$21,976,000
----------
----------
</TABLE>
Total income tax expense for the fiscal year ended March 31, 1996 differed
from the amounts computed by applying the U.S. federal income tax rate to income
before taxes and extraordinary item as a result of the following:
<TABLE>
<S> <C>
Income tax expense at the 34% statutory federal income tax
rate........................................................... $ (694,325)
State and local income taxes, net of federal income tax
benefit........................................................ (1,152,837)
Realization of the net operating losses previously subject to
valuation allowance............................................ 920,091
Non-deductibility of goodwill amortization...................... (315,000)
Reduction of the valuation allowance on unused net operating
loss carryforward.............................................. 4,865,981
Other........................................................... (189,744)
----------
Total income tax benefit........................................ $3,434,166
----------
----------
</TABLE>
14. EMPLOYEE BENEFIT PLANS
Astor Corporation, through its acquisition of ABI, has a contributory,
defined-benefit pension plan covering certain employees in the United Kingdom.
Benefits are based on length of service and a negotiated benefit rate. Astor
Corporation's policy is to fund the plan based upon statutory requirements.
Plan assets are primarily invested in domestic and international stocks and
bonds.
F-16
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following tables present the funded status and amounts recognized in the
balance sheet at March 31, 1996:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations
Vested....................................................... $10,541,000
Non-vested................................................... --
----------
Accumulated benefit obligation................................. $10,541,000
----------
----------
Projected benefit obligation................................... $12,150,000
Plan assets at fair value...................................... 13,172,000
----------
Plan assets in excess of projected benefit obligation.......... 1,022,000
Unrecognized net gain.......................................... (613,000)
----------
Net pension asset.............................................. $ 409,000
----------
----------
</TABLE>
Net pension expense for the fiscal year ended March 31, 1996 was comprised
of the following:
<TABLE>
<S> <C>
Service cost..................................................... $ 209,000
Interest cost on projected benefit obligation.................... 718,000
Expected return on plan assets................................... (816,000)
---------
$ 111,000
---------
---------
</TABLE>
At March 31, 1996, the assumed long-term rates of return on assets and
settlement rate used in determining net pension expense were 9% and 8%,
respectively. The assumed rate of increase in the future compensation level was
6%.
Astor Corporation also sponsors defined-contribution plans under Section
401(k) of the Internal Revenue Code. These plans cover employees at the Refining
and Blending divisions in the United States. Employees may elect to contribute
up to 15% of their annual compensation to the plans, subject to limits
established by the Internal Revenue Code. Astor Corporation's contributions to
the plans are based on 100% of the first 3% of compensation contributed by
employees. Astor Corporation also may make discretionary contributions. Astor
Corporation's contributions to the plans for the year ended March 31, 1996 was
$47,000. There were no contributions to these plans for the years ended March
31, 1995 and 1994.
15. POSTRETIREMENT MEDICAL BENEFITS
Astor Corporation provides certain health insurance benefits to eligible and
formerly full-time retired United States employees. Participants generally
become eligible for these benefits after achieving certain age and years of
service requirements.
The United States Blending Division, which relates to the ABI acquisition,
will provide 100% of eligible employees' premium coverage for individuals
retiring between the ages of 62 and 65 under the group health plan, and will
provide premium coverage for eligible retirees greater than age 65 for coverage
supplemental to Medicare.
Effective February 1, 1996, the United States Refining Division ratified a
new union contract which provides for Astor Corporation to continue to pay for
80% of eligible individual employee group health and dental plan coverage for
employees who retire between the ages of 62 and 65 with coverage ending upon
attainment of age 65. The accumulated postretirement benefit obligation at the
effective date was $538,000 and will be recognized over 20 years.
Astor Corporation's current policy is to fund these benefits on a
pay-as-you-go basis.
F-17
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. POSTRETIREMENT MEDICAL BENEFITS (CONTINUED)
The amounts recognized in Astor Holdings II's March 31, 1996 balance sheet
are as follows:
<TABLE>
<S> <C>
Accumulated postretirement benefits obligation:
Retirees...................................................... $ 291,936
Fully eligible active......................................... 564,599
Other, not fully eligible..................................... 247,965
---------
Total accumulated postretirement benefits obligation............ 1,104,500
Unrecognized prior service costs................................ (533,500)
---------
Accrued postretirement benefit obligation....................... $ 571,000
---------
---------
</TABLE>
These obligations are included in other long-term liabilities on Astor
Holdings II's March 31, 1996 balance sheet.
Net periodic postretirement benefit costs for the fiscal year ended March
31, 1996 included the following components:
<TABLE>
<S> <C>
Service cost -- benefits earned during the period.................. $ 13,000
Interest cost...................................................... 37,000
Amortization....................................................... 4,482
---------
Net periodic postretirement benefit cost........................... $ 54,482
---------
---------
</TABLE>
For measuring the postretirement benefit obligation, an initial 8% annual
rate of increase in the net medical claims cost was assumed. The rate was
assumed to decrease by 1% per year commencing in the fiscal year ended March 31,
1997 to an ultimate rate of 5%. Increasing the annual rate of increase in the
net medical claims cost by one percentage point in each year would increase the
accumulated postretirement benefit obligation by 12.4% or $137,000 and would
increase the service cost and interest cost components of net periodic
postretirement benefit cost by 15.2% or $7,600 in the aggregate. The discount
rate used in determining the accumulated postretirement benefit obligation was
7% per annum.
16. SWAP AGREEMENTS
Astor Corporation has entered into a series of price swap contracts to fix
the purchase price of crude oil, primarily through October 31, 1996. The
contracts are intended to mitigate the impact of market fluctuations related to
the cost of crude oil on feedstock costs. Gains and losses on the contracts are
deferred and are recognized in income during the periods affected. At March 31,
1996, Astor Corporation had open price swap contracts covering a notional amount
of crude oil equivalent to 571,000 barrels.
17. COMMITMENTS AND CONTINGENCIES
As is prevalent in the refining industry, Astor Corporation has
environmental issues that it is addressing. The United States Refining Division
has issues related to the remediation of contaminated soils and ground water.
Quaker State Corporation (QSC) is responsible for the vast majority of the costs
associated with the issues. Astor Corporation's potential liability is limited
to sharing fifty percent of the first $5,500,000 of non-ground water remediation
with QSC. Astor Corporation will pay for its share of the above costs by issuing
subordinated 9% notes payable to QSC, which will be due December 31, 2008. As of
March 31, 1996, Astor Corporation has issued environmental notes to Quaker State
in the amount of $148,097 for shared costs (Note 7). The future cost to Astor
Corporation for non-ground water remediation, if any, is not known at this time.
The United States Blending Division has environmental issues related to
contamination at its Titusville, Pa. facility. Under the terms of the L1,450,988
of 8% subordinated debt issued to ABI's former shareholders by the Parent, the
Parent is entitled to set-off costs in excess of $350,000 relating to this site
against the principal and interest otherwise payable, so long as the Parent
notifies the shareholders by June 28, 1999 of
F-18
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the existence of a condition that could give rise to a set-off claim. Astor
Holdings II has accrued the initial $350,000 for which it is responsible. Astor
Corporation believes it has provided for probable losses with respect to these
issues and does not anticipate a material impact on future operating results,
financial position or liquidity.
18. INVESTMENT IN RHEOCHEM TECHNOLOGIES, INC.
Astor Corporation's investment in Rheochem Technologies, Inc. ("Rheochem")
represents its 50% ownership of Rheochem, which was obtained through the
acquisition of ABI. Rheochem, whose operations are based in Columbia, Missouri,
develops and manufactures products such as paraffin lubricants, synthetic
stearate and other lubricating systems which are used in the extrusion of
polyvinyl chloride (PVC) products. Astor Corporation accounts for its investment
using the equity method.
During the fiscal year ended March 31, 1996, Astor Corporation had sales to
Rheochem of approximately $4,300,000 and at March 31, 1996 has a receivable from
Rheochem of $566,000. Also during the fiscal year ended March 31, 1996, Astor
Corporation received a management fee from Rheochem of $1,100,000, which is
netted against selling, general and administrative expenses in the accompanying
consolidated statement of operations.
Under a joint venture agreement, neither the Company nor Rheochem, Inc.
("RCI"), the other 50% joint venture partner in Rheochem may sell its interests
in Rheochem without first complying with right of first offer and right of first
refusal procedures in favor of the other party. After December 31, 1997, either
Astor Corporation or RCI may compel the other party to purchase all its Rheochem
interests or to sell to it all of the other party's Rheochem interests. In
addition, if the principal of RCI ceases to render services to Rheochem as a
result of death, disability or other reasons, then Astor Corporation will have a
six-month call option to require RCI to sell its Rheochem interests and RCI will
concurrently have a seven month put option to require Astor Corporation to
purchase RCI's Rheochem interests, in either case at aggregate current value
determined under procedures set forth in the agreement.
The differences between the carrying amount of the investment on Astor
Holdings II's books and the amount of Astor Corporation's share of Rheochem's
underlying equity in net assets of approximately $2,889,000 is being amortized
over 25 years by Astor Corporation.
The following summarized financial statement information for Rheochem is for
the year ending or as of December 31, 1995:
<TABLE>
<S> <C>
ASSETS:
Current...................................................... $4,446,000
Non-current.................................................. $1,818,000
----------
LIABILITIES:
Current...................................................... $3,524,000
Non-current.................................................. $ 268,000
----------
NET SALES...................................................... $25,908,000
----------
Gross profit................................................... $4,676,000
Net income..................................................... $ 416,000
----------
</TABLE>
19. RELATED PARTIES
As discussed in Note 17, Astor Corporation transacts business with Rheochem
in which it has a 50% ownership.
The Parent has issued redeemable preferred stock. The series A preferred
stock has a liquidation preference and stated value of $14,250,000 and has a
cumulative 14.5% dividend rate. The holders of the
F-19
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. RELATED PARTIES (CONTINUED)
series A preferred stock may require the Parent to redeem the shares after June
15, 2007 or upon a change in control. The series B preferred stock has a
liquidation preference and stated value of $8,250,000 and has a cumulative 14.5%
dividend rate. The holders of the series B preferred stock may require the
Parent to redeem the shares upon a change in control. The Parent's source of
funds for any redemption or payment of dividends will likely be distributions
received from Astor Corporation.
Astor Holdings II has incurred debt of $5,707,938 payable to the Parent in
conjunction with the purchase of ABI. The intercompany debt accrues interest at
6% per annum, which is payable semi-annually through 2003. The principal balance
is due in one installment on July 5, 2003. The Parent is expected to use the
proceeds from this debt to pay its subordinated notes payable to the former
shareholders of ABI.
The Parent has entered into a management agreement with a company related to
its principal stockholders. The Parent incurred a management fee of $300,000
during the fiscal year ended March 31, 1996 related to this agreement. During
the fiscal year ended March 31, 1996 Astor Corporation advanced approximately
$270,000 to the Parent to provide funds for the management fee and other
expenses. The Parent's sources of funds to repay these advances will likely be
distributions funded by Astor Corporation.
20. MAJOR CUSTOMERS
For the year ended March 31, 1994, sales made to two customers represented
approximately 31% of Astor Corporation's total sales. For the year ended March
31, 1995, sales made to one customer represented approximately 11% of Astor
Corporation's total sales. The related accounts receivable balances from these
customers represented approximately 23% and 2% of total accounts receivable at
March 31, 1994 and 1995, respectively. For the year ended March 31, 1996, there
were no sales to any single customer which exceeded 10% of Astor Corporation's
total sales.
21. FOREIGN OPERATIONS
Prior to the acquisition of ABI in the fiscal year ended March 31, 1996,
substantially all business was conducted domestically and there were no foreign
operations. The following table represents the applicable geographic operations
for the fiscal year ended March 31, 1996:
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATIONS CONSOLIDATED
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers......................... $ 89,487,567 $ 45,930,628 $ -- $ 135,418,195
Intra-group sales....................................... 8,631,250 6,764,915 (15,396,165) --
------------ ------------ ------------- -------------
Total net sales..................................... 98,118,817 52,695,543 (15,396,165) 135,418,195
Operating income........................................ 5,609,216 2,449,329 -- 8,058,545
Net income.............................................. 50,254,911 154,622 -- 50,409,533
Identifiable total assets............................... 86,646,993 56,258,558 -- 142,905,551
Total liabilities....................................... 69,361,310 37,186,570 -- 106,547,880
</TABLE>
U.S. operations' sales to unaffiliated customers include approximately
$7,800,000 for the year ended March 31, 1996 for export. Intra-group sales are
recorded at amounts generally above cost and in accordance with the rules and
regulations of the respective governing tax authorities.
F-20
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. SUMMARY FINANCIAL INFORMATION
The following represents summarized financial information of Astor Holdings
II and its wholly-owned subsidiary Astor Corporation for the year ended March
31, 1996:
<TABLE>
<CAPTION>
ASTOR
HOLDINGS II, ASTOR
INC. CORPORATION ELIMINATIONS CONSOLIDATED
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current assets..................................... $ 9,175,193 $ 47,478,592 $ (9,175,193) $ 47,478,592
Non current assets................................. 33,059,673 95,406,077 (33,038,791) 95,426,959
--------------- ------------- ------------- -------------
Total assets....................................... $ 42,234,866 $ 142,884,669 $ (42,213,984) $ 142,905,551
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
Current liabilities................................ $ (61,686) $ 27,665,216 $ -- $ 27,603,530
Non current liabilities............................ 5,938,881 82,180,662 (9,175,193) 78,944,350
Preferred stock of subsidiary...................... -- 1,744,721 (1,744,721) --
Stockholder's equity............................... 36,357,671 31,294,070 (31,294,070) 36,357,671
--------------- ------------- ------------- -------------
Total liabilities and stockholder's equity......... $ 42,234,866 $ 142,884,669 $ (42,213,984) $ 142,905,551
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
Sales.............................................. $ -- $ 135,418,195 $ -- $ 135,418,195
Operating income................................... (3,600) 8,062,145 -- 8,058,545
Net income......................................... $ 50,409,533 $ 50,396,989 $ (50,396,989) $ 50,409,533
</TABLE>
23. ASSET IMPAIRMENT
During the fiscal year ended March 31, 1994, as a result of continued
operating losses, Petrowax assessed whether the value of its long lived assets
were impaired. As a result of this process, Petrowax recorded an asset
impairment write-down of approximately $25.9 million, comprised of $22.3 million
pertaining to property, plant and equipment and $3.6 million pertaining to other
intangible assets. Using an estimated 15% incremental borrowing rate, Petrowax
calculated the present value of the expected future cash flows, excluding
interest charges, to determine the fair value of these assets.
24. SUBSEQUENT EVENT (UNAUDITED)
On July 12, 1996, Astor Corporation entered into an agreement to acquire all
of the outstanding capital stock and issued and unexercised stock options of
Adco Technologies, Inc. for an aggregate consideration of approximately $54.4
million. On October 8, 1996, the merger with Adco Technologies, Inc. was
consummated using the proceeds from a debenture offering.
Since 1990, Astor Corporation has purchased crude oil ("A/B Crude") under a
long-term Crude Oil Purchase Agreement with ANR Production Corporation ("ANR"),
a subsidiary of Coastal Oil Corporation ("Coastal"). This agreement provided for
Astor to purchase all of ANR's A/B Crude production at a formula price based on
posted prices for West Texas Intermediate Crude Oil. Under the contract, Astor
Corporation was obligated to purchase all of ANR's production of A/B Crude.
Astor Corporation also had the right of first refusal on any new availability at
ANR of A/B Crude.
Astor Corporation was party to a Crude, Processing and Reciprocal Purchase
Agreement with Big West Oil Company. Pursuant to this agreement, Astor
Corporation sold the crude oil purchased from ANR to Big West. Big West then
processed the crude oil at its refinery, for a fee to Astor Corporation, and
sold portions of the waxy feedstocks derived from the A/B Crude.
On October 1, 1996, these agreements were replaced by a long-term contract
with L&W, a joint venture of Coastal and Big West Oil Company, for the purchase
of its wax feedstocks derived from A/B Crude at a formula price based on posted
prices for West Texas Intermediate Crude Oil. This contract expires on October
1, 2006, subject to certain early termination rights.
F-21
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 2,408,514 $ 1,764,919
Accounts receivable (net of allowance for doubtful accounts
of $703,541 and $725,190, respectively)....................................... 23,683,312 23,644,694
Receivable from Rheochem Technologies, Inc..................................... 490,000 635,000
Inventory...................................................................... 21,421,352 21,835,505
Prepaid expenses............................................................... 2,317,058 1,862,333
Other current assets........................................................... 452,948 2,362,470
-------------- --------------
Total current assets......................................................... 50,773,184 52,104,921
Property, plant and equipment:
Land and improvements.......................................................... 7,710,451 7,633,141
Buildings and improvements..................................................... 7,187,459 7,097,708
Machinery and equipment........................................................ 38,827,622 42,291,768
-------------- --------------
Total cost....................................................................... 53,725,532 57,022,617
Less accumulated depreciation.................................................. (2,587,569) (6,058,749)
-------------- --------------
Property, plant and equipment -- net............................................. 51,137,963 50,963,868
Investment in joint venture...................................................... 4,166,000 4,392,000
Goodwill......................................................................... 30,537,429 29,180,493
Other intangible assets.......................................................... 7,164,527 6,161,355
Deferred tax asset............................................................... -- 4,692,196
-------------- --------------
Total assets................................................................. $ 143,779,103 $ 147,494,833
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................... $ 15,188,034 $ 16,308,769
Accrued interest payable....................................................... 795,750 521,741
Accrued expenses............................................................... 13,175,340 8,086,770
Current portion of long-term debt.............................................. 4,125,000 5,360,776
-------------- --------------
Total current liabilities.................................................... 33,284,124 30,278,056
Long-term debt................................................................... 64,837,273 62,846,000
Due to affiliated company........................................................ 5,630,090 5,263,509
Deferred income taxes............................................................ 6,371,052 4,856,026
Other long-term liabilities...................................................... 3,408,396 2,472,000
Stockholder's Equity:
Common stock:
Par value $.01 per share; authorized 10,000 shares issued and outstanding,
1,000 shares................................................................ 10 10
Additional paid-in capital................................................... 60,534,646 36,670,838
Retained earnings (deficit) -- net of transfer of $23,863,808 accumulated
deficit as a result of March 31, 1996 quasi-reorganization.................. (29,925,191) 5,091,915
Foreign currency translation adjustment...................................... (361,297) 16,479
-------------- --------------
Total stockholder's equity................................................. 30,248,168 41,779,242
-------------- --------------
Total liabilities and stockholder's equity................................. $ 143,779,103 $ 147,494,833
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-23
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER
30,
-----------------------------
1995 1996
-------------- -------------
<S> <C> <C>
Sales.............................................................................. $ 54,195,420 $ 87,826,894
Cost of goods sold................................................................. 44,189,862 67,735,624
-------------- -------------
Gross profit before depreciation and amortization.................................. 10,005,558 20,091,270
Selling, general and administrative expenses....................................... 5,024,061 9,009,859
Depreciation and amortization...................................................... 2,242,360 3,345,003
-------------- -------------
Operating income................................................................... 2,739,137 7,736,408
Income from Rheochem Technologies, Inc............................................. (65,000) 441,000
Interest expense................................................................... (1,837,096) (3,275,645)
Reorganization expense............................................................. (856,364) --
-------------- -------------
Income (loss) before taxes and extraordinary item.................................. (19,323) 4,901,763
Provision for (benefit from) income taxes.......................................... 565,763 190,152
-------------- -------------
Income (loss) before extraordinary item............................................ (585,086) 5,091,915
Extraordinary item -- gain on cancellation of debt................................. 44,933,236 --
-------------- -------------
Net income......................................................................... 44,348,150 5,091,915
Retained earnings (deficit) at beginning of period................................. (74,273,341) --
-------------- -------------
Retained earnings (deficit) at end of period....................................... $ (29,925,191) $ 5,091,915
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes.
F-24
<PAGE>
ASTOR HOLDINGS II, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER
30,
---------------------------
1995 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................................................... $ 44,348,150 $ 5,091,915
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization..................................................... 2,242,360 3,345,003
Income from debt cancellation..................................................... (44,933,236) --
Equity in income of Rheochem Technologies, Inc.................................... 65,000 (441,000)
Changes in operating assets and liabilities (net of business acquired on June 28,
1995):
Cash escrow..................................................................... 102,169 --
Accounts receivable............................................................. (2,792,499) 243,366
Receivable from Rheochem Technologies, Inc...................................... (39,000) (69,000)
Inventory....................................................................... (2,597,388) (3,176,550)
Prepaid and other current assets................................................ 1,483,576 (866,019)
Deposits........................................................................ 51,000 --
Accounts payable................................................................ (113,955) 48,947
Accrued reorganization costs.................................................... (465,998) --
Deferred taxes.................................................................. 127,911 (698,178)
Other long-term liabilities..................................................... 561,307 (185,076)
Accrued interest payable........................................................ 177,664 (294,212)
Accrued expenses................................................................ 6,516,195 2,317,100
------------ -------------
Net cash provided by operating activities........................................... 4,733,256 5,316,296
INVESTING ACTIVITIES
Additions to property, plant and equipment.......................................... (1,786,195) (2,094,404)
Acquisition of business, net of cash acquired of $1,510,342......................... (60,830,982) --
Decrease in restricted cash......................................................... 175,000 --
------------ -------------
Net cash used in investing activities............................................... (62,442,177) (2,094,404)
FINANCING ACTIVITIES
Capital lease payments.............................................................. (18,474) (64,096)
Increase in deferred debt issuance costs............................................ (6,800,561) --
Proceeds from long-term debt, net of fees........................................... 67,787,028 --
Payments of long-term debt.......................................................... (4,255,856) (2,545,771)
Issuance of stock, net of fees...................................................... 30,376,722 --
Payment of PCDR inventory financing................................................. (3,600,000) --
Payment of debtor in possession financing........................................... (3,500,100) --
Payment of bridge loan payable...................................................... (5,000,000) --
Payment of pre-petition liabilities................................................. (8,827,840) --
Decrease in due to affiliated company............................................... (6,261,790) (172,153)
------------ -------------
Net cash (used in) provided by financing activities................................. 59,899,229 (2,782,020)
------------ -------------
Effect of exchange rate changes on cash............................................. (500,538) 168,425
------------ -------------
Net increase in cash and cash equivalents........................................... 1,689,770 608,297
Cash and cash equivalents at beginning of period.................................... 718,744 1,156,622
------------ -------------
Cash and cash equivalents at end of period.......................................... $ 2,408,514 $ 1,764,919
------------ -------------
------------ -------------
Noncash investing and financing activities
Asset acquired by incurring notes payable......................................... $ 5,945,940 --
</TABLE>
See accompanying notes.
F-25
<PAGE>
ASTOR HOLDINGS II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (including
solely normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six month period ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the year ended March 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto of Astor Holdings II,
Inc. for the year ended March 31, 1996.
2. INVENTORY
Inventory consists of the following at September 30:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Raw Materials............................................................ $ 7,616,587 $ 8,671,328
Work-in-progress......................................................... 5,082,551 5,200,625
Finished goods........................................................... 9,146,921 8,303,151
Allowance for inventory obsolescence..................................... (424,707) (339,559)
------------- -------------
$ 21,421,352 $ 21,835,305
------------- -------------
------------- -------------
</TABLE>
3. INCOME TAXES
Income tax expense recorded for the six month period ended September 30,
1995 is greater than the amount computed by applying the U.S. federal income tax
rate to income before taxes and extraordinary item as a result of taxes being
provided on the income of a subsidiary of Astor Holdings II which was not part
of the consolidated federal tax return for the quarter ended September 30, 1995.
Income tax expense recorded for the six month period ended September 30, 1996 is
less than the amount computed by applying the U.S. federal income tax rate to
income before taxes and extraordinary item due primarily to the elimination of a
valuation allowance related to Astor Holdings II's deferred tax assets. During
the quarter ended September 30, 1996, Astor Holdings II concluded through tax
planning strategies that it was more likely than not that the Company could
utilize the 1991 and prior net operating losses that had been subject to a
valuation allowance. Therefore the $1.6 million valuation allowance for the
deferred tax asset resulting from those net operating losses was no longer
necessary.
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the shareholders of Associated British Industries Limited
We have audited the accompanying consolidated profit and loss accounts and
cash flow statements of Associated British Industries Limited and subsidiaries
for the year ended 31 March 1995, the nine months ended 31 March 1994 and the
year ended 30 June 1993. These are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom and in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the above statements. An audit also includes assessing the
accounting principles used and significant estimates made by managment, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated operating results and
cash flows of Associated British Industries Limited and subsidiaries for the
year ended 31 March 1995, the nine months ended 31 March 1994 and the year ended
30 June 1993 in conformity with generally accepted accounting principles in the
United Kingdom.
Generally accepted accounting prinicples in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected the results of operations for the periods
ended 31 March 1995 and 1994 to the extent summarized in Note 9 to the
consolidated financial statements.
KPMG
Chartered Accountants
Registered Auditors
London, England
24 October 1996
F-27
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
NOTE
----- YEAR ENDED NINE MONTHS YEAR ENDED
30 JUNE ENDED* 31 MARCH
1993 31 MARCH 1995
----------- 1994 -----------
(RESTATED)
L000 ------------ L000
L000
<S> <C> <C> <C> <C>
TURNOVER............................................................ 2 45,930 43,135 57,099
Cost of sales....................................................... (34,282) (32,325) (42,569)
----------- ------------ -----------
GROSS PROFIT........................................................ 11,648 10,810 14,530
Distribution costs.................................................. (2,972) (2,675) (3,601)
Administrative expenses............................................. (5,601) (4,887) (6,429)
Other operating income.............................................. -- 172 468
----------- ------------ -----------
OPERATING PROFIT.................................................... 3,075 3,420 4,968
Provision for loss on disposal of land and buildings................ -- (73) --
----------- ------------ -----------
Profit on ordinary activities before interest....................... 3,075 3,347 4,968
Other interest receivable and similar income........................ 4 -- 19 16
Income from interests in associated undertaking..................... -- -- 442
Interest payable and similar charges................................ 5 (754) (557) (644)
----------- ------------ -----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION....................... 3 2,321 2,809 4,782
Tax on profit on ordinary activities................................ 6 (830) (1,138) (1,789)
----------- ------------ -----------
PROFIT FOR THE FINANCIAL YEAR/PERIOD*............................... 1,491 1,671 2,993
Dividends:
Paid.............................................................. (142) (188) --
Proposed.......................................................... (230) (239) (244)
----------- ------------ -----------
RETAINED PROFIT FOR THE YEAR/PERIOD................................. 1,119 1,244 2,749
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
There were no material acquisitions or discontinued activities in the year ended
31 March 1995, the nine months ended 31 March 1994 or the year ended 30 June
1993.
*The profit and loss account for the nine months ended 31 March 1994 includes 12
months' results for ABI Corporation, a subsidiary undertaking (note 1).
See accompanying notes.
F-28
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
NOTE
---------- 30 JUNE 1993 31 MARCH 1994 31 MARCH 1995
-------------------- -------------------- --------------------
L000 L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING
ACTIVITIES.......................... 8(I) 4,120 4,339 7,924
RETURN ON INVESTMENTS AND SERVICING
OF FINANCE
Interest received.................... -- -- 16
Interest paid........................ (727) (504) (549)
Interest element of finance lease
rental payments..................... (27) (25) (27)
Dividends paid....................... (343) (412) (239)
--------- --------- ---------
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENT AND SERVICING OF
FINANCE............................. (1,097) (941) (799)
TAXATION.............................
Tax paid............................. (227) (1,350) (1,311)
INVESTMENT ACTIVITIES
Purchase of tangible fixed assets.... (2,478) (1,374) (1,964)
Purchase of investment in associated
undertaking......................... -- -- (1,320)
Purchase of goodwill................. (171) -- --
Purchase of fixed asset
investments......................... -- -- (24)
Sale of tangible fixed assets........ 91 47 415
--------- --------- ---------
NET CASH OUTFLOW FROM INVESTING
ACTIVITIES.......................... (2,554) (1,327) (2,893)
--------- --------- ---------
NET CASH INFLOW BEFORE FINANCING..... 242 721 2,921
FINANCING
Issue of share capital............... -- -- 20
Repayment of amounts borrowed........ (121) (474) (384)
Capital element of finance lease
rental payments..................... 47 (46) (67)
--------- --------- ---------
NET CASH OUTFLOW FROM FINANCING...... 8(IV) (74) (520) (431)
--------- --------- ---------
INCREASE IN CASH AND CASH
EQUIVALENTS......................... 8(II)/(III) 168 201 2,490
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-29
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
1. ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Company's financial
statements.
BASIS OF PREPARATION
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules modified to
include the revaluation of land and buildings.
BASIS OF CONSOLIDATION
The Group financial statements consolidate the financial statements of the
Company and all of its subsidiary undertakings. These financial statements are
made up to 31 March 1995. The consolidated financial statements are based on
financial statements which are coterminous with those of the ultimate parent
company, with the exception of the participating interest in 50% of the common
stock of Rheochem Manufacturing Company Inc acquired in the year, whose year end
is 31 December 1994. The results of Rheochem Manufacturing Company Inc for the
three month period to 31 March 1995 have been included based upon management
information.
Unless otherwise stated, the acquisition method of accounting has been
adopted for all subsidiary undertakings. Under this method, the results of
subsidiary undertakings acquired or disposed of in the period are included in
the consolidated profit and loss account from the date of acquisition or up to
the date of disposal. For associated undertakings, the equity method of
accounting has been adopted. Goodwill arising on consolidation (representing the
excess of the fair value of the consideration given over the fair value of the
separable net assets required) is written off against reserves on acquisition.
CHANGE OF YEAR END
In 1994 the Company changed the financial year end for its European
subsidiaries and itself from 30 June to 31 March bringing it into alignment with
that of its US subsidiaries. Consequently, the financial statements for the
period to 31 March 1994 contain the results of the Company and its European
subsidiaries for the nine months to that date and those of its US subsidiaries
for the year to that date.
FIXED ASSETS AND DEPRECIATION
Depreciation is provided by the Group to write off the cost or valuation
less the estimated residual value of tangible fixed assets by equal installments
over their estimated useful economic lives as follows:
<TABLE>
<S> <C> <C>
Freehold buildings -- 2% per annum
Leased assets -- life of lease
Plant and
machinery -- between 10% and 33%
</TABLE>
Patents and trade marks are shown at cost less amortization calculated on a
straight line basis at between 10% and 20% per annum.
No depreciation is provided on freehold land.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date, except where matched by forward foreign
exchange contracts, and the gains or losses on translation are included in the
profit and loss account.
F-30
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
NOTES (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
For consolidation purposes, the assets and liabilities and profit and loss
accounts of overseas subsidiary undertakings are translated at the closing
exchange rates. Exchange differences arising on these translations are taken to
reserves as well as exchange differences arising on related foreign currency
borrowings that have been designated and are effective as a hedge of the net
investment in the overseas subsidiaries.
GOVERNMENT GRANTS
Capital based government grants are included within accruals and deferred
income in the balance sheet and credited to trading profit over the estimated
useful economic lives of the assets to which they relate.
LEASES
Where the Group enters into a lease which entails taking substantially all
the risks and rewards of ownership of an asset, the lease is treated as a
"finance lease". The asset is recorded in the balance sheet as a tangible fixed
asset and is depreciated over its estimated useful life or the term of the
lease, whichever is shorter. Future installments under such leases, net of
finance charges, are included with creditors. Rentals payable are apportioned
between the finance element, which is charged to the profit and loss account,
and the capital element which reduces the outstanding obligation for future
installments.
All other leases are accounted for as "operating leases" and the rental
charges are charged to the profit and loss account on a straight line basis over
the life of the lease.
PENSIONS AND OTHER POST-RETIREMENT BENEFITS
Eligible UK employees belong to the Associated British Industries Group
Retirement Benefit Scheme which is operated by Associated British Industries
Limited. The Scheme provides benefits based on final pensionable salary and its
assets are held separately from those of the Group. Contributions to the scheme
are charged to the profit and loss account so as to spread the cost of pensions
over the remaining service lives of employees. Deferred tax has been accounted
for in respect of the Group pension provision.
In addition, the costs of post-employment medical benefits are charged to
the profit and loss account so as to recognize them over the members' working
lives. This represents a change in accounting policy following the adoption of
Urgent Issues Task Force Abstract 6 (see note 7).
RESEARCH AND DEVELOPMENT EXPENDITURE
Expenditure on research and development is written off against profits in
the year in which it is incurred.
STOCKS
Stocks are stated at the lower of cost (calculated on the first in, first
out ("FIFO") basis) and net realizable value. For work in progress and finished
goods manufactured by the Group, cost is taken as production cost, which
includes an appropriate proportion of attributable overheads.
TAXATION
The charge for taxation is based on the profit for the year and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes. Provision is made for
deferred tax only to the extent that it is probable that an actual liability
will crystallize. UK companies make payments for group relief received equal to
the value of loss surrendered. No provision for deferred taxation on the
retained profits of overseas subsidiaries and associates has been made as there
is currently no intention to remit them to the UK.
TURNOVER
Turnover represents the amounts (excluding value added tax) derived from the
provision of goods and services to third party customers during the period.
F-31
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
NOTES (CONTINUED)
2. SEGMENTAL INFORMATION
<TABLE>
<CAPTION>
UK REST OF EUROPE AMERICAS OTHER
------------------------------- ------------------------------- ------------------------------- ---------
1993 1994 1995 1993 1994 1995 1993 1994 1995 1993
L000 L000 L000 L000 L000 L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Turnover by
destination:
Sales to third
parties....... 15,948 12,047 18,690 8,711 7,361 12,575 16,270 19,757 20,253 5,001
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
TOTAL
-------------------------------
1994 1995 1993 1994 1995
L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
Turnover by
destination:
Sales to third
parties....... 3,970 5,581 45,930 43,135 57,099
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Information relating to turnover by geographical segment of origin, profit
on ordinary activities before taxation by geographical segment and net assets by
geographical segment have not been disclosed on the basis that, in the opinion
of the directors, the disclosure of such information would be seriously
prejudicial to the interests of the Group. In the opinion of the directors the
Group only operates in one business segment.
3. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after
charging/(crediting) the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
30 JUNE 31 MARCH 31 MARCH
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
L000 L000 L000
Depreciation.......................................... 1,842 1,637 1,992
Auditors' remuneration
- -- KPMG audit......................................... 75 85 90
- -- KPMG non audit..................................... -- 26 52
- -- Other auditors..................................... 5 5 5
Amortization of fixed asset investments............... -- 20 26
Amounts written off current asset investments......... 10 6 6
Income from current asset investments................. (3) (1) (3)
----- ----- -----
----- ----- -----
</TABLE>
The total amount charged to revenue for the hire of plant and machinery
amounted to L98,000 (1994: L79,000; 1993: L68,000). This comprises depreciation
on plant and machinery held under finance leases together with the related
finance charges.
The profit on ordinary activities before taxation for the nine months ended
31 March 1994, as previously reported, amounted to L2,833,000. This has been
revised downwards by L24,000 as a result of the introduction of Urgent Issues
Task Force Abstract 6 -- Accounting for Post-Retirement Benefits other than
Pensions.
Other operating income includes L407,000 (1994:LNIL) of management charges
receivable from Rheochem Manufacturing Co Inc, an associated undertaking.
4. INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
30 JUNE 31 MARCH 31 MARCH
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
L000 L000 L000
Receivable on:
Short term bank deposits............................ -- 19 16
----- ----- -----
----- ----- -----
</TABLE>
F-32
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
NOTES (CONTINUED)
5. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
30 JUNE 31 MARCH 31 MARCH
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
L000 L000 L000
Payable on:
Bank loans, overdrafts and other loans wholly
repayable within five years........................ 727 532 617
Finance charges payable in respect of finance leases
and hire purchase contracts........................ 27 25 27
----- ----- -----
754 557 644
----- ----- -----
----- ----- -----
</TABLE>
6. TAXATION
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
30 JUNE 31 MARCH YEAR ENDED 31
1993 1994 MARCH 1995
------------- ------------- -------------
<S> <C> <C> <C>
L000 L000 L000
UK corporation tax at 33% (1994 AND 1993: 33%)........ 260 148 465
Overseas taxation..................................... 398 924 1,309
Share of tax in associated undertaking................ -- -- 69
Deferred taxation..................................... 176 64 (33)
Adjustment relating to an earlier year................ (4) 2 (21)
----- ----- -----
830 1,138 1,789
----- ----- -----
----- ----- -----
</TABLE>
As at 31 March 1995 the Company was a close company within the meaning of
the Income & Corporation Taxes Act, 1988. In the opinion of the directors no
liability to apportionment arises.
7. PENSIONS
The Group operates a pension scheme for eligible UK employees providing
benefits based upon final pensionable salary. The assets of the Scheme are held
in separate trustee administered funds.
Contributions to the Scheme are charged to the profit and loss account so as
to spread the cost of pensions over the remaining service lives of employees in
the Scheme. The contributions are determined by a qualified actuary on the basis
of valuations which take place at least once every three years using the
attained age method. The valuation used in compiling these financial statements
was that as at 30 June 1994. The assumptions which have the most significant
effect on the results of the valuation are those relating to the rate of return
on investments and the rates of increase in salaries and pensions. It was
assumed that the investment returns would be 10% per annum, that salary
increases would average 8% per annum and that present and future pensions would
increase at the rate of 5% per annum.
The valuation as at 30 June 1994 valued the assets of the Scheme at
L6,560,000 which was sufficient to cover 111% of past service liabilities. This
represents a past service actuarial surplus of L661,000. The actuary recommended
that the past service actuarial surplus be used to take a Group pension
contribution holiday until October 1999 with the Group's contributions returning
to a regular cost of 9.7% of pensionable salaries thereafter. For financial
statements purposes the past service actuarial surplus is being spread over the
remaining service lives of the employees in the Scheme in accordance with
Standard Statement of Accounting Practice No. 24.
F-33
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
NOTES (CONTINUED)
7. PENSIONS (CONTINUED)
The Group has chosen to recognize, for the first time, liabilities to
post-retirement medical benefits, following the introduction of Urgent Issues
Task Force Abstract 6 -- Accounting for Post-Retirement Benefits other than
Pensions. These liabilities have been estimated as at 31 March 1995 to be
L284,000 (31 MARCH 1994 (RESTATED): L290,000). The cumulative adjustment has
been charged directly against reserves as a prior year adjustment. The principal
assumptions were a discount rate of 8% and health care trend rates of 8% in
1996-97, 7% in 1998-2000, 6% in 2001-04 and 5% after this date.
8.(I)RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
31 MARCH
30 JUNE 1994 31 MARCH
1993 (RESTATED) 1995
----------- ----------- -----------
<S> <C> <C> <C>
L000 L000 L000
Operating profit........................................................ 3,075 3,420 4,968
Depreciation and amortisation charge.................................... 1,852 1,657 2,018
Loss/(profit) on sale of tangible fixed assets.......................... (33) (12) 103
Increase/Decrease in stocks............................................. (883) 418 318
(Increase) in debtors................................................... (1,059) (645) (388)
Decrease in current asset investments................................... 21 11 6
Increase/(decrease) in creditors........................................ 1,164 (589) 964
(Decrease)/increase in provisions for liabilities and charges........... (17) 79 (65)
----------- ----- -----
Net cash inflow from operating activities............................... 4,120 4,339 7,924
----------- ----- -----
----------- ----- -----
</TABLE>
(II) ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS DURING THE YEAR UNDER
REVIEW
<TABLE>
<CAPTION>
L000
<S> <C>
Balance at 30 June 1992........................................................................ (4,973)
Net cash inflow before adjustments for the effect of foreign exchange note changes............. 168
Effect of foreign exchange rate changes........................................................ (290)
---------
Balance at 30 June 1993........................................................................ (5,095)
Net cash inflow before adjustments for the effect of foreign exchange rate changes............. 201
Effect of foreign exchange rate changes........................................................ (40)
---------
Balance at 31 March 1994....................................................................... (4,934)
Net cash inflow before adjustments for the effect of foreign exchange rate changes............. 2,490
Effect of foreign exchange rate changes........................................................ (65)
---------
Balance at 31 March 1995....................................................................... (2,509)
---------
---------
</TABLE>
(III) ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AS SHOWN IN THE
BALANCE SHEET
<TABLE>
<CAPTION>
31 MARCH 31 MARCH CHANGE IN
1994 1995 YEAR
----------- ----------- -----------
<S> <C> <C> <C>
L000 L000 L000
Cash at bank and in hand.............................................. 694 674 (20)
Bank overdrafts....................................................... (5,628) (3,183) 2,445
----------- ----------- -----
(4,934) (2,509) 2,425
----------- ----------- -----
----------- ----------- -----
</TABLE>
F-34
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
NOTES (CONTINUED)
8.(IV)ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR
<TABLE>
<CAPTION>
SHARE CAPITAL LOANS AND
(INCLUDING FINANCE LEASE
PREMIUM) OBLIGATIONS
--------------- -------------
<S> <C> <C>
L000 L000
Balance at 30 June 1992.............................................................. 3,501 2,916
Cash inflow from financing........................................................... -- 121
Shares issued for non-cash consideration............................................. 6 --
Inception of finance lease contracts................................................. -- 107
----- -----
Balance at 30 June 1993.............................................................. 3,507 3,144
----- -----
Cash outflow from financing before adjustments for the effect of foreign exchange
rate changes........................................................................ -- (520)
Effect of foreign exchange rate changes.............................................. -- 50
Shares issued for non-cash consideration............................................. 6 --
----- -----
Balance at 31 March 1994............................................................. 3,513 2,674
Cash in/(out) flow from financing before adjustments for the effect of foreign
exchange rate changes............................................................... 20 (451)
Effect of foreign exchange rate changes.............................................. -- (106)
Shares issued for non-cash consideration............................................. 47 --
----- -----
Balance at 31 March 1995............................................................. 3,580 2,117
----- -----
----- -----
</TABLE>
Financing comprises share capital, share premium and borrowings due after
more than one year together with finance lease obligations of L189,000 (1994:
L256,000; 1993: L302,000) and borrowings due within one year being a loan
L368,000 (1994: L400,000; 1993: L393,000).
9. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The Group's financial statements are prepared in accordance with generally
accepted accounting principles in the United Kingdom ("UK GAAP"), which differ
in certain respects from generally accepted accounting principles in the United
States ("US GAAP"). Differences which have a significant effect on the Group's
net income are set out below. While this is not a comprehensive summary of all
differences between UK and US GAAP, other differences would not have a
significant effect on the Group's net income.
GOODWILL
In the Group's financial statements, goodwill arising on the acquisition of
a subsidiary is written off against reserves in the consolidated balance sheet
in the year in which the acquisition is made. Under US GAAP such goodwill is
capitalized and amortized through the consolidated income statement for a period
of up to 40 years. For the purpose of compliance with US GAAP goodwill has been
amortized over a period of 25 years.
REVALUATION OF PROPERTIES
Under UK GAAP properties may be restated in the basis of appraised values in
financial statements prepared in all other respects in accordance with the
historical cost convention. Increases in value are credited directly to the
revaluation reserve and depreciation is calculated on the revalued basis. Under
US GAAP such revaluations of property would not be reflected in the financial
statements and depreciation would be based on historical cost.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING POLICY
Under UK GAAP the cumulative effect of a change in an accounting policy is
charged/credited to reserves. However, under US GAAP, the general rule is that
such an amount should be charged/credited to the profit and loss account for the
year of the change.
F-35
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
NOTES (CONTINUED)
9. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
In the Group's financial statements revenues, expenses and assets and
liabilities relating to overseas subsidiaries are translated at the year-end
rate. Under US GAAP revenues and expenses are translated at average rates for
the period.
Details of the estimated effect on the Group's net income of differences
between UK GAAP and US GAAP are as follows:
ESTIMATED EFFECT ON NET INCOME OF DIFFERENCES BETWEEN UK AND US GAAP
<TABLE>
<CAPTION>
NINE MONTHS ENDED 31 YEAR ENDED
MARCH 1994 31 MARCH 1995
--------------------- ---------------
<S> <C> <C>
L'000 L'000
Net income in accordance with UK GAAP......................................... 1,671 2,993
US GAAP adjustments (net of tax):
Goodwill amortization....................................................... (21) (82)
Revaluation of properties................................................... 138 201
Deferred tax relating to adjustment for revaluation of properties........... (46) (66)
Cumulative effect of change in accounting policy relating to post-retirement
medical benefits (note 7).................................................. -- (191)
Foreign currency translation................................................ (5) 49
----- -----
Net income in accordance with US GAAP......................................... 1,737 2,904
----- -----
----- -----
</TABLE>
DIVIDENDS
Under UK GAAP, proposed dividends are shown as a deduction from net income
in the year to which they relate even though they are not declared until after
the year end. Under U.S. GAAP such dividends would be shown as a charge to
retained earnings in the year in which they are declared. This difference in
treatment would affect the reporting of shareholders' equity but has no effect
on the above reconciliation of net income from UK GAAP to US GAAP.
US SUBSIDIARIES, ACCOUNTING PERIOD
As explained in note 1, "Change of year end", the financial statements for
the period to 31 March 1994 contain the results of the Company and its European
subsidiaries for the nine months to that date and those of its US subsidiaries
for the year to that date. The unaudited results of the US subsidiaries for the
three months from 1 April 1993 to 30 June 1993:
<TABLE>
<CAPTION>
L'000
(UNAUDITED)
<S> <C>
Turnover......................................................................................... 4,809
Profit before taxation........................................................................... 553
Profit after taxation............................................................................ 382
</TABLE>
10. CONSOLIDATED STATEMENTS OF CASH FLOWS: BASIS OF PREPARATION
The Group's Consolidated Cash Flow Statements are prepared in accordance
with UK Financial Reporting Standard No. I (FRS 1), the objective and principles
of which are similar to those set out in SFAS No. 95, "Statement of Cash Flows".
The principal difference between the standards relates to classification. Under
FRS 1, the Group presents its cash flows for (a) operating activities; (b)
returns on investments and servicing of finance; (c) tax paid; (d) investing
activities; and (e) financing. SFAS No. 95 requires only three categories of
cash flow activity being (a) operating; (b) investing; and (c) financing.
F-36
<PAGE>
ASSOCIATED BRITISH INDUSTRIES LIMITED
NOTES (CONTINUED)
10. CONSOLIDATED STATEMENTS OF CASH FLOWS: BASIS OF PREPARATION (CONTINUED)
Cash flows from operations for US GAAP purposes reconciles net income to
cash provided by operating activities while a statement of cash flows under UK
GAAP begins with operating profit. As a result, equity income from interests in
associated undertakings would be reflected as an adjustment of operating cash
flows under US GAAP, but not under UK GAAP.
Cash flows from returns on investments and servicing of finance and taxation
under FRS 1 would, with the exception of dividends paid, be included as
operating activities under SFAS No. 95; such dividends paid, whether of the
Company or of subsidiaries, would be included as a financing activity under SFAS
No. 95. Under FRS 1, cash and cash equivalents comprise cash, investments and
short-term deposits which were within 3 months of maturity when acquired and
short-term borrowings repayable within 3 months from the date of their advance.
Under SFAS No. 95 short-term borrowings repayable within 3 months of their
advance would not be included within cash and cash equivalents but movements on
those borrowings would be included in financing activities.
Details of the effect of these differences are as follows:
<TABLE>
<CAPTION>
30 JUNE 1993 31 MARCH 1994 31 MARCH 1995
------------- --------------- ---------------
<S> <C> <C> <C>
L'000 L'000 L'000
Net cash inflow from operating activities per UK GAAP............... 4,120 4,339 7,924
Interest received................................................... -- -- 16
Interest paid....................................................... (727) (504) (549)
Interest element of finance lease rental payments................... (27) (25) (27)
Tax paid............................................................ (227) (1,350) (1,311)
------ ------ ------
Net cash provided by operating activities per US GAAP............... 3,139 2,460 6,053
------ ------ ------
------ ------ ------
Net cash outflow from investing activities per UK GAAP.............. (2,554) (1,327) (2,893)
------ ------ ------
Net cash used in investing activities per US GAAP................... (2,554) (1,327) (2,893)
------ ------ ------
------ ------ ------
Net cash outflow from financing per UK GAAP......................... (74) (520) (431)
Dividends paid...................................................... (343) (412) (239)
Repayments of overdrafts............................................ (837) (299) (2,510)
------ ------ ------
Net cash used by financing activities per US GAAP................... (1,254) (1,231) (3,180)
------ ------ ------
------ ------ ------
Decrease in cash and cash equivalents per US GAAP................... (669) (98) (20)
------ ------ ------
------ ------ ------
</TABLE>
11. SUBSEQUENT EVENT
On 19 June 1995, a recommended offer for the whole of the issued share
capital of the Company was made by Chemical Bank on behalf of ABI Acquisition 2
plc, a wholly owned subsidiary of Astor Holdings, Inc. The offer became wholly
unconditional on 28 June 1995. On 31 August 1995, Associated British Industries
plc re-registered as a private company.
F-37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Adco Technologies Inc.
We have audited the accompanying consolidated balance sheets of Adco
Technologies Inc. and subsidiary as of December 31, 1994 and 1995, and the
related consolidated statements of income, redeemable preferred stock of
subsidiary and stockholders' equity, and cash flows for the years ended December
31, 1994 and 1995 and the period May 14, 1993 (date of acquisition of Adco
Products, Inc.) to December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Adco
Technologies Inc. and subsidiary at December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1994 and 1995 and the period May 14, 1993 (date of
acquisition of Adco Products, Inc.) to December 31, 1993 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Detroit, Michigan
February 1, 1996
F-38
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (NOTE 1)............................................... $ 336,981 $ 3,797,650
Trade accounts receivable, less allowances ($150,000 and $140,000 at December 31,
1994 and 1995, respectively).................................................... 4,590,553 4,672,127
Inventories (NOTE 1):
Raw materials and packaging.................................................... 1,635,810 2,332,430
Finished goods................................................................. 2,596,855 2,735,782
------------- -------------
4,232,665 5,068,212
Refundable income taxes.......................................................... 128,314 176,969
Deferred income taxes (NOTE 4)................................................... 170,233 319,374
Other current assets............................................................. 89,025 139,358
------------- -------------
Total current assets......................................................... 9,547,771 14,173,690
Property, plant and equipment (NOTE 1):
Land and improvements............................................................ 307,456 351,512
Buildings........................................................................ 4,048,015 4,164,238
Machinery and equipment.......................................................... 5,059,746 5,547,493
Construction in process.......................................................... 137,664 965,584
------------- -------------
9,552,881 11,028,827
Less: Allowances for depreciation and amortization............................... (1,245,299) (2,132,976)
------------- -------------
8,307,582 8,895,851
Intangibles (NOTE 1)............................................................... 8,316,843 8,034,994
Other assets....................................................................... 11,850 13,350
------------- -------------
Total assets................................................................. $ 26,184,046 $ 31,117,885
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-39
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable........................................................... $ 1,501,438 $ 940,530
Compensation and amounts withheld................................................ 746,538 1,014,730
State taxes payable.............................................................. 62,622 130,982
Other accrued expenses........................................................... 1,077,470 977,878
Current portion of long-term notes payable (NOTE 2).............................. 1,106,462 --
------------- -------------
Total current liabilities.................................................... 4,494,530 3,064,120
Long-term notes payable (NOTE 2)................................................... 4,901,614 --
Deferred income taxes (NOTE 4)..................................................... 858,215 1,006,570
Redeemable preferred stock of subsidiary (NOTE 5).................................. 3,710,000 3,850,000
Stockholders' equity (NOTES 1 AND 6):
Preferred stock, par value $.01 per share -- Authorized 100,000; no shares issued
and outstanding................................................................. -- --
Common stock, par value $.01 per share -- Authorized 9,000,000; issued and
outstanding 4,000,000 and 5,150,000 shares at December 31, 1994 and 1995,
respectively.................................................................... 40,000 51,500
Additional paid-in capital -- common............................................. 8,275,000 15,140,750
Less receivable from management stockholders..................................... (210,000) (150,000)
Retained earnings................................................................ 4,114,687 8,154,945
------------- -------------
Total stockholders' equity................................................... 12,219,687 23,197,195
------------- -------------
Total liabilities and stockholders' equity................................. $ 26,184,046 $ 31,117,885
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-40
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD MAY 14, 1993
(DATE OF ACQUISITION
OF
ADCO PRODUCTS, INC.)
TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1993 1994 1995
-------------------- ------------- -------------
<S> <C> <C> <C>
Net sales.................................................... $ 20,325,449 $ 38,749,168 $ 47,411,421
Cost of products sold........................................ 14,447,812 27,056,887 33,317,969
-------------------- ------------- -------------
Gross profit................................................. 5,877,637 11,692,281 14,093,452
Operating expenses:
Selling, general and administrative (NOTE 7)............... 2,749,201 4,845,815 5,720,330
Research and development................................... 631,431 1,265,046 1,350,589
-------------------- ------------- -------------
Total operating expenses..................................... 3,380,632 6,110,861 7,070,919
-------------------- ------------- -------------
Operating income............................................. 2,497,005 5,581,420 7,022,533
Interest expense............................................. 404,790 596,297 105,020
Dividends on preferred stock of subsidiary................... 140,000 280,000 280,000
Other expense (income) -- net................................ (123,632) 115,683 (104,495)
-------------------- ------------- -------------
Income before taxes.......................................... 2,075,847 4,589,440 6,742,008
Income taxes (NOTE 4)........................................ 810,600 1,740,000 2,470,000
-------------------- ------------- -------------
Net income................................................... $ 1,265,247 $ 2,849,440 $ 4,272,008
-------------------- ------------- -------------
-------------------- ------------- -------------
Net income per common and common equivalent share............ $ .33 $ .72 $ .84
-------------------- ------------- -------------
-------------------- ------------- -------------
Weighted average shares outstanding (NOTE 1)................. 3,819,603 3,937,825 5,065,847
</TABLE>
See accompanying notes.
F-41
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK OF
SUBSIDIARY AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE PREFERED STOCK OF SUBSIDIARY STOCKHOLDERS' EQUITY
-------------------------------------------------- -----------------------
ADDITIONAL ADDITIONAL
SERIES A SERIES B PAID-IN TOTAL PAID-IN
PREFERRED PREFERRED CAPITAL PREFERRED COMMON CAPITAL
STOCK STOCK PREFERRED STOCK STOCK COMMON
------------- ----------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 14, 1993 (date of
acquisition)................................. $ 35 -- $3,499,965 $3,500,000 $ 38,196 $7,901,804
Net income for the period ended December 31,
1993......................................... -- -- -- -- -- --
Collection of receivable...................... -- -- -- -- -- --
Dividends on preferred stock.................. -- $ 70,000 -- 70,000 -- --
--- ----------- ----------- --------- ----------- ----------
Balance at December 31, 1993.................. 35 70,000 3,499,965 3,570,000 38,196 7,901,804
Net income for the year ended December 31,
1994......................................... -- -- -- -- -- --
Issuance of stock............................. -- -- -- -- 1,804 373,196
Dividends on preferred stock.................. -- 140,000 -- 140,000 -- --
--- ----------- ----------- --------- ----------- ----------
Balance at December 31, 1994.................. 35 210,000 3,499,965 3,710,000 40,000 8,275,000
Net income for the year ended December 31,
1995......................................... -- -- -- -- -- --
Collection of receivable...................... -- -- -- -- -- --
Issuance of stock............................. 11,500 6,865,750
Dividends on common stock at $0.045 per
share........................................ -- -- -- -- -- --
Dividends on preferred stock.................. -- 140,000 -- 140,000 -- --
--- ----------- ----------- --------- ----------- ----------
Balance at December 31, 1995.................. $ 35 $ 350,000 $3,499,965 $3,850,000 $ 51,500 $15,140,750
--- ----------- ----------- --------- ----------- ----------
--- ----------- ----------- --------- ----------- ----------
<CAPTION>
RECEIVABLE
FROM TOTAL
MANAGEMENT RETAINED STOCKHOLDERS'
STOCKHOLDERS EARNINGS EQUITY
------------ --------- ------------
<S> <C> <C> <C>
Balance at May 14, 1993 (date of
acquisition)................................. $ (249,000) $7,691,000
Net income for the period ended December 31,
1993......................................... -- $1,265,247 1,265,247
Collection of receivable...................... 39,000 39,000
Dividends on preferred stock.................. --
------------ --------- ------------
Balance at December 31, 1993.................. (210,000) 1,265,247 8,995,247
Net income for the year ended December 31,
1994......................................... -- 2,849,440 2,849,440
Issuance of stock............................. -- -- 375,000
Dividends on preferred stock.................. -- -- --
------------ --------- ------------
Balance at December 31, 1994.................. (210,000) 4,114,687 12,219,687
Net income for the year ended December 31,
1995......................................... -- 4,272,008 4,272,008
Collection of receivable...................... 60,000 -- 60,000
Issuance of stock............................. 6,877,250
Dividends on common stock at $0.045 per
share........................................ -- (231,750) (231,750)
Dividends on preferred stock.................. -- -- --
------------ --------- ------------
Balance at December 31, 1995.................. $ (150,000) $8,154,945 $23,197,195
------------ --------- ------------
------------ --------- ------------
</TABLE>
See accompanying notes.
F-42
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
PERIOD
MAY 14, 1993
MAY 14, 1993
(DATE OF
(DATE OF
ACQUISITION OF
ACQUISITION OF
ADCO PRODUCTS,
ADCO PRODUCTS,
INC.) TO
INC.) TO
DECEMBER 31, YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1993 1994 1995
--------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................................ $ 1,265,247 $ 2,849,440 $ 4,272,008
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 552,472 1,143,350 1,169,526
Provision for dividends on preferred stock of subsidiary........ 140,000 280,000 280,000
Deferred income taxes........................................... 34,200 202,480 (786)
Changes in current assets and liabilities:
Trade accounts receivable..................................... 556,764 (783,029) (81,574)
Inventories................................................... 1,705,964 (1,204,017) (835,547)
Other current assets.......................................... (109,120) 30,258 (50,333)
Other assets.................................................. (1,567) 3,600 (1,500)
Trade accounts payable........................................ (723,417) 585,605 (560,908)
Taxes payable................................................. 36,663 (173,677) 19,705
Accrued salaries, wages and other expenses.................... 193,936 265,246 168,600
Due to Nalco Chemical Company................................. (46,819) -- --
--------------- ------------- -------------
Net cash provided by operating activities......................... 3,604,323 3,199,256 4,379,191
INVESTING ACTIVITIES
Purchases of property, plant and equipment........................ (2,417,081) (1,131,458) (1,475,946)
Purchase of patents............................................... (472,500) -- --
Other............................................................. (39,170) -- --
--------------- ------------- -------------
Net cash used in investing activities............................. (2,928,751) (1,131,458) (1,475,946)
FINANCING ACTIVITIES
Proceeds from notes payable....................................... 1,500,000 -- --
Payments of debt.................................................. (1,958,804) (2,463,120) (6,008,076)
Issuance of capital stock......................................... 39,000 375,000 6,877,250
Decrease in receivable from management stockholders............... -- -- 60,000
Cash dividends paid on preferred stock of subsidiary.............. (70,000) (140,000) (140,000)
Cash dividends paid on common stock............................... (231,750)
--------------- ------------- -------------
Net cash provided by (used in) financing activities............... (489,804) (2,228,120) 557,424
--------------- ------------- -------------
Increase (decrease) in cash and cash equivalents.................. 185,768 (160,322) 3,460,669
Cash and cash equivalents at beginning of period.................. 311,535 497,303 336,981
--------------- ------------- -------------
Cash and cash equivalents at end of period........................ $ 497,303 $ 336,981 $ 3,797,650
--------------- ------------- -------------
--------------- ------------- -------------
</TABLE>
See accompanying notes.
F-43
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Adco Technologies Inc. ("ADCO") was incorporated May 7, 1993. Adco Products,
Inc. was a wholly owned subsidiary of Nalco Chemical Company ("Nalco") through
May 13, 1993. Effective May 14, 1993, Nalco sold all of the outstanding common
stock of Adco Products, Inc. to ADCO for $16,000,000 in cash and $3,500,000 in
preferred stock of Adco Products, Inc. (the "Acquisition"). Concurrently, Adco
Products, Inc. borrowed $8,930,000 under a bank term note and revolving line of
credit to fund the purchase. The purchase price was allocated to assets and
liabilities based upon their respective fair market values. There was no
activity of ADCO for the period from May 7, 1993 to May 13, 1993. Following is
the summarized balance sheet at date of acquisition:
<TABLE>
<S> <C>
Assets
Accounts receivable.................................................. $4,364,000
Inventories.......................................................... 4,735,000
Equipment and other assets........................................... 6,330,000
Intangibles.......................................................... 8,132,000
----------
$23,561,000
----------
----------
Liabilities
Accounts payable and other liabilities............................... $3,440,000
Acquisition debt..................................................... 8,930,000
Redeemable preferred stock of subsidiary............................. 3,500,000
Stockholders' equity................................................. 7,691,000
----------
$23,561,000
----------
----------
</TABLE>
In February 1995 ADCO registered 2,300,000 shares of common stock on Form
S-1. ADCO sold 1,150,000 shares in an initial public offering, with an
additional 1,150,000 shares sold by existing shareholders, the net proceeds to
ADCO of approximately $7,000,000 were used to payoff all outstanding long-term
debt. If this transaction had occurred as of May 14, 1993, the net earnings per
share for the year ended December 31, 1994 and the period May 14, 1993 to
December 31, 1993, would have been $.63 and $.30 per share, respectively.
ADCO produces adhesives and sealants primarily for the roofing, automotive
original equipment manufacturing, windshield replacement, window manufacturing,
and concrete pipe and vault markets and is considered to operate in one business
segment.
ADCO had sales to two customers during the year ended December 31, 1995 that
exceeded 10% of total net sales. Net sales to the first customer, with which
ADCO has a long-standing relationship, amounted to 22%, 20%, and 14% for the
years ended December 31, 1995 and 1994, and the period May 14, 1993 to December
31, 1993, respectively. The second customer had net sales at 11% and 9% for the
years ended December 31, 1995 and 1994, respectively. ADCO generally does not
require collateral from its customers. Credit losses, which have been minimal,
have been within management's expectations.
REVENUE RECOGNITION
Revenue is recognized when products are shipped.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ADCO and its
wholly-owned subsidiary, Adco Products, Inc. Significant intercompany accounts
have been eliminated in consolidation.
F-44
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NET INCOME PER SHARE
Net Income per common and common equivalent share is based upon the weighted
average of common and common equivalent shares outstanding during the year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of highly liquid money market
funds and government securities invested with quality financial institutions and
have an original maturity of three months or less. These investments are carried
at cost, which approximates fair value, due to the short period of time to
maturity.
INVENTORY
Inventories are stated at the lower of cost or market. Cost is determined
using the last in, first out (LIFO) method.
Current costs, based on the first-in, first out (FIFO) method would have
resulted in reported amounts approximately the same at December 31, 1995 and
1994.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets. The estimated useful lives of buildings are 40 years and the useful
lives of machinery and equipment are generally 10 years.
INTANGIBLE ASSETS
Intangible assets are amortized by the straight-line method over periods
ranging from 5 to 40 years and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Goodwill.......................................................... $ 8,052,582 $ 8,052,582
Deferred organization costs....................................... 242,284 242,284
Deferred patent costs............................................. 472,500 472,500
------------ ------------
8,767,366 8,767,366
Less accumulated amortization..................................... (450,523) (732,372)
------------ ------------
$ 8,316,843 $ 8,034,994
------------ ------------
------------ ------------
</TABLE>
Amortization expense was $281,852, $287,982 and $162,541 for the years ended
December 31, 1995 and 1994 and the period May 14, 1993 to December 31, 1993,
respectively.
Goodwill generally is amortized on a straight-line basis over 40 years,
organizational costs over 5 years and patent costs over 15 years. The carrying
value of goodwill will be reviewed if the facts and circumstances suggest that
it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, ADCO's carrying value of the
goodwill will be reduced by the estimated shortfall of cash flows.
F-45
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTIONS
ADCO has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employers" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, compensation expense
is recognized when the exercise price of employee stock options is less than the
market price of the underlying stock on the date of the grant. See Note 6,
"Stockholders' Equity" for information regarding ADCO's stock options plans.
2. NOTES PAYABLE
A summary of the ADCO notes payable as of December 31, 1994 is as follows:
<TABLE>
<S> <C>
7.20% note to First Fidelity, NA, payable in varying monthly amounts of $33,331
to $51,997 excluding interest through April, 2000, with remaining balance plus
accrued interest to be paid in full May 2000................................... $3,320,042
Prime plus 1/2% (9.00% and 7.25% at December 31, 1994 and 1993, respectively)
note to First Fidelity, NA, payable in varying monthly amounts of $26,169 to
$45,503 excluding interest through April 2000 with remaining balance plus
accrued interest to be paid in full May 2000................................... 1,422,817
7.22% note to First Fidelity, NA, payable in varying monthly amounts of $13,044
to $19,672 excluding interest through April 2000 with remaining balance plus
accrued interest to be paid in full May 2000................................... 1,265,217
----------
Total notes payable............................................................. 6,008,076
Less current portion............................................................ (1,106,462)
----------
$4,901,614
----------
----------
</TABLE>
ADCO repaid all of the notes payable outstanding at December 31, 1994 with
proceeds from the issuance of common stock during 1995.
At December 31, 1995, ADCO had an annually reveiwed unused $3,000,000
discretionary line of credit at First Union National Bank for general corporate
purposes. Advances under this line of credit were unsecured and priced at either
one month LIBOR plus 1.50% or prime rate minus 0.75%.
For the years ended December 31, 1995 and 1994, and the period May 14, 1993
to December 31, 1993, ADCO made interest payments of approximately $105,020,
$601,000 and $405,000, respectively.
3. EMPLOYEE BENEFIT PLANS
ADCO has a noncontributory, defined-benefit pension plan covering union
employees. Benefits are based on length of service and a negotiated benefit
rate.
ADCO's policy is to fund the plan between the minimum and maximum amounts
deductible for tax purposes under the Internal Revenue Code. ADCO made
contributions of $34,596 to the plan for the year ended December 31, 1995 and no
contributions for the other periods presented.
Plan assets are invested in mutual funds and money market accounts.
F-46
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested...................................................................... $ 302,249 $ 423,600
Non-vested.................................................................. 35,863 9,755
----------- -----------
Accumulated benefit obligation................................................ $ 338,112 $ 433,355
----------- -----------
----------- -----------
Projected benefit obligation.................................................. $ (338,112) $ (433,355)
Plan assets at fair value..................................................... 313,625 313,581
----------- -----------
Projected benefit obligation in excess of plan assets......................... (24,487) (119,774)
Unrecognized net asset at transition.......................................... (8,552) (7,775)
Unrecognized prior service cost............................................... 28,657 172,837
Additional minimum liability.................................................. (158,596) --
Unrecognized net loss......................................................... 138,491 57,248
----------- -----------
Net pension asset (liability)................................................. $ (24,487) $ 102,536
----------- -----------
----------- -----------
</TABLE>
Net pension expense was comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost........................................................ $ 13,517 $ 29,358 $ 34,145
Interest cost on projected benefit obligation....................... 13,669 27,517 36,640
Actual return on plan assets........................................ (14,170) (31,711) (28,016)
Net amortizations and deferrals..................................... 2,276 6,409 2,004
---------- ---------- ----------
Net pension expense................................................. $ 15,292 $ 31,573 $ 44,773
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following assumptions were used in calculating the plan's funded status
and the net pension expense:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rates................................................. 8.50% 7.50% 8.50%
Rates of return on plan assets.................................................. 10.00 10.00 8.50
</TABLE>
During January 1993, Adco Products, Inc. terminated the pension plan
covering its salaried employees. This termination, which was approved and
completed in 1994, resulted in a gain to ADCO of approximately $100,000 in 1994.
ADCO also sponsors a retirement savings plan which includes a
defined-contribution 401(k) plan and a discretionary profit sharing plan, which
covers substantially all nonunion employees. ADCO's contribution to the 401(k)
plan is based on each participant's pretax contribution. For the years ended
December 31, 1995 and 1994 and the period May 14, 1993 to December 31, 1993,
ADCO contributed approximately $39,000, $35,900 and $19,800 to the 401(k) plan,
respectively. The profit sharing amount is determined annually by the Board of
Directors and was $250,000, $165,000 and $62,000, for the years ended December
31, 1995 and 1994 and the period May 14, 1993 to December 31, 1993,
respectively.
4. INCOME TAXES
ADCO accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), ACCOUNTING FOR INCOME TAXES. Deferred
income taxes reflect the net tax effects of
F-47
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of ADCO's deferred tax assets (liabilities) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Warranty and other expenses................................................... $ 160,400 $ 176,865
Tax over book depreciation.................................................... (854,900) (945,266)
Reserve for doubtful accounts................................................. 51,100 47,712
Employee benefits............................................................. (25,900) 51,533
Other......................................................................... (18,682) (18,040)
----------- -----------
$ (687,982) $ (687,196)
----------- -----------
----------- -----------
</TABLE>
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Current income taxes............................................ $ 776,400 $ 1,537,520 $ 2,470,786
Deferred income taxes (credit).................................. 34,200 202,480 (786)
---------- ------------ ------------
$ 810,600 $ 1,740,000 $ 2,470,000
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
A reconciliation of the total federal income tax provision and the amount
computed by applying the statutory federal income tax rate to earnings before
income taxes for the periods ended are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Taxes at U. S. statutory rates.................................. $ 705,800 $ 1,560,400 $ 2,291,400
Impact of nondeductible intangible amortization................. 57,200 68,400 68,400
Impact of nondeductible preferred stock dividend................ 47,600 95,200 95,200
Other........................................................... -- 16,000 15,000
---------- ------------ ------------
$ 810,600 $ 1,740,000 $ 2,470,000
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
The difference between ADCO's effective income tax rate and the federal
statutory rate is primarily attributable to the effect of the amortization of
intangible assets (see NOTE 1) and the preferred stock dividend of subsidiary.
Income taxes paid by ADCO approximated $2,520,000, $1,639,000 and $803,000
for the years ended December 31, 1995 and 1994 and the period May 14, 1993 to
December 31, 1993, respectively.
5. REDEEMABLE PREFERRED STOCK OF SUBSIDIARY
The articles of incorporation of Adco Products, Inc. authorize 4,856 shares
of Series A Cumulative Redeemable Preferred Stock, non-voting, par value $.01
per share ("Series A") and 1,356 shares of Series B
F-48
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE PREFERRED STOCK OF SUBSIDIARY (CONTINUED)
Redeemable Preferred Stock, non-voting, par value $.01 per share ("Series B").
Nalco owned 3,500 shares of Series A and 350 shares of Series B at December 31,
1995, and 3,500 shares of Series A and 210 shares of Series B at December 31,
1994. The designated terms and conditions of the preferred stock are as follows:
<TABLE>
<CAPTION>
SERIES A SERIES B
--------- -----------
<S> <C> <C>
Shares outstanding at December 31, 1995............................................ 3,500 350
Dividend rate per annum............................................................ $ 80 *
Redemption price................................................................... $ 1,000 $ 1,000
Liquidation preference............................................................. $ 1,000 $ 1,000
</TABLE>
*Dividends are not payable on Series B
The mandatory obligation to redeem both Series A and Series B begins
November 15, 2000 and ends May 15, 2003, with a specified fraction of the
outstanding shares redeemed each November and May.
A summary of the Series A and Series B Preferred stock and additional paid
in capital for Adco Products, Inc. is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Series A Preferred stock.................................................... $ 35 $ 35
Series B Preferred stock.................................................... 210,000 350,000
Additional paid-in capital -- preferred..................................... 3,499,965 3,499,965
</TABLE>
The Series A dividend is paid one-half in cash and one-half in shares of
Series B, bi-annually on May 15 and November 15. In each November and May of
1995 and 1994 and November 1993, 70 shares of Series B were issued as part of
the dividend to the Series A holders. These Series B shares were recorded at
their liquidation value of $1,000 per share.
6. STOCKHOLDERS' EQUITY
The articles of incorporation of ADCO authorize 100,000 shares of preferred
stock with a par value of $.01 per share. No preferred shares are outstanding as
of December 31, 1995 and 1994.
Effective May 14, 1993, ADCO adopted the Adco Technologies Inc. 1993 Stock
Option Plan, pursuant to which ADCO has granted options to certain officers of
ADCO to purchase an aggregate of 144,326 shares of common stock of ADCO with an
exercise price of $2.08. Under the plan these options become exercisable on
October 29, 2008 or at a sooner date if certain performance and cash return
targets are met. At December 31, 1994, 25,414 of the options were exercisable.
An additional 48,112 shares became exercisable in 1995 bringing the total
options exercisable at December 31, 1995 to 73,526. Associated with the shares
issued in 1995 additional compensation expense of $257,500 was recorded. In
February 1995, ADCO amended this option plan. In connection with the plan
amendment the remaining 70,800 shares become exercisable over the next 3 to 5
years. Prior to the amendment in February 1995, ADCO had the option to
repurchase shares purchased upon exercise of the options upon termination of
employment for reasons other than for death, disability, or retirement at a
price calculated based on the book value of ADCO. The amendment removed ADCO's
option to repurchase the shares.
The Adco Technologies Inc. 1994 Non-Employee Director Stock Option Plan
("Director Plan") was adopted by ADCO in December 1994, and provides for the
grant of options covering up to 100,000 shares of common stock to non-employee
directors. Upon completion of the initial public offering and subsequently on
each date he or she is elected or re-elected, each non-employee director shall
receive options to purchase 4,000 shares of common stock. The exercise price per
share shall be the fair market value of the common
F-49
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
stock as determined in accordance with the Director Plan. The options are
exercisable immediately and for ten years from the date of grant. At December
31, 1995, 24,000 options were outstanding as a result of the initial public
offering in February 1995 at a price of $7.00 per share.
The Adco Technologies Inc. 1994 Stock Option Plan was adopted by ADCO in
December 1994, which provides for the grant of options covering up to 150,000
shares of common stock to certain members of management, employees and outside
consultants. This plan provides for the issuance of both incentive stock options
and non-qualified stock options. During 1995 and 1994, 50,000 and 45,000 options
were issued at an exercise price of $7.62 and $7.00 per share, respectively. At
December 31, 1995, a total of 95,000 options were issued and exercisable.
7. RELATED PARTY TRANSACTIONS
ADCO has a consulting agreement with Bradford Ventures Limited ("BVL"), a
related party to certain shareholders, including ADCO's two largest shareholders
and its chairman, whereby, BVL provides financial and advisory services to ADCO
for a 10 year period, commencing May 14, 1993, at an initial annual fee of
$135,000, which increases annually by 7.5%. This consulting fee is included in
selling, general and administrative expenses and approximated $151,500, $140,800
and $78,750 for the years ended December 31, 1995 and 1994 and the period May
14, 1993 to December 31, 1993, respectively.
In May 1993, in connection with the Acquisition, ADCO's executive officers
entered into separate agreements to purchase shares of the common stock of ADCO.
The purchase price for the common stock was paid for by the delivery of cash and
promissory notes of the respective purchasers in favor of ADCO ranging in
amounts from $50,000 to $60,000. Each note is payable in full in May 1998,
bearing interest at a rate of five percent per annum. The purchaser's
obligations under their respective notes are secured by pledges of the common
stock purchased with the notes. In September 1995, one officer repaid the
balance of a promissory note in the amount of $60,000.
8. LITIGATION AND REGULATION
There are judicial and administrative claims pending or contemplated against
ADCO. Management believes that the resolution of these matters should not have a
material effect upon ADCO's financial condition, results of operations and cash
flows.
The U.S. Environmental Protection Agency (EPA) has notified ADCO that it is
a potentially responsible party at, and requested that ADCO provide information
with respect to, two hazardous waste disposal sites. Regarding the first site,
ADCO has responded that it is not responsible for any materials at the site and
that ADCO believes that the previous owners of the property upon which ADCO's
facility is located may be responsible for the materials in question located at
this site. Clean-up of this site is underway, ADCO has not made and has not been
requested to make any expenditures toward the clean up of this site, and has not
been contacted further by the EPA. At the second site, ADCO believes it is the
source of a de minimis quantity of waste materials.
The Michigan Department of Natural Resources has identified the property on
which ADCO's plant is located as a site of environmental contamination.
Management has recorded a reserve of $148,478 at December 31, 1995, included in
other accrued expenses, as an estimate of the amount of loss that is reasonably
possible to be incurred for this site. Management of ADCO does not believe it is
reasonably possible that an adverse outcome on the issue, greater than the
amount recorded, would have a material effect on Astor Corporation's financial
condition, operations or liquidity.
Regarding each of the above mentioned environmental matters, ADCO has
notified Nalco that Nalco may be responsible for indemnifying ADCO for
expenditures made for the above matters. Pursuant to the terms of an agreement
entered into in connection with ADCO's acquisition of Adco Products, Inc., ADCO
is
F-50
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LITIGATION AND REGULATION (CONTINUED)
indemnified to a limited extent against certain environmental liabilities by
Nalco. In certain instances, the indemnification is limited by a $100,000
deductible and a limitation on the amount of indemnification's ranging from
$341,600 to $3.5 million depending upon the type of claim made, with an
aggregate limitation of $3.5 million for all such claims made.
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
MAR. 31 JUN. 31 SEPT. 30 DEC. 31
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1994
Sales............................................... $ 7,690,773 $ 9,814,333 $ 11,414,955 $ 9,829,107
Gross profit........................................ 2,071,925 3,017,791 3,805,104 2,797,461
Net income.......................................... 180,909 769,707 1,265,288 633,536
Net income per common share......................... .05 .20 .32 .16
1995
Sales............................................... $ 11,387,715 $ 12,709,679 $ 12,833,654 $ 10,480,373
Gross profit........................................ 3,378,311 3,990,230 3,934,356 2,790,555
Net income.......................................... 883,494 1,346,961 1,336,998 704,555
Net income per common share......................... .19 .26 .26 .14
</TABLE>
F-51
<PAGE>
ADCO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 786,447 $ 5,810,134
Trade accounts receivable, less allowances ($158,000 and $146,000 at September
30, 1995 and September 30, 1996, respectively).................................. 6,940,910 7,294,701
Inventories:
Finished goods................................................................. 3,235,692 2,922,950
Raw materials and packaging.................................................... 3,100,755 3,574,517
------------- -------------
6,336,447 6,497,467
Deferred income taxes............................................................ 331,980 256,597
Other current assets............................................................. 193,552 148,411
------------- -------------
Total current assets......................................................... 14,589,336 20,007,310
Property, plant and equipment, net................................................. 8,688,456 9,410,734
Intangibles........................................................................ 8,105,310 7,824,043
Other assets....................................................................... 13,350 12,850
------------- -------------
Total assets................................................................. $ 31,396,452 $ 37,254,937
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable........................................................... $ 1,737,330 $ 2,918,083
Accrued compensation and other expenses.......................................... 2,196,594 2,554,136
Federal income and state taxes................................................... 144,504 267,706
------------- -------------
Total current liabilities.................................................... 4,078,428 5,739,925
Deferred income taxes.............................................................. 968,133 1,023,876
Redeemable preferred stock of subsidiary........................................... 3,780,000 3,920,000
Stockholders' equity:
Preferred stock, par value $.01 per share --
Authorized 100,000; no shares issued and outstanding........................... -- --
Common stock, par value $.01 per share --
Authorized 9,000,000; issued and outstanding 5,150,000 shares at September 30,
1995 and September 30, 1996................................................... 51,500 51,500
Additional paid-in-capital -- common............................................. 15,140,750 15,140,750
Less receivable from management stockholders..................................... (150,000) (50,000)
Retained earnings................................................................ 7,527,641 11,428,886
------------- -------------
Total stockholders' equity................................................... 22,569,891 26,571,136
------------- -------------
Total liabilities and stockholders' equity................................. $ 31,396,452 $ 37,254,937
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-52
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
-----------------------------
1995 1996
------------- --------------
<S> <C> <C>
Net sales......................................................................... $ 36,931,048 $ 40,337,131
Cost of products sold............................................................. 25,628,152 29,020,031
------------- --------------
Gross profit.................................................................... 11,302,896 11,317,100
Operating expenses:
Selling, general and administrative............................................. 4,367,818 4,708,327
Research and development........................................................ 1,001,538 1,129,371
------------- --------------
Total operating expenses.......................................................... 5,369,356 5,837,698
------------- --------------
Operating income.................................................................. 5,933,540 5,479,402
Interest expense.................................................................. 105,020 --
Dividends on preferred stock of subsidiary........................................ 210,000 251,848
Other expense (income) - net...................................................... (34,934) (429,187)
------------- --------------
Income before taxes............................................................... 5,653,454 5,656,741
Income taxes...................................................................... 2,086,000 2,073,800
------------- --------------
Net income........................................................................ $ 3,567,454 $ 3,582,941
------------- --------------
------------- --------------
Net income per common and common equivalent share................................. $ 0.71 $ 0.68
------------- --------------
------------- --------------
Weighted average shares outstanding............................................... 5,000,031 5,264,350
</TABLE>
See accompanying notes.
F-53
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................................................... $ 3,567,454 $ 3,582,941
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 896,433 935,853
Provision for dividends on preferred stock of subsidiary.......................... -- 140,000
Deferred income taxes............................................................. (8,288) 80,083
Changes in current assets and liabilities:
Trade accounts receivable....................................................... (2,350,357) (2,622,574)
Inventories..................................................................... (2,103,782) (1,429,256)
Other current assets............................................................ (104,527) (9,053)
Other assets.................................................................... (1,500) 500
Trade accounts payable.......................................................... 235,892 1,977,553
Taxes payable................................................................... 166,655 313,693
Accrued salaries, wages and other expenses...................................... 372,586 561,528
------------- -------------
Net cash provided by operating activities........................................... 670,566 3,531,268
INVESTING ACTIVITIES
Purchases of property, plant and equipment.......................................... (1,065,774) (1,239,784)
------------- -------------
Net cash used in investing activities............................................... (1,065,774) (1,239,784)
FINANCING ACTIVITIES
Repayment of management loan........................................................ 60,000 100,000
Payments of debt.................................................................... (6,008,076) --
Issuance of preferred stock......................................................... 70,000 --
Issuance of capital stock........................................................... 6,877,250 --
Cash dividends paid on preferred stock of subsidiary................................ -- (70,000)
Cash dividend paid on common stock.................................................. (154,500) (309,000)
------------- -------------
Net cash (used in) provided by financing activities................................. 844,674 (279,000)
------------- -------------
Increase in cash and cash equivalents............................................... 449,466 2,012,484
Cash and cash equivalents at beginning of period.................................... 336,981 3,797,650
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 786,447 $ 5,810,134
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-54
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto of Adco
Technologies, Inc. ("ADCO") for the year ended December 31, 1995.
ADCO has adopted Statement of Financial Accounting Standards No. 121 ("SFAS
121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS effective January 1,
1996. Based on current circumstances this adoption has no effect on the
Company's income statement.
2. INVENTORIES
Inventories are stated at the lower cost or market. Cost is determined using
the last in, first out (LIFO) method. Current costs, based on the first in,
first out (FIFO) method would have resulted in reported amounts approximately
$109,000 higher at September 30, 1996.
3. INCOME TAXES
ADCO accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), ACCOUNTING FOR INCOME TAXES. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
4. LITIGATION AND REGULATION
There are judicial and administrative claims pending or contemplated against
ADCO. Management believes that the resolution of these matters should not have a
material effect upon ADCO's financial condition, results of operations and cash
flows.
The Environmental Protection Agency ("EPA") has notified ADCO that it is a
Potential Responsible Party ("PRP") at, and requested that ADCO provide
information with respect to, two Superfund sites. Regarding the first site, ADCO
has informed the EPA that it believes that it is not responsible for any
materials at the site and ADCO believes that the previous owners of the property
upon which ADCO's facility is located may be responsible for the materials in
question located at this site. ADCO has not made and has not been requested to
make any expenditures toward the clean-up of this site, and has not been
contacted further by the EPA. At the second site, ADCO has been notified by the
EPA that it is the source of a de minimis quantity of waste materials. ADCO
spent approximately $6,000 in clean-up costs at this site and ADCO does not
expect that its clean-up costs will exceed $10,000.
The Michigan Department of Natural Resources ("MDNR") has identified the
property on which ADCO's plant is located as a site of environmental
contamination. ADCO has recorded a reserve of $148,000 at September 30, 1996, as
an estimate of the amount of loss that is reasonably possible to be incurred for
this site. While management of ADCO does not believe that ADCO's exposure in
these matters will have a material adverse effect on the business and financial
condition of ADCO, there can be no assurance that ADCO will not incur additional
significant liabilities in connection with these matters or that such
liabilities will not have a material adverse effect on ADCO's business and
financial condition.
F-55
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LITIGATION AND REGULATION (CONTINUED)
Regarding each of the above-mentioned environmental matters, ADCO has
notified Nalco Chemical Company ("Nalco") that Nalco may be responsible for
indemnifying ADCO for expenditures made for the above matters. Pursuant to the
terms of an agreement entered into in connection with ADCO's acquisition of Adco
Products, Inc., ADCO is indemnified to a limited extent against certain
environmental liabilities by Nalco. In certain instances, the indemnification is
limited by a $100,000 deductible and a limitation on the amount of
indemnification's ranging from $341,600 to $3.5 million depending upon the type
of claim made, with an aggregate limitation of $3.5 million for all such claims
made.
ADCO has been named as a defendant, along with 92 other companies, in a
class action lawsuit in Texas. The suit alleges personal injury, death and other
damages arising out of the plaintiffs' exposure to a variety of building
materials and other products while working at the Corpus Christi Army Depot. The
plaintiffs, who are seeking approximately $500 million in damages, appear to
have named as defendants the manufacturers of every substance known to have been
used over an extended period at the Army Depot. The ADCO product involved
appears to be a sealant used in the installation and repair of commercial
roofing. ADCO's insurance carrier is currently defending this action on behalf
of ADCO. While the case is still in the early stages of discovery, according to
the insurer, no evidence has been produced to date linking ADCO's sealants to
any of the plaintiffs' claims.
5. MERGER AGREEMENT
On July 12, 1996, ADCO, Astor Corporation, a Delaware corporation (the
"Buyer"), and AAC Acquisition Corporation, a Delaware corporation and wholly
owned subsidiary of the Buyer (the "Acquisition Company"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") providing for the
Acquisition Company to merge with and into ADCO (the "Merger") with ADCO
continuing as the surviving corporation. After the completion of the Merger,
ADCO was merged with and into Astor Corporation, with Astor Corporation as the
surviving corporation. In the Merger, each outstanding share of common stock
("Common Stock") of ADCO will be converted into the right to receive $10.25 in
cash (the "Merger Consideration") and each option to purchase shares of Common
Stock shall be converted into the right to receive a net amount in cash equal to
the Merger Consideration allocable to the shares of Common Stock then subject to
the option (the "Option Shares") less the aggregate exercise price for the
purchase of the Option Shares. The merger occurred on October 8, 1996.
Simultaneously with the execution and delivery of the Merger Agreement,
Bradford Venture Partners, LP, Overseas Equity Investor Partners, LP, Bradford
Mills, Robert Simon, Barbara Henagan, James McCowan, Phillip Beery, David Fuchs,
Charles Sax and Brian Briddell (each a "Stockholder" and collectively the
"Stockholders"), each of whom is a stockholder of ADCO and certain of whom are
directors and executive officers of ADCO, holding an aggregate of 2,559,308
shares of Common Stock (equal to 49.75% of the outstanding voting Common Stock
as of July 12, 1996) entered into agreements, dated as of July 12, 1996 (the
"Voting Agreements"), with the Buyer, which provide, among other things, that
each of the Stockholders will vote or will cause to be voted, the shares of
Common Stock owned by the Stockholder (i) in favor of the adoption of the Merger
Agreement and the approval of the Merger, (ii) against the approval of any
proposal relating to a competing merger or business combination involving an
acquisition of all or a substantial portion of the capital stock, the assets of
ADCO or the assets or stock of any subsidiary of ADCO by any person or entity
other than the Buyer or Acquisition Company or an affiliate of the Buyer or
Acquisition Company, and (iii) against any transaction which is inconsistent
with the obligation of ADCO to consummate the Merger in accordance with the
Merger Agreement. The Voting Agreements also provide that such Stockholder will
not, except as contemplated by the terms of the Voting Agreements, sell or
otherwise voluntarily dispose of any of the shares of Common Stock owned by such
Stockholder or take any voluntary action which would have the effect of removing
such Stockholder's power to vote his shares or which would be inconsistent with
the Voting Agreements.
F-56
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Adco Products, Inc.
We have audited the accompanying statements of income, stockholders' equity,
and cash flows of Adco Products, Inc. for the period from January 1, 1993 to May
13, 1993 (date of sale). 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 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 financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Adco
Products, Inc. for the period from January 1, 1993 to May 13, 1993 (date of
sale), in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Detroit, Michigan
March 18, 1994
F-57
<PAGE>
ADCO PRODUCTS, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1993
TO MAY 13, 1993
(DATE OF SALE)
---------------
<S> <C>
Net sales........................................................................................ $ 11,020,070
Cost of products sold............................................................................ 8,063,587
---------------
Gross profit..................................................................................... 2,956,483
Operating expenses:
Selling, general and administrative.............................................................. 1,698,123
Research and development......................................................................... 387,485
---------------
Total operating expenses......................................................................... 2,085,608
---------------
Operating income................................................................................. 870,875
Other expense -- net............................................................................. 36,935
---------------
Income before taxes.............................................................................. 833,940
Income taxes (NOTE 3)............................................................................ 201,470
---------------
Net income....................................................................................... $ 632,470
---------------
---------------
Net income per share............................................................................. $ 5.44
---------------
---------------
Weighed average shares outstanding............................................................... 116,189
</TABLE>
See accompanying notes.
F-58
<PAGE>
ADCO PRODUCTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993............................... $ 116,189 $ 21,696,952 $ 1,801,269 $ 23,614,410
Net income for period from January 1, 1993 to May 13,
1993 (date of sale)..................................... -- -- 632,470 632,470
Cash dividends -- $6.89 per share........................ -- -- (800,000) (800,000)
---------- ------------- ------------ -------------
Balance at May 13, 1993.................................. $ 116,189 $ 21,696,952 $ 1,633,739 $ 23,446,880
---------- ------------- ------------ -------------
---------- ------------- ------------ -------------
</TABLE>
See accompanying notes.
F-59
<PAGE>
ADCO PRODUCTS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1993
TO MAY 13, 1993
(DATE OF SALE)
---------------
<S> <C>
OPERATING ACTIVITIES
Net income....................................................................................... $ 632,470
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization................................................................ 401,985
Loss on sale of property, plant and equipment................................................ 92,696
Deferred income taxes........................................................................ (116,546)
Changes in current assets and liabilities:
Advances to Nalco Chemical Company......................................................... 77,458
Trade accounts receivable.................................................................. (1,489,288)
Inventories................................................................................ (646,606)
Other current assets....................................................................... 46,914
Trade accounts payable..................................................................... (75,679)
Income taxes payable....................................................................... (315,688)
Accrued salaries, wages, and other expenses................................................ (277,732)
Due to Nalco Chemical Company.............................................................. 1,733
---------------
Net cash used in operating activities............................................................ (1,668,283)
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net.................................................. (323,393)
---------------
Net cash used in investing activities............................................................ (323,393)
FINANCING ACTIVITIES
Cash dividends paid.............................................................................. (800,000)
---------------
Net cash used in financing activities............................................................ (800,000)
---------------
Decrease in cash................................................................................. (2,791,676)
Cash at beginning of period...................................................................... 3,081,541
---------------
Cash at end of period............................................................................ $ 289,865
---------------
---------------
</TABLE>
See accompanying notes.
F-60
<PAGE>
ADCO PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1993 TO MAY 13, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Adco Products, Inc. ("API") was a wholly owned subsidiary of Nalco Chemical
Company ("Nalco") through May 13, 1993. Effective May 14, 1993 Nalco sold all of
the outstanding common stock of API to Adco Technologies Inc. for $16,000,000 in
cash and $3,500,000 of preferred stock. Concurrently, API borrowed $8,930,000
under a bank term note and revolving line of credit to fund the purchase. The
purchase price was allocated to assets and liabilities based upon their
respective fair market values. These financial statements reflect activity of
API through date of sale and do not reflect the effect of any purchase price
adjustments. Following is the summarized balance sheet at date of acquisition:
<TABLE>
<S> <C>
Assets
Accounts receivable.................................................. $4,364,000
Inventories.......................................................... 4,735,000
Equipment and other assets........................................... 6,330,000
Intangibles.......................................................... 8,132,000
----------
$23,561,000
----------
----------
Liabilities and stockholders' equity
Accounts payable and other liabilities............................... $3,440,000
Acquisition debt..................................................... 8,930,000
Redeemable preferred stock of subsidiary............................. 3,500,000
Stockholders' equity................................................. 7,691,000
----------
$23,561,000
----------
----------
</TABLE>
API produces adhesives and sealants primarily for the roofing, automotive
original equipment manufacturing, windshield replacement, window manufacturing,
and concrete pipe and vault markets and is considered to operate in one business
segment.
Net sales to one customer, with which API has a long-standing relationship
amounted to 10% for the period from January 1, 1993 to May 13, 1993. API
generally does not require collateral from its customers. Credit losses, which
have been minimal, have been within management's expectations.
INVENTORY
Inventories are stated at the lower of cost or market. Cost is determined
using the last in, first out (LIFO) method.
Current costs, based on the first-in, first out (FIFO) method would have
resulted in reported amounts approximately $746,000 higher at May 13, 1993.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets.
GOODWILL
Goodwill is amortized by the straight-line method over 40 years.
Amortization expense was $140,500 for the period January 1, 1993 to May 13,
1993.
2. EMPLOYEE BENEFIT PLANS
API has a noncontributory, defined-benefit pension plan covering union
employees. Benefits are based on length of service and a negotiated benefit
rate.
F-61
<PAGE>
ADCO PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1993 TO MAY 13, 1993
2. EMPLOYEE BENEFIT PLANS (CONTINUED)
API's policy is to fund the plans between the minimum and maximum amounts
deductible for tax purposes under the Internal Revenue Code. API made
contributions to the plans of approximately $78,000 for the period January 1,
1993 to May 13, 1993.
Plan assets are invested in mutual funds and money market accounts.
Net pension expense was comprised of the following:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1993
TO
MAY 13, 1993
-----------------
<S> <C>
Service cost......................................................................... $ 8,110
Interest cost on projected benefit obligation........................................ 8,201
Actual return on plan assets......................................................... (8,061)
Net amortizations and deferrals...................................................... 1,365
-------
Net pension expense.................................................................. $ 9,615
-------
-------
</TABLE>
During January 1993, API terminated the pension plan covering its salaried
employees. This termination is not expected to have a significant impact on
API's financial position or results of operations.
API also sponsors a retirement savings plan which includes a
defined-contribution 401(k) plan and, beginning January 1, 1993, a discretionary
profit sharing plan which cover substantially all nonunion employees. API's
contribution to the 401(k) plan is based on each participant's pretax
contribution. During the 1993 period, API contributed $10,600, to the plan. The
profit sharing amount is determined annually by the Board of Directors and
approximated $38,000 for the period January 1, 1993 to May 13, 1993.
3. INCOME TAXES
Effective January 1, 1993, API changed its method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
API's deferred tax assets (liabilities) at May 13, 1993 are as follows:
<TABLE>
<S> <C>
Warranty and other expenses.............................................. $ 120,700
Tax over book depreciation............................................... (522,185)
Reserve for doubtful accounts............................................ 20,964
Employee benefits........................................................ 43,737
Other.................................................................... 19,330
---------
$(317,454)
---------
---------
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1993
TO MAY 13, 1993
-----------------
<S> <C>
Federal:
Current............................................................................ $ 427,072
Deferred........................................................................... (116,546)
Correction of prior years over accrual............................................... (109,056)
-----------------
$ 201,470
-----------------
-----------------
</TABLE>
F-62
<PAGE>
ADCO PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JANUARY 1, 1993 TO MAY 13, 1993
3. INCOME TAXES (CONTINUED)
A reconciliation of the total federal income tax provision and the amount
computed by applying the statutory federal income tax rate to earnings before
income taxes is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1993
TO
MAY 13, 1993
-----------------
<S> <C>
Tax at U. S. statutory rates......................................................... $ 283,500
Impact of nondeductible goodwill amortization........................................ 47,754
Correction of prior years over accrual............................................... (109,056)
Other................................................................................ (20,728)
-----------------
$ 201,470
-----------------
-----------------
</TABLE>
During the 1993 period, API made income tax payments of approximately
$444,000.
4. RELATED PARTY TRANSACTIONS
Advances to Nalco are excess funds deposited with Nalco. These funds bear
interest and are repayable to API upon demand.
The following amounts were accrued or paid to Nalco for the period ended:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1993
TO
MAY 13, 1993
-----------------
<S> <C>
Insurance............................................................................ $ 127,063
Service fee.......................................................................... 52,900
Legal................................................................................ 3,617
Purchase of inventory................................................................ 267
Salary and fringes................................................................... 65,020
--------
$ 248,867
--------
--------
</TABLE>
5. LITIGATION AND REGULATION
There are judicial and administrative claims pending or contemplated against
API, including those of an environmental nature. Management believes that the
resolution of these matters should not have a material effect upon API's
financial condition, results of operations or cash flows.
The U.S. Environmental Protection Agency has notified API that it is a
potentially responsible party at, and requested that API provided information
with respect to, two hazardous waste disposal sites. API believes that the
previous owners of the property upon which API's facility is located may be
responsible for the materials in question located at one of the sites. At the
second site, API believes it is the source of a de minimis quantity of waste
materials. The Michigan Department of Natural Resources has identified the
property on which API's plant is located as a site of environmental
contamination. An estimate of the amount of loss that is reasonably possible to
be incurred for these sites cannot be determined at this time. While management
of API does not believe that API's exposure in these matters will have a
material adverse effect on the business and financial condition of API, there
can be no assurance that API will not incur significant liabilities in
connection with these matters or that such liabilities will not have a material
adverse effect on API's business and financial condition.
F-63
<PAGE>
- ----------------------------------------------
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- ----------------------------------------------
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ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
BY HAND, REGISTERED OR CERTIFIED MAIL
OR OVERNIGHT CARRIER:
STATE STREET BANK AND TRUST COMPANY
61 BROADWAY CONCOURSE LEVEL
NEW YORK, NEW YORK 10006
BY FACSIMILE:
(617) 664-5365
ATTENTION: CORPORATE TRUST DEPARTMENT
CONFIRM BY TELEPHONE: (617) 664-5344
(ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSMILIE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL)
No person dealer, salesperson or other person is authorized in connection
with any offer made hereby to give any information or to make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the securities offered
hereby nor does it constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation to such person.
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.
Until , 1997 (90 days from the date of this prospectus), all
dealers effecting transactions in the New Notes, whether or not participating in
this Exchange Offer, may be required to deliver a Prospectus.
[LOGO]
ASTOR CORPORATION
OFFER FOR ALL OUTSTANDING
10 1/2% SENIOR
SUBORDINATED NOTES
DUE 2006
IN EXCHANGE FOR
10 1/2% SERIES B SENIOR
SUBORDINATED NOTES DUE 2006
-----------------
PROSPECTUS
-----------------
JANUARY , 1997
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors in terms
sufficiently broad to indemnify officers and directors of the Company under
certain circumstances from liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. The Company's Charter and
Bylaws provide, in effect, that, to the fullest extent and under the
circumstances permitted by Section 145 of the DGCL, the Company will indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is a
director or officer of the Company or is or was serving at the request of the
Company as a director or officer of another corporation or enterprise. The
Company may, in its discretion, similarly indemnify its employees and agents.
The Charter relieves its directors from monetary damages to the Company or its
stockholders for breach of such director's fiduciary duty as directors to the
fullest extent permitted by the DGCL. Under Section 102(b)(7) of the DGCL, a
corporation may relieve its directors from personal liability to such
corporation or its stockholders for monetary damages for any breach of their
fiduciary duty as directors except (i) for a breach of the duty of loyalty, (ii)
for failure to act in good faith, (iii) for intentional misconduct or knowing
violations of law, (iv) for willful or negligent violation of certain provisions
in the DGCL imposing certain requirements with respect to stock repurchases,
redemption and dividends, or (v) for any transactions from which the director
derived an improper personal benefit. Depending upon the character of the
proceeding, under Delaware law, the Company may indemnify against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding if the person indemnified acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interest of the
Company, and, with respect to any criminal action or proceeding, had no cause to
believe his or her conduct was unlawful. To the extent that a director or
officer of the Company has been successful in the defense of any action, suit or
proceeding referred to above, the Company will be obligated to indemnify him or
her against expenses (including attorneys' fees) actually and reasonably
incurred in connection therewith.
ITEM 21. EXHIBITS.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
*1.1 Purchase Agreement, dated October 2, 1996, among Astor Corporation, Astor
Holdings II, Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Chase Securities Inc.
*3.1 Certificate of Incorporation of Astor Corporation
*3.2 Bylaws of Astor Corporation
*3.3 Certificate of Incorporation of Astor Holdings II, Inc.
*3.4 Bylaws of Astor Holdings II, Inc.
*4.1 Indenture, dated October 8, 1996, among Astor Corporation, Astor Holdings
II, Inc. and State Street Bank and Trust Company, as trustee
*4.2 Registration Rights Agreement, dated October 9, 1996, among Astor
Corporation, Astor Holdings II, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Chase Securities Inc.
*4.3 Form of Global Note certificate (included in Exhibit 4.1)
*4.4 Form of Letter of Transmittal regarding the Offer for all Outstanding
Privately Placed 10 1/2% Senior Subordinated Notes Due 2006 in Exchange
for 10 1/2% Series B Senior Subordinated Notes Due 2006
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
*5.1 Opinion of Gibson, Dunn & Crutcher LLP as to the legality of the Notes
*8.1 Opinion of Gibson, Dunn & Crutcher LLP as to federal income tax
consequences of the Offer
*10.1 Groundwater Processing Remediation Agreement, dated April 22, 1994,
between Petrowax PA, Inc. and Quaker State Corporation
*10.2 Asset Purchase and Sale Agreement, dated as of March 30, 1990, between
Petrowax PA, Inc. and Quaker State Corporation, as amended
*10.3 Slack Wax and Petrolatum Sales Agreement, dated April 22, 1994, between
Petrowax PA, Inc. and Quaker State Corporation
*10.4 Amendment, Agreement and Joint Release, dated April 22, 1994, between
Petrowax PA, Inc. and Quaker State Corporation
*10.5 Rheochem joint venture documents, dated as of June 8, 1994, between ABI
Corporation and Concorde Industries, Inc.
*10.6 Agreement, dated as of October 1, 1996, between Lube & Wax Ventures,
L.L.C. and Astor Corporation
*10.7 MSC Holdings, Inc. 1995 Stock Option Plan Stock Option Agreement
*10.8 Astor Corporation 1997 Management Bonus Program
*10.9 Astor Corporation 1997 Incentive Bonus Program
*10.10 Agreement among Astor Corporation and Oil, Chemical and Atomic Workers
International Union and Local 8-481, dated February 1, 1996
*10.11 Agreement among Astor Corporation and Oil, Chemical and Atomic Workers
International Union and Local 8-607, dated February 1, 1996
*10.12 Agreement among Astor Corporation and Oil, Chemical and Atomic Workers
International Union and Local 8-607, dated February 14, 1996
*10.13 Employment Agreement -- Boyd D. Wainscott
*10.14 Employment Agreement -- C. Richard Spalton
*10.15 Employment Agreement -- Jose C. Houssa
*10.16 Employment Agreement -- John F. Gottshall
*10.17 Employment Agreement -- David E. Hawkins
*10.18 Credit Agreement, dated as of October 8, 1996, among Astor Corporation,
certain lenders and The Chase Manhattan Bank, as agent
*10.19 Amended and Restated Agreement, dated October 24, 1996, between Lube & Wax
Ventures, L.L.C. and Astor Corporation
10.20 MSC Holdings, Inc. 1995 Option Incentive Plan
10.21 Amendment No. 1 to MSC Holdings, Inc. 1995 Option Incentive Plan.
*12 Computation of ratio of earnings to fixed charges
*21 List of Subsidiaries of Astor Corporation
23.1 Independent Auditors' Consent from Ernst & Young LLP relating to Astor
Holdings II, Inc.
23.2 Independent Auditors' Consent from Ernst & Young LLP relating to Adco
Technologies, Inc.
23.3 Independent Auditor's Consent from KPMG relating to Associated British
Industries Limited
*23.4 Consent of Gibson, Dunn & Crutcher LLP (to be included in their opinion
filed as Exhibit 5.1)
*24 Power of Attorney (included on pages II-4 through II-7)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
*25 Form T-1, Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank and Trust Company, as trustee
</TABLE>
- ------------------------
* Previously Filed.
(b) Financial Statement Schedules.
The following financial statement schedules are filed with Part II of this
Registration Statement:
<TABLE>
<CAPTION>
SCHEDULE NUMBER DESCRIPTION OF SCHEDULE
- --------------------- ---------------------------------------
<C> <S>
II Valuation and Qualifying Accounts
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
applicable instructions or are inapplicable and therefore have been omitted.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable, in the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) 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, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Raleigh, State of North Carolina, on January 10, 1997.
ASTOR CORPORATION
By: /S/ JOHN F. GOTTSHALL
-----------------------------------
John F. Gottshall
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------------------- ----------------------
<C> <S> <C>
* Chairman of the Board of Directors and Chief
--------------------------------- Executive Officer (Principal Executive January 10, 1997
Boyd D. Wainscott Officer)
*
--------------------------------- President and Director January 10, 1997
C. Richard Spalton
/s/ JOHN F. GOTTSHALL
--------------------------------- Chief Financial Officer (Principal Financial January 10, 1997
John F. Gottshall and Accounting Officer)
*
--------------------------------- Director January 10, 1997
Alan J. Andreini
*
--------------------------------- Director January 10, 1997
Richard R. Crowell
*
--------------------------------- Director January 10, 1997
Mark C. Hardy
*
--------------------------------- Director January 10, 1997
Kurt B. Larsen
*
--------------------------------- Director January 10, 1997
Justin Maccarone
*
--------------------------------- Director January 10, 1997
Gerald L. Parsky
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------------------- ----------------------
<C> <S> <C>
*
--------------------------------- Director January 10, 1997
Richard K. Roeder
*
--------------------------------- Director January 10, 1997
W. Montague Yort
*By: /S/ JOHN F. GOTTSHALL
---------------------------------
John F. Gottshall
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Co-registrant has duly caused this Amendment No. 2 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Raleigh, State of North Carolina, on January 10, 1997.
ASTOR HOLDINGS II, INC.
By: /s/ JOHN F. GOTTSHALL
-----------------------------------
John F. Gottshall
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------------------- ----------------------
<C> <S> <C>
* Chairman of the Board of Directors and Chief
--------------------------------- Executive Officer (Principal Executive January 10, 1997
Boyd D. Wainscott Officer)
*
--------------------------------- President and Director January 10, 1997
C. Richard Spalton
/s/ JOHN F. GOTTSHALL
--------------------------------- Chief Financial Officer (Principal Financial January 10, 1997
John F. Gottshall and Accounting Officer)
*
--------------------------------- Director January 10, 1997
Alan J. Andreini
*
--------------------------------- Director January 10, 1997
Richard R. Crowell
*
--------------------------------- Director January 10, 1997
Mark C. Hardy
*
--------------------------------- Director January 10, 1997
Kurt B. Larsen
*
--------------------------------- Director January 10, 1997
Justin Maccarone
*
--------------------------------- Director January 10, 1997
Gerald L. Parsky
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------------------- ----------------------
<C> <S> <C>
*
--------------------------------- Director January 10, 1997
Richard K. Roeder
*
--------------------------------- Director January 10, 1997
W. Montague Yort
*By: /S/ JOHN F. GOTTSHALL
---------------------------------
John F. Gottshall
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
INDEX TO FINANCIAL
STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. S-2
Schedule II -- Valuation and Qualifying Accounts........................................................... S-3
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Astor Holdings II, Inc.
We have audited the consolidated balance sheets of Astor Holdings II, Inc.
(formerly Petrowax PA Inc.) as of March 31, 1996 and 1995, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended March 31, 1996, and have issued our
report thereon dated June 7, 1996 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed in
Item 21(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Buffalo, New York
June 7, 1996
S-2
<PAGE>
SCHEDULE II
VALUATION & QUALIFYING ACCOUNTS
ASTOR HOLDINGS II, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO
BEGINNING OF CHARGED TO OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCTS. DEDUCTIONS END OF PERIOD
- ------------------------------------------------- --------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts................ $ 208 $ 245 $ 495(1) $ 222(2) $ 726
----- ----------- ----------- ----------- -----
Total........................................ $ 208 $ 245 $ 495 $ 222 $ 726
----- ----------- ----------- ----------- -----
----- ----------- ----------- ----------- -----
Year ended March 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts................ $ -- $ 208 $ -- $ -- $ 208
----- ----------- ----------- ----------- -----
Total........................................ $ -- $ 208 $ -- $ -- $ 208
----- ----------- ----------- ----------- -----
----- ----------- ----------- ----------- -----
Year ended March 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts................ $ -- $ -- $ -- $ -- $ --
----- ----------- ----------- ----------- -----
Total........................................ $ -- $ -- $ -- $ -- $ --
----- ----------- ----------- ----------- -----
----- ----------- ----------- ----------- -----
</TABLE>
- ------------------------
(1) Relates to allowance recorded as part of accounting for the purchase of
Associated British Industries Limited.
(2) Uncollectible accounts written off, net of recoveries.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE**
- ------ -------------------------------------------------------------------------- -----------
<C> <S> <C>
*1.1 Purchase Agreement, dated October 2, 1996, among Astor Corporation, Astor
Holdings II, Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Chase Securities Inc................................................
*3.1 Certificate of Incorporation of Astor Corporation.........................
*3.2 Bylaws of Astor Corporation...............................................
*3.3 Certificate of Incorporation of Astor Holdings II, Inc....................
*3.4 Bylaws of Astor Holdings II, Inc..........................................
*4.1 Indenture, dated October 8, 1996, among Astor Corporation, Astor Holdings
II, Inc. and State Street Bank and Trust Company, as trustee............
*4.2 Registration Rights Agreement, dated October 9, 1996, among Astor
Corporation, Astor Holdings II, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Chase Securities Inc.........................
*4.3 Form of Global Note certificate (included in Exhibit 4.1).................
*4.4 Form of Letter of Transmittal regarding the Offer for all Outstanding
Privately Placed 10 1/2% Senior Subordinated Notes Due 2006 in Exchange
for 10 1/2% Series B Senior Subordinated Notes Due 2006.................
*5.1 Opinion of Gibson, Dunn & Crutcher LLP as to the legality of the Notes....
*8.1 Opinion of Gibson, Dunn & Crutcher LLP as to federal income tax
consequences of the Offer...............................................
*10.1 Groundwater Processing Remediation Agreement, dated April 22, 1994,
between Petrowax PA, Inc. and Quaker State Corporation..................
*10.2 Asset Purchase and Sale Agreement, dated as of March 30, 1990, between
Petrowax PA, Inc. and Quaker State Corporation, as amended..............
*10.3 Slack Wax and Petrolatum Sales Agreement, dated April 22, 1994, between
Petrowax PA, Inc. and Quaker State Corporation..........................
*10.4 Amendment, Agreement and Joint Release, dated April 22, 1994, between
Petrowax PA, Inc. and Quaker State Corporation..........................
*10.5 Rheochem joint venture documents, dated as of June 8, 1994, between ABI
Corporation and Concorde Industries, Inc................................
*10.6 Agreement, dated as of October 1, 1996, between Lube & Wax Ventures,
L.L.C. and Astor Corporation............................................
*10.7 MSC Holdings, Inc. 1995 Stock Option Plan Stock Option Agreement..........
*10.8 Astor Corporation 1997 Management Bonus Program...........................
*10.9 Astor Corporation 1997 Incentive Bonus Program............................
*10.10 Agreement among Astor Corporation and Oil, Chemical and Atomic Workers
International Union and Local 8-481, dated February 1, 1996.............
*10.11 Agreement among Astor Corporation and Oil, Chemical and Atomic Workers
International Union and Local 8-607, dated February 1, 1996.............
*10.12 Agreement among Astor Corporation and Oil, Chemical and Atomic Workers
International Union and Local 8-607, dated February 14, 1996............
*10.13 Employment Agreement -- Boyd D. Wainscott.................................
*10.14 Employment Agreement -- C. Richard Spalton................................
*10.15 Employment Agreement -- Jose C. Houssa....................................
*10.16 Employment Agreement -- John F. Gottshall.................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE**
- ------ -------------------------------------------------------------------------- -----------
<C> <S> <C>
*10.17 Employment Agreement -- David E. Hawkins..................................
*10.18 Credit Agreement, dated as of October 8, 1996, among Astor Corporation,
certain lenders and The Chase Manhattan Bank, as agent..................
*10.19 Amended and Restated Agreement, dated October 24, 1996, between Lube & Wax
Ventures, L.L.C. and Astor Corporation..................................
10.20 MSC Holdings, Inc. 1995 Option Incentive Plan.............................
10.21 Amendment No. 1 to MSC Holdings, Inc. 1995 Option Incentive Plan..........
*12 Computation of ratio of earnings to fixed charges.........................
*21 List of Subsidiaries of Astor Corporation.................................
23.1 Independent Auditors' Consent from Ernst & Young LLP relating to Astor
Holdings II, Inc........................................................
23.2 Independent Auditors' Consent from Ernst & Young LLP relating to Adco
Technologies, Inc.......................................................
23.3 Independent Auditor's Consent from KPMG relating to Associated British
Industries Limited......................................................
*23.4 Consent of Gibson, Dunn & Crutcher LLP (to be included in their opinion
filed as Exhibit 5.1)...................................................
*24 Power of Attorney (included on pages II-4 through II-7)...................
*25 Form T-1, Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank and Trust Company, as
trustee.................................................................
</TABLE>
- ------------------------
* Previously Filed.
** This item appears only in manually sequenced documents.
<PAGE>
MSC HOLDINGS, INC.
1995 OPTION INCENTIVE PLAN
Section 1. PURPOSE OF PLAN
The purpose of this 1995 Stock Option Plan ("Plan") of MSC Holdings,
Inc., a Delaware corporation (the "Company"), is to enable the Company to
attract, retain and motivate its employees, non-employee directors, and
independent contractors by providing for or increasing the proprietary interests
of such employees, non-employee directors, and independent contractors in the
Company.
Section 2. PERSONS ELIGIBLE UNDER PLAN
Any employee, non-employee director, or independent contractor of the
Company or any of its subsidiaries (each, a "Participant"), shall be eligible to
be considered for the grant of Awards (as hereinafter defined) hereunder.
Section 3. AWARDS
(a) Subject to Section 3(b), the Committee (as hereinafter
defined), on behalf of the Company, is authorized under this Plan to enter into
any type of arrangement with a Participant that is not inconsistent with the
provisions of this Plan and that, by its terms, involves or might involve the
issuance of (i) shares of the Class D Common Stock, par value $.01, of the
Company ("Common Shares") or (ii) a Derivative Security (as such term is defined
in Rule 16a-1 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as such rule may be amended from time to time) with an
exercise or conversion privilege at a price related to the Common Shares or with
a value derived from the value of the Common Shares. The entering into of any
such arrangement is referred to herein as the "grant" of an "Award."
(b) Awards are restricted to common stock options with an exercise
price equal to or greater than $10.00 per share, subject to adjustment in
accordance with Section 7.
(c) Awards may be issued, and Common Shares may be issued pursuant
to an Award, for any lawful consideration as determined by the Committee,
including, without limitation, services rendered by the recipient of such Award.
(d) Subject to the provisions of this Plan, the Committee, in its
sole and absolute discretion, shall determine all of the terms and conditions of
each Award granted under this Plan, which terms and conditions may include,
among other things:
(i) a provision permitting the recipient of such Award, including
any recipient who is a director or officer of the Company, to pay the
purchase price of the Common Shares or other property issuable pursuant to
such Award, or such recipient's tax withholding obligation with respect to
such issuance, in whole or in part, by any one or more of the following:
(A) the delivery of cash;
<PAGE>
(B) the delivery of other property deemed acceptable by the
Committee;
(C) the delivery of previously owned shares of capital
stock of the Company (including "pyramiding") or other property; or
(D) a reduction in the amount of Common Shares or other
property otherwise issuable pursuant to such Award.
(ii) a provision conditioning or accelerating the receipt of
benefits pursuant to such Award, either automatically or in the discretion
of the Committee, upon the occurrence of specified events, including,
without limitation, a change of control of the Company (as defined by the
Committee), an acquisition of a specified percentage of the voting power of
the Company, the dissolution or liquidation of the Company, the financial
performance of the Company, a sale of substantially all of the property and
assets of the Company or an event of the type described in Section 7
hereof; or
(iii) a provision required in order for such Award to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code (an
"Incentive Stock Option").
(e) For purposes of any Award under this Plan, unless provided
otherwise in the grant of such Award, the "Fair Market Value" of a Common Share
or other security on any date (the "Determination Date") shall be equal to the
closing price per Common Share or unit of such other security on the business
day immediately preceding the Determination Date, as reported in The Wall Street
Journal, Western Edition, or, if no closing price was so reported for such
immediately preceding business day, the closing price for the next preceding
business day for which a closing price was so reported, or, if no closing price
was so reported for any of the 30 business days immediately preceding the
Determination Date, the average of the high bid and low asked prices per Common
Share or unit of such other security on the business day immediately preceding
the Determination Date in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System or
such other system then in use, or, if the Common Shares or such other security
were not quoted by any such organization on such immediately preceding
business day, the average of the closing bid and asked prices on such day as
furnished by a professional market maker making a market in the Common Shares or
such other security selected by the Board, or, if no such market was made in the
Common Shares or such other security, the value of a Common Share or such other
security as determined by the Board of Directors in its discretion.
Section 4. STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be issued
pursuant to all Incentive Stock Options granted under this Plan shall not exceed
204,545 subject to adjustment as provided in Section 7 hereof.
(b) At any time, the aggregate number of Common Shares issued and
issuable pursuant to all awards (including all Incentive Stock Options) granted
under this Plan shall not exceed 204,545 subject to adjustment as provided in
Section 7 hereof.
2
<PAGE>
(c) For purposes of Section 4(b) hereof, the aggregate number of
Common Shares issued and issuable pursuant to Awards granted under this Plan
shall at any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares that were issued prior to such time
pursuant to Awards granted under this Plan, other than Common Shares that
were subsequently reacquired by the Company pursuant to the terms and
conditions of such Awards and with respect to which the holder thereof
received no benefits of ownership such as dividends; plus
(ii) the number of Common Shares that were otherwise issuable prior
to such time pursuant to Awards granted under this Plan, but that were
withheld by the Company as payment of the purchase price of the Common
Shares issued pursuant to such Awards or as payment of the recipient's tax
withholding obligation with respect to such issuance; plus
(iii) the maximum number of Common Shares that are or may be issuable
at or after such time pursuant to Awards granted under this Plan prior to
such time.
Section 5. DURATION OF PLAN
No Awards shall be made under this Plan after June 28, 2005. Although
Common Shares may be issued after June 28, 2005 pursuant to Awards made prior to
such date, no Common Shares shall be issued under this Plan after June 28, 2015.
Section 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by a committee (the
"Committee") of the Board of Directors of the Company (the "Board") consisting
of two or more non-management directors. In the event that the Company becomes
"publicly held" within the meaning of Section 162(m) of the Internal Revenue
Code, then the Committee shall consist of two or more directors, each of whom;
(i) is a "disinterested person" (as such term is defined in Rule 16b-3
promulgated under the Exchange Act, as such Rule may be amended from time to
time), and (ii) is an "outside director" within the meaning of Section 162(m) of
the Internal Revenue Code.
(b) Subject to the provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following:
(i) adopt, amend and rescind rules and regulations relating to this
Plan;
(ii) determine which persons are eligible to participate in the Plan
and to which of such persons, if any, Awards shall be granted hereunder;
(iii) grant Awards to Participants and determine the terms and
conditions thereof, including the number of Common Shares issuable pursuant
thereto;
(iv) determine whether, and the extent to which adjustments are
required pursuant to Section 7 hereof; and
3
<PAGE>
(v) interpret and construe this Plan and the terms and conditions
of any Award granted hereunder.
Section 7. ADJUSTMENTS
If the outstanding securities of the class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property or a
different number or kind of securities, or if cash, property or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly cash
dividend) or other distribution, stock split, reverse stock split or the like,
or if substantially all of the property and assets of the Company are sold,
then, unless the terms of such transaction shall provide otherwise, the
Committee shall make appropriate and proportionate adjustments in (a) the number
and type of shares or other securities or cash or other property that may be
acquired pursuant to Incentive Stock Options and other Awards theretofore
granted under this Plan, (b) the maximum number and type of shares or other
securities that may be issued pursuant to Incentive Stock Options and other
Awards thereafter granted under this Plan, and (c) the minimum option exercise
price set forth in Section 3(b).
Section 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in any
manner, PROVIDED, HOWEVER, that no such amendment or termination shall deprive
the recipient of any Award theretofore granted under this Plan, without the
consent of such recipient, of any of his or her rights thereunder or with
respect thereto.
Section 9. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of June 28, 1995 the date upon which
it was approved by the Board; PROVIDED, HOWEVER, that no Common Shares may be
issued under this Plan until it has been approved, directly or indirectly, by
the affirmative votes of the holders of a majority of the securities of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Delaware.
4
<PAGE>
EXHIBIT 10.21
AMENDMENT NO. 1
TO
MSC HOLDINGS, INC.
1995 OPTION INCENTIVE PLAN
WHEREAS, Astor Holdings, Inc. (the "Company"), a Delaware corporation
formerly known as MSC Holdings, Inc., has adopted and approved its 1995
Option Incentive Plan (the "Plan");
WHEREAS, Section 8 of the Plan provides that it may be amended by the
action of the Company's Board of Directors;
WHEREAS, on November 6, 1996, the Company's Board of Directors acted to
amend the Plan as set forth in Section 1 below;
NOW, THEREFORE, the Plan hereby is amended as follows:
1. AMENDMENT TO PLAN. Section 4(a) and (b) shall be amended to read in
full as follows:
Section 4. STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be issued pursuant
to all Incentive Stock Options granted under this Plan shall not exceed
228,545 subject to adjustment as provided in Section 7 hereof.
(b) At any time, the aggregate number of Common Shares issued and
issuable pursuant to all awards (including all Incentive Stock Options)
granted under this Plan shall not exceed 228,545 subject to adjustment as
provided in Section 7 hereof.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Independent
Auditors" and "Selected Financial Data", and to the use of our report dated June
7, 1996, in Amendment #1 to the Registration Statement (Form S-4 No. 333-14913)
and related Prospectus of Astor Holdings II, Inc. dated January 10, 1997.
ERNST & YOUNG LLP
Buffalo, New York
January 10, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the use of our reports dated February 1, 1996, with respect to
the financial statements of Adco Techologies Inc. and March 18, 1994, with
respect to the financial statements of Adco Products, Inc. included in Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-14913) and related
Prospectus of Astor Holdings II, Inc. dated January 10, 1997.
ERNST & YOUNG LLP
Detroit, Michigan
January 10, 1997
<PAGE>
EXHIBIT 23.3
[KPMG LETTERHEAD]
The Directors
Astor Corporation
8521 Six Forks Road Our ref 1d06/560
Suite 105
Raleigh, NC 27615 Contact Alan Buckle
0171 311 8468
9 January 1997
Dear Sirs
We consent to the use of our report included herein and to the reference to
our firm under the heading "Independent Auditors" in the registration statement.
Yours faithfully
KPMG
- ------------------------------------
KPMG
[KPMG LETTERHEAD]
