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REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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OCTEL DEVELOPMENTS PLC
OCTEL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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ENGLAND AND WALES NONE
DELAWARE 2800 98-0181725
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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P.O. BOX 17, OIL SITES ROAD
ELLESMERE PORT, SOUTH WIRRAL
TELEPHONE: 011-44-151-355-3611
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
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CT CORPORATION
1633 BROADWAY
NEW YORK, NEW YORK 10019
TELEPHONE: (212) 246-5070
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPY TO:
STUART L. MILLS
KIRKLAND & ELLIS INTERNATIONAL
INTERNATIONAL FINANCIAL CENTRE
OLD BROAD STREET
LONDON EC2N 1HQ
TELEPHONE: 011-44-171-816-8771
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
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10% Senior Notes due 2006.......... $150,000,000 $1,000 $150,000,000 $44,250
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Guarantee of 10% Senior Notes due
2006............................. $150,000,000 (2) (2) None
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) No further fee is payable pursuant to Rule 457(n).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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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 UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 2, 1998
PRELIMINARY PROSPECTUS
, 1998
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OCTEL DEVELOPMENTS PLC
[OCTEL LOGO] OFFER TO EXCHANGE ITS 10% SENIOR NOTES DUE 2006,
FOR ANY AND ALL OF ITS OUTSTANDING 10% SENIOR NOTES DUE 2006
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Octel Developments PLC, a company formed under the laws of England and Wales
(the "Issuer") hereby offers (the "Exchange Offer"), upon the terms and
conditions set forth in this Prospectus (the "Prospectus") and the accompanying
Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000
principal amount of its 10% Senior Notes due 2006, (the "Exchange Notes"),
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this prospectus is a part, for
each $1,000 principal amount of its outstanding 10% Senior Notes due 2006 (the
"Old Notes"), of which $150,000,000 principal amount is outstanding. The form
and terms of the Exchange Notes are the same as the form and term of the Old
Notes except that (i) the Exchange Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof and (ii) holders of the Exchange Notes will not be entitled to certain
rights of holders of Old Notes under the Registration Rights Agreement (as
defined). The Old Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Notes." The Exchange Notes will evidence the same debt as
the Old Notes (which they replace) and will be issued under and be entitled to
the benefits of the Indenture dated as of May 1, 1998 (the "Indenture") by and
among the Issuer, Octel Corp., a Delaware Corporation (the "Parent" or the
"Guarantor") and IBJ Schroder Bank & Trust Company ("Trustee"), as trustee,
governing the Notes. See "The Exchange Offer" and "Description of Exchange
Notes."
The Issuer will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on , 1998,
unless extended by the Issuer in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "The Exchange Offer."
The Old Notes were sold by the Issuer on May 5, 1998 (the "Issue Date") to
Goldman, Sachs & Co., Lehman Brothers, and Merrill Lynch & Co. (the "Initial
Purchasers") in a transaction not registered under the Securities Act in
reliance upon an exemption under the Securities Act (the "Initial Offering").
The Initial Purchasers subsequently placed the Old Notes with, (i) qualified
institutional buyers in reliance upon Rule 144A under the Securities Act, and
(ii) qualified buyers outside the United States in reliance upon Regulation S
under the Securities Act. 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. The Exchange Notes are being
offered hereunder in order to satisfy the obligations of the Issuer and the
Guarantor under the Registration Rights Agreement entered into by the Issuer,
the Guarantor and the Initial Purchasers in connection with the Initial Offering
(the "Registration Rights Agreement"). See "The Exchange Offer."
Interest on the Notes will be payable semiannually in arrears on May 1 and
November 1 of each year, commencing on November 1, 1998. The Notes will be
redeemable at the option of the Issuer, in whole or in part, at any time on or
after May 1, 2002 at the redemption prices set forth herein, plus accrued and
unpaid interest and additional interest, if any, thereon to the date of
repurchase. Prior to May 1, 2002, the Notes will be redeemable, in whole or in
part, at the option of the Issuer on any date, at a redemption price equal to
the greater of (i) 100% of the principal amount of the Notes to be redeemed and
(ii) the sum of the present values of (A) the redemption price of such Notes at
May 1, 2002 and (B) the remaining scheduled payments of principal and interest
thereon to May 1, 2002 (exclusive of interest accrued to such redemption date)
discounted to such redemption date on a semiannual basis (assuming, a 360-day
year consisting of twelve 30-day months) at the Treasury Rate (as defined
herein) plus 50 basis points, plus, in either case, accrued and unpaid interest
on the principal amount being redeemed to such redemption date. The Issuer is
required to redeem $37.5 million principal amount of the Notes on each of May 1,
2003, May 1, 2004 and May 1, 2005, in each case at a redemption price equal to
100% of the principal amount thereof, plus accrued interest to the redemption
date, subject to the Issuer's right to credit against any such redemption Notes
acquired by it otherwise than through such redemption. Such redemptions are
calculated to retire approximately 75% of the principal amount of the Notes
prior to maturity. Upon the occurrence of a Change of Control (as defined), each
holder of Notes may require the Issuer to repurchase all or a portion of such
holder's Notes at 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest and additional interest, if any, to the date of repurchase.
See "Description of the Notes." The Issuer is a wholly-owned indirect subsidiary
of Parent. The Notes will be unconditionally guaranteed as to the payment of
principal, interest and any other amounts due thereon (the "Note Guarantee") by
Parent.
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DESCRIPTION OF CERTAIN RISKS
TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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(Continued from previous page)
The Notes and the Note Guarantee will be unsecured senior indebtedness of
the Issuer and Parent, respectively, will rank pari passu in right of payment
with all existing and future unsecured indebtedness of the Issuer and Parent,
respectively, other than Subordinated Obligations (as defined) and will be
senior in right of payment to all existing and future Subordinated Obligations,
except that the lenders under the Credit Facility (as defined) will have certain
rights under the Indenture (as defined) to prohibit payments on the Notes and
the Note Guarantee under certain circumstances and may not have similar rights
with respect to other indebtedness of the Issuer or Parent. The Notes and the
Note Guarantee will be effectively subordinated to any secured indebtedness of
the Issuer and Parent, respectively, to the extent of the value of the assets
securing such indebtedness and to all liabilities of their direct and indirect
subsidiaries (other than, in the case of Parent, the Issuer). The Issuer and
Parent are holding companies that conduct all of their business through
subsidiaries. As of December 31, 1997, after giving pro forma effect to the
Transactions (as defined), Parent's subsidiaries (other than the Issuer) would
have had approximately $390.4 million of liabilities outstanding (including
$280.0 million of indebtedness), and the Issuer would have had approximately
$430.0 million of liabilities consisting of the Notes and the Issuer's guarantee
of indebtedness under the Credit Facility. The Notes and the Note Guarantee will
be subject to limited payment blockage provisions exercisable by the lenders
under the Credit Facility in the event of certain defaults under the Credit
Facility. See "Description of the Notes."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Issuer believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is an "affiliate" of the Issuer within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. See "The Exchange Offer--Resale of the Exchange Notes."
Holders of Old Notes wishing to accept the Exchange Offer must represent to the
Issuer, as required by the Registration Rights Agreement, that such conditions
have been met. Each broker-dealer (a "Participating Broker-Dealer") that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired by
such Participating Broker-Dealer as a result of market-making activities or
other trading activities. The Issuer has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
The Issuer will not receive any proceeds from the Exchange Offer. The Issuer
has agreed to bear the expenses of the Exchange Offer. No underwriter is being
used in connection with the Exchange Offer.
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Issuer will
pay all the expenses incurred by it incident to the Exchange Offer. See "The
Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Issuer does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market Could
Adversely Affect the Value of Exchange Notes." Moreover, to the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
Issuer OR THE GUARANTOR. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM," THE ISSUER EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL BE DEPOSITED WITH, OR ON
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR IN
THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL NOTE
REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE
EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND ITS PARTICIPANTS. AFTER THE
INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN CERTIFICATED FORM WILL BE ISSUED
IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER LIMITED CIRCUMSTANCES AS SET FORTH IN
THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY AND FORM."
THE CONTENTS OF THIS PROSPECTUS ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS
OR TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ATTORNEY,
BUSINESS ADVISOR AND TAX ADVISOR AS TO LEGAL, BUSINESS AND TAX ADVICE. NEITHER
THE ISSUER OR THE GUARANTOR IS MAKING ANY REPRESENTATION TO ANY PROSPECTIVE
INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN INVESTMENT THEREIN
BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS.
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AVAILABLE INFORMATION
The Issuer and the Guarantor have filed with the Commission a Registration
Statement on Form S-4 (the "Exchange Offer Registration Statement," which term
shall encompass all amendments, exhibits, annexes and schedules thereto)
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the Exchange Notes being offered hereby. This Prospectus
does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Issuer, the
Guarantor and the Exchange Offer, reference is made to the Exchange Offer
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 Exchange Offer Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. In addition, the Guarantor files periodic reporting and other
information requirements of the Exchange Act. The Exchange Offer Registration
Statement, including the exhibits thereto, and periodic reports and other
information filed by the Issuer and the Guarantor with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at
its regional offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http://www.sec.com.
Notwithstanding that the Guarantor may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Guarantor shall
file with the SEC and provide the Trustee and Securityholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and reports to be so filed
and provided at the times specified for the filing of such information,
documents and reports under such Sections. Guarantor also shall comply with the
other provisions of Trust Indenture Act of 1939 sec. 314(a).
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request from
Graham M. Leathes, Company Secretary of Octel Corp., telephone:
011-44-151-356-6192 or 0151-356-6192. Mr. Leathes may be contacted via mail at:
Octel Corp., P.O. Box 17, Oil Sites Road, Ellesmere Port, South Wirral L65 4HF
United Kingdom. In order to ensure timely delivery of the documents, any request
should be made by , 1998 (ten business days prior to the Expiration
Date).
The Issuer, a company organized under the laws of England and Wales, has
its principal executive offices located at P.O. Box 17, Oil Sites Road,
Ellesmere Port, South Wirral, L65 4HF; its telephone number is 0151-356-6192.
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NOTICE FOR NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER
CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR
THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
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FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN
ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL
TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH NOTES, AND
THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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ENFORCEABILITY OF CIVIL LIABILITIES
The Issuer is incorporated under the laws of England and Wales, most of its
directors and executive officers are residents of England and a significant
portion of the assets of the Issuer and such persons are located outside of the
United States. As a result, it may be difficult or impossible for U.S. investors
to effect service of process within the United States upon the Issuer or its
directors and officers under the Federal securities laws of the United States or
the securities or blue sky laws of any state within the United States. In
addition, investors should not assume that the courts of England (i) would
enforce judgments of U.S. courts obtained in actions against the Issuer or such
persons predicated upon the civil liability provisions of the U.S. Federal
securities laws or the securities or blue sky laws of any state within the
United States or (ii) would enforce, in original actions, liabilities against
the Issuer or such persons predicated upon the U.S. Federal securities laws or
any such state securities or blue sky laws.
ii
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PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Offering Circular. Reference is made to, and this summary is qualified by,
the more detailed information set forth in this Prospectus, which should be read
in its entirety. Unless the context otherwise requires, (i) references in this
Prospectus to the Issuer are to Octel Developments PLC, a company formed under
the laws of England and Wales and the issuer of the Notes offered hereby, (ii)
references in this Prospectus to Parent or Guarantor are to Octel Corp., a
Delaware corporation, (iii) references in this Prospectus to the Company are to
Parent and each of its subsidiaries (including the Issuer) and (iv) references
in this Prospectus to the Company prior to the Distribution are to the Company's
businesses (the "Octel Businesses") operated as part of the Petroleum Additives
Business Unit of Great Lakes Chemical Corporation, a Delaware corporation.
THE COMPANY
The Company is an international chemical company specializing in the
manufacture, distribution and marketing of fuel additives. The Company is
comprised of three primary operating businesses: Lead Alkyls, Petroleum
Specialties and Performance Chemicals. The Lead Alkyls business, which accounted
for 82% of the Company's 1997 sales, is the world's leading producer of
tetraethyl lead antiknock compounds, or "TEL," that are used by oil refineries
worldwide to boost the octane levels in gasoline, allowing fuel to burn more
efficiently and preventing engine knock during the combustion cycle. The Company
manufactures approximately 80% of TEL used worldwide. The Petroleum Specialties
business, which accounted for 12% of the Company's 1997 sales, supplies a broad
range of petroleum additives, including combustion improvers, fuel detergents
and functional performance products (such as corrosion inhibitors and
conductivity improvers). The Performance Chemicals business, which accounted for
6% of the Company's 1997 sales, manufactures and distributes a range of
chemicals including sodium, chlor-alkali and Octaquest(R), a biodegradable
chelating agent supplied to Procter & Gamble, which is used in several European
laundry products. In 1997, the Company had net sales of $539.1 million and pro
forma EBITDA of $240.8 million.
INDUSTRY OVERVIEW
Worldwide use of TEL has declined since 1973 following the enactment of the
U.S. Clean Air Act in 1970 and increasing health and environmental concerns and
political pressures to increase the usage of unleaded gasoline and reduce the
lead content of leaded fuels. While usage of TEL is expected to continue to
decline, the Company believes there are a number of factors which may prolong
the use of leaded gasoline, and therefore the market for TEL. First, it is
costly for refineries to switch their gasoline production process to unleaded
gasoline. Studies undertaken by the World Bank and others estimate that
upgrading an average refinery to nonleaded gasoline production would require
approximately $100 million in capital expenditures, which equals approximately
$.03-.08 per gallon. Because upgrading some refineries may not be economically
justifiable, these refineries may decide to continue operating until reduced
demand for leaded gasoline forces their closure. Second, there are significant
costs and delays in converting automobiles and gasoline stations to accommodate
the increased use of unleaded fuels.
The Company believes these factors may slow the rate of decline in the
consumption of leaded gasoline, especially in the Middle East, Southeast Asia
and Africa where the proportion of unleaded gasoline to leaded gasoline is very
low and where TEL phaseout legislation has not generally been introduced.
Moreover, even in Western Europe, where legislation mandating a leaded gasoline
phaseout by year 2000 exists, extensions have been applied for by Italy, Greece,
Spain and Portugal.
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BUSINESS STRATEGY
The Company's corporate objective is to optimize the cash flows from sales
of TEL to pay down debt and return value to its stockholders by (i) the
repurchase of stock and/or the payment of cash dividends and (ii) the
development of its Petroleum Specialties and Performance Chemicals businesses.
To achieve its corporate objective, the Company's strategy is to: (i) manage
profitably the decline of the TEL market through the implementation of cost
control initiatives and the provision of additional technical and environmental
support for customers; (ii) expand the Petroleum Specialties and Performance
Chemical businesses through the development of core competencies, product
innovation and enhanced focus on satisfying customers and market needs; (iii)
efficiently manage its operations and manufacturing sites consistent with the
decline of TEL demand and the growth of specialty and performance products, and
(iv) seek, where feasible, synergistic opportunities through joint ventures,
alliances, collaborative arrangements or acquisitions.
Since January 1, 1996, the Company has assembled an experienced senior
management team (see "Management--Executive Officers") which has effectively
implemented a number of cost-reduction measures focused on maintaining profit
margins of TEL, including (i) a 29% reduction of the work force in the U.K.,
resulting in estimated annual labor savings of $25 million, (ii) the closure of
two foreign manufacturing facilities and (iii) an improved safety record
evidenced by a 40% reduction in lost time accidents. The Company has established
an integrated Supply Chain Department to improve customer service, to utilize
its purchasing power to improve terms and conditions from suppliers and to
improve quality and inventory control.
The Company has its administrative headquarters and principal manufacturing
site in Ellesmere Port (Cheshire, U.K.) with subsidiaries in Europe, Africa and
North America. The Company employed 1,419 employees worldwide as of December 31,
1997. The Issuer is a recently formed, indirect, wholly owned subsidiary of
Parent. The principal executive offices of the Issuer are located in the United
Kingdom at Oil Sites Road, Ellsmere Port, South Wirral L65 4HF, and its
telephone number is 011-44-151-355-3611. The Issuer does not conduct any
operations except through its subsidiaries.
THE TRANSACTIONS
THE DISTRIBUTION
On April 24, 1998, Great Lakes Chemical Corporation ("Great Lakes") and the
Company entered into a Transfer and Distribution Agreement (the "Distribution
Agreement"). Pursuant to the terms of the Distribution Agreement, all the shares
of the common stock of Parent were issued to the shareholders of Great Lakes,
thereby creating an independent public company. The Issuer is an indirect wholly
owned subsidiary of Parent.
THE FINANCINGS
On April 27, 1998, certain subsidiaries of Parent entered into a $300.0
million senior credit facility, consisting of a secured revolving credit
facility of $20.0 million (the "Revolving Facility") and a secured term loan
facility of $280.0 million (the "Term Facility" and, together with the Revolving
Facility, the "Credit Facility"). Proceeds from the Credit Facility and the Old
Notes (collectively, the "Financings"), together with available cash, were used
to make the Special Payments (as defined) to Great Lakes and to pay
approximately $16.0 million of expenses incurred by the Company in connection
with the Distribution and the Financings (together with the Distribution and the
Special Payments, the "Transactions"). The $20.0 million Revolving Facility will
be available to the Company for working capital and general corporate purposes.
Prior to the date of the Distribution (the "Distribution Date"), the
Company used the proceeds of the Financings, together with approximately $53.7
million of available cash at December 31, 1997 and cash generated by Parent
between January 1, 1998 and the Distribution Date, to make a
2
<PAGE> 8
$467.7 million payment to Great Lakes, consisting of $116.8 million for the
repayment of a loan used to purchase the 10.65% interest in subsidiaries of the
Company held by Chevron Chemical Company ("Chevron") and $350.9 million as a
special dividend (the "Special Dividend" and, collectively, the "Special
Payments"). In addition, the Company used a portion of the proceeds of the
Financings to pay certain fees and expenses associated with the Transactions.
The proceeds from the sale of the Old Notes, together with proceeds from
the Credit Facility and available cash, were used as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS
Credit Facility(1)........................................ $280.0
Old Notes................................................. 150.0
Cash(2)................................................... 53.7
------
Total sources of funds................................. $483.7
======
USES OF FUNDS
Repay indebtedness(3)..................................... $116.8
Special Dividend.......................................... 350.9
Fees and expenses(4)...................................... 16.0
------
Total uses of funds.................................... $483.7
======
</TABLE>
- - ---------------
(1) The Credit Facility provides for up to $300.0 million of borrowings,
consisting of a Term Facility of $280.0 million and a Revolving Facility of
$20.0 million that will be available to the Company for working capital and
general corporate purposes.
(2) Management estimates that between January 1, 1998 and the Distribution Date,
the Company will have generated approximately $50.0 million in cash, $24.0
million of which, together with $29.7 million of available cash as of
December 31, 1997, will be utilized to partially fund the Special Dividend.
The remaining $26.0 million of cash will be available to the Company.
(3) Approximately $116.8 million will be used for the repayment to Great Lakes
of a loan used to acquire Chevron's 10.65% interest in subsidiaries of
Parent.
(4) Includes $12.0 million of estimated transaction fees associated with the
Distribution and the Financings and $4.0 million of associated costs for
certain interest rate swaps related to the Financings.
RECENT DEVELOPMENTS
Management expects TEL sales volumes to decrease for the full year 1998,
and TEL sales volumes in the first quarter of 1998 declined approximately 7.0%
from the first quarter of 1997. Operating income for the first quarter of 1998
was $41.0 million, which was comparable to the $41.5 million of the first
quarter of 1997 due to a higher percentage of retail TEL sales versus wholesale
TEL sales in the first quarter of 1998. Retail selling prices in the first
quarter of 1998 declined slightly as compared to the first quarter of 1997.
THE INITIAL OFFERING
Old Notes..................... The Old Notes were sold by the Issuer on May 5,
1998 to the Initial Purchasers pursuant to a
purchase agreement by and among the Initial
Purchasers, the Issuer and the Guarantor dated
April 30, 1998 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Old
Notes to (i) qualified institutional buyers
pursuant to Rule 144A under the Securities Act
and (ii) qualified buyers outside the United
States in reliance upon Regulation S under the
Securities Act.
3
<PAGE> 9
Registration Rights
Agreement..................... Pursuant to the Purchase Agreement, the Issuer,
the Guarantor and the Initial Purchasers
entered into an Exchange Registration Rights
Agreement dated as of April 30, 1998 (the
"Registration Rights Agreement"), which grants
the holder of the Old Notes certain exchange
and registration rights. The Exchange Offer is
intended to satisfy such exchange rights which
terminate upon the consummation of the Exchange
Offer. Upon consummation of the Exchange Offer,
the Issuer and the Guarantor will have no
further obligation under the Registration
Rights Agreement to register Old Notes except
in limited circumstances in which the Issuer
has agreed to file a Shelf Registration
Statement.
THE EXCHANGE OFFER
Securities Offered............ $150,000,000 aggregate principal amount of 10%
Senior Notes due 2006, of the Issuer (the
"Exchange Notes").
The Exchange Offer............ $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof, $150,000,000
aggregate principal amount of Old Notes are
outstanding. The Issuer will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no action letters
issued to third parties, the Issuer believes
that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than
any such holder which is an "affiliate" of the
Issuer within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has
no arrangement or understanding with any person
to participate in the distribution of such
Exchange Notes.
Any Participating Broker-Dealer that acquired
Old Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with
any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or
4
<PAGE> 10
other trading activities. The Issuer has agreed
that, for a period of 180 days after the
Expiration Date, they will make this Prospectus
available to any Participating Broker-Dealer
for use in connection with any such resale. See
"Plan of Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Exchange Notes could not rely on the
position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which
the holder is not indemnified by the Issuer.
Expiration Date............... 5:00 p.m., New York City time, on
, 1998 unless the Exchange Offer
is extended, in which case the term "Expiration
Date" means the latest date and time to which
the Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and the
Old Notes..................... Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Issuer. See "The Exchange
Offer--Conditions."
Procedures for Tendering
Old Notes..................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof (or, in the case of a
book-entry transfer, delivering an Agent's
Message (as defined) in lieu thereof) in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile (or, in the case of a book-entry
transfer, deliver an Agent's Message (as
defined) in lieu thereof) (or, in the case of a
book-entry transfer, delivering an Agent's
Message in lieu thereof), together with the Old
Notes and any other required documentation to
the Exchange Agent (as defined) at the address
set forth herein. By executing the Letter of
Transmittal (or, in the case of a book-entry
transfer, delivering an Agent's Message (as
defined) in lieu thereof) each holder will
represent to the Issuer that, among other
things, the
5
<PAGE> 11
Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such
Exchange Notes and that neither the holder nor
any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act,
of the Issuer. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer" and
"--Procedures for Tendering."
Untendered Old Notes.......... Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate but who do not tender their Old
Notes will not have any further exchange rights
and such Old Notes will continue to be subject
to certain restrictions on transfer.
Accordingly, the liquidity of the market for
such Old Notes could be adversely affected.
Consequences of Failure
to Exchange................... The Old Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Issuer, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act
or pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the
requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective
registration statement under the Securities
Act. See "The Exchange Offer--Consequences of
Failure to Exchange."
Shelf Registration
Statement..................... If (i) the Exchange Offer is prohibited by
applicable law (ii) or any holder of the Old
Notes (other than any such holder which is an
"affiliate" of the Issuer or the Guarantor
within the meaning of Rule 405 under the
Securities Act) notifies the Issuer that (A) it
is prohibited by law or policy from
participating in the Exchange Offer, (B) that
it may not resell the Exchange Notes acquired
by it in the Exchange Offer to the public
without delivering a prospectus and the
prospectus contained in the Exchange Offer
Registration Statement is not appropriate or
available for such resales or (C) that it is a
broker-dealer and holds Notes acquired directly
from the Issuer or an affiliate of the Issuer,
the Issuer has agreed to register the Old Notes
on a shelf registration statement (the "Shelf
Registration Statement"). If the Issuer fails
to satisfy these registration obligations, it
will be required to pay liquidated damages
("Liquidated Damages") to holders of Notes
under certain circumstances.
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such
6
<PAGE> 12
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of
Transmittal (or in the case of a book-entry
transfer, delivering an Agent's Message in lieu
thereof) and delivering its Old Notes, either
make appropriate arrangements to register
ownership of the Old Notes in such owner's name
or obtain a properly completed bond power from
the registered holder. The transfer of
registered ownership may take considerable
time. The Issuer will keep the Exchange Offer
open for not less than twenty business days in
order to provide for the transfer of registered
ownership.
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, the Letter of Transmittal (or,
in the case of a book-entry transfer,
delivering an Agent's Message in lieu thereof)
or any other documents required by the Letter
of Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange Notes.... The Issuer will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Use of Proceeds............... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent................ IBJ Schroder Bank and Trust Company
EXCHANGE NOTES
General....................... The form and terms of the Exchange Notes are
the same as the form and terms of the Old Notes
(which they replace) except that the Exchange
Notes have been registered under the Securities
Act and, therefore, will not bear legends
restricting the transfer thereof, and the
holders of Exchange Notes will not be entitled
to certain rights under the Registration Rights
Agreement, including the provisions providing
for Liquidated Damages on the Old Notes in
certain circumstances relating to the timing of
the Exchange Offer, which rights will terminate
when the Exchange Offer is consummated. See
"The Exchange Offer--Purpose and Effect of the
Exchange Offer." The Exchange Notes will
evidence the same debt as the Old Notes and
will be entitled to the benefits of the
Indenture. See "Description of Exchange
7
<PAGE> 13
Notes." The Old Notes and the Exchange Notes
are referred to herein collectively as the
"Notes."
Issuer........................ Octel Developments PLC.
Parent Guarantee.............. Octel Corp., the parent of the Issuer, will
fully and unconditionally guarantee the payment
of principal and interest on the Notes.
Securities Offered............ $150,000,000 aggregate principal amount of 10%
Senior Notes due 2006.
Maturity Date................. May 1, 2006.
Interest Payment Dates........ May 1 and November 1 of each year, commencing
November 1, 1998.
Optional Redemption........... Prior to May 1, 2002, the Notes will be
redeemable, in whole or in part, at the option
of the Issuer on any date, at a redemption
price equal to the greater of (i) 100% of the
principal amount of the Notes to be redeemed
and (ii) the sum of the present values of (A)
the redemption price of such Notes at May 1,
2002 and (B) the remaining scheduled payments
of principal and interest thereon to May 1,
2002 (exclusive of interest accrued to such
redemption date) discounted to such redemption
date on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the
Treasury Rate plus 50 basis points, plus, in
either case, accrued and unpaid interest on the
principal amount being redeemed to such
redemption date. From and after May 1, 2002 the
Notes will be subject to redemption at the
option of the Issuer in whole or in part, at
the redemption prices set forth herein, plus
accrued and unpaid interest and additional
interest, if any, to the date of redemption.
See "Description of the Exchange
Notes--Optional Redemption."
Mandatory Redemption.......... The Issuer is required to redeem $37.5 million
principal aggregate amount of Notes on each of
May 1, 2003; May 1, 2004; and May 1, 2005; in
each case at a redemption price equal to 100%
of the principal amount thereof, plus accrued
interest and additional interest, if any, to
the date of redemption, subject to the Issuer's
right to credit against any such redemption
Notes acquired by it otherwise than through
such redemption. See "Description of the
Exchange Notes--Mandatory Redemption."
Additional Amounts;
Tax Redemption................ Payments made by the Issuer or Parent on or
with respect to the Notes or the Note Guarantee
will be made without withholding or deduction
for taxes imposed by any Tax Authority (as
defined) unless required by law. If withholding
is required by law, the Issuer or Parent, as
the case may be, will pay, subject to certain
exceptions, Additional Amounts (as defined) as
may be necessary so that net payments will be
no less than the amounts provided for in the
Notes. In the event that (i) the Issuer or
Parent has become or will
8
<PAGE> 14
become obligated to pay any Additional Amounts
as a result of (A) a change to current law or
the interpretation or administration thereof or
(B) in certain circumstances, the issuance of
Definitive Notes (as defined) and (ii) the
Issuer or Parent, as the case may be, is unable
to avoid such obligation to pay Additional
Amounts by taking reasonable measures available
to it, then the Issuer may redeem all, but not
less than all, of the Notes at any time at the
principal amount thereof, together with accrued
and unpaid interest thereon, if any, to the
redemption date and all Additional Amounts, if
any. See "Description of the Exchange Notes--
Withholding Taxes" and "--Redemption for
Taxation Reasons."
Change of Control............. Upon the occurrence of a Change of Control,
each Holder of Notes may require the Issuer to
repurchase all or a portion of such Holder's
Notes at 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Additional Interest, if any, to the date of
repurchase. See "Description of the Exchange
Notes--Certain Covenants--Repurchase of Notes
Upon a Change of Control."
Ranking....................... The Exchange Notes and the Note Guarantee will
be unsecured senior indebtedness of the Issuer
and Parent, respectively, will rank pari passu
in right of payment with all existing and
future unsecured indebtedness of the Issuer and
Parent, respectively, other than Subordinated
Obligations and will be senior in right of
payment to all existing and future Subordinated
Obligations, except that the lenders under the
Credit Facility will have certain rights under
the Indenture to prohibit payments on the
Exchange Notes and the Note Guarantee under
certain circumstances and may not have similar
rights with respect to other indebtedness of
the Issuer or Parent. The Exchange Notes and
the Note Guarantee will be effectively
subordinated to any secured indebtedness of the
Issuer and the Parent, respectively, to the
extent of the value of the assets securing such
indebtedness and to all liabilities of their
direct and indirect subsidiaries (other than,
in the case of Parent, the Issuer). The Issuer
and Parent are holding companies that conduct
all of their business through subsidiaries. As
of December 31, 1997, after giving pro forma
effect to the Transactions, Parent's
subsidiaries (other than the Issuer) would have
had approximately $390.4 million of liabilities
outstanding (including $280.0 million of
indebtedness), and the Issuer would have had
approximately $430.0 million of liabilities
consisting of the Notes and the Issuer's
guarantee of indebtedness under the Credit
Facility. The Exchange Notes and the Note
Guarantee are subject to limited payment
blockage provisions exercisable by the lenders
under the Credit Facility in the event of
certain defaults under the Credit Facility. See
"Description of the Exchange Notes."
9
<PAGE> 15
Restrictive Covenants......... The indenture governing the Notes (the
"Indenture") contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as
defined) to incur additional indebtedness and
issue capital stock of a Restricted Subsidiary,
pay dividends or distributions or make
investments or make certain transactions with
affiliates, dispose of certain assets, incur
liens and engage in mergers and consolidations.
See "Description of the Exchange Notes."
Use of Proceeds............... The Company used the proceeds of the Initial
Offering, together with the proceeds of the
Credit Facility and available cash to make the
Special Payments. See "The Transactions." There
will be no proceeds to the Company or the
Issuer from the exchange made pursuant to the
Exchange Offer.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. These risk
factors are generally applicable to the Old Notes as well as the Exchange Notes.
10
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary historical statement of income data
and balance sheet data and corresponding pro forma data for the Company. The
historical financial data for the three years ended December 31, 1997 are
derived from the audited Combined Financial Statements of the Company included
elsewhere in this Prospectus. This historical financial data relate to the Octel
Businesses as they were operated as part of the Petroleum Additives Business
Unit of Great Lakes and have been adjusted for those parts of the Petroleum
Additives Business Unit which are to remain under Great Lakes' ownership and
management after the Distribution.
The pro forma financial data were derived from the "Pro Forma Financial
Statements" that give pro forma effect to the Transactions. The pro forma
adjustments are based upon available information and certain assumptions that
management believes are reasonable. The pro forma statement of income data for
the year ended December 31, 1997 give effect to the Transactions as if they had
occurred as of January 1, 1997. The pro forma balance sheet data give effect to
the Transactions as if they had occurred as of December 31, 1997. The pro forma
financial data do not purport to represent what the financial position or
results of operations of the Company would actually have been had the
Transactions in fact occurred on the assumed dates or to project the financial
position or results of operations of the Company for any future period or date.
These tables should be read in conjunction with "Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements of the Company included
elsewhere herein.
11
<PAGE> 17
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
PRO FORMA HISTORICAL
----------- ---------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- ------ ------ ------ ------ -----------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $539.1 $539.1 $597.4 $628.3 $603.1 $569.9
Cost of goods sold......................... 274.4 274.4 298.8 307.0 296.0 260.5
------ ------ ------ ------ ------ ------
Gross profit............................... 264.7 264.7 298.6 321.3 307.1 309.4
Selling, general and administrative........ 41.6 38.6 40.2 42.1 37.5 38.1
Research and development................... 3.8 3.8 5.6 5.6 6.7 9.6
Amortization of intangible assets.......... 37.2 27.6 26.7 19.0 16.7 15.0
------ ------ ------ ------ ------ ------
Operating income........................... 182.1 194.7 226.1 254.6 246.2 246.7
Interest expense(1)........................ 34.8 2.2 1.6 10.3 12.5 17.4
Other expenses............................. 5.6 5.6 7.5 4.4 (1.4) 3.4
Interest income............................ (0.1) (3.9) (3.5) (5.1) (4.2) (5.8)
Other income............................... (7.9) (7.9) (1.2) (4.1) (7.9) (3.3)
------ ------ ------ ------ ------ ------
Income before income taxes and minority
interest................................. 149.7 198.7 221.7 249.1 247.2 235.0
Minority interest.......................... -- 24.3 29.6 32.3 32.4 31.1
------ ------ ------ ------ ------ ------
Income before income taxes................. 149.7 174.4 192.1 216.8 214.8 203.9
Income taxes............................... 48.9 56.7 63.8 71.7 72.4 40.0
------ ------ ------ ------ ------ ------
Net income................................. $100.8 $117.7 $128.3 $145.1 $142.4 $163.9
====== ====== ====== ====== ====== ======
BALANCE SHEET DATA (AT END OF PERIOD):
Total working capital...................... $206.2 $179.9 $216.1 $175.8 $190.8 $154.5
Property, plant and equipment, net......... 106.0 106.0 113.4 107.3 84.0 67.1
Total assets............................... 819.2 832.9 841.0 798.4 732.6 643.3
Total debt(1).............................. 430.0 -- -- -- -- --
Total liabilities.......................... 540.4 180.1 256.4 267.6 244.2 226.7
Total equity............................... 278.8 652.8 584.6 530.8 488.4 416.6
STATEMENT OF CASH FLOW DATA:
EBITDA(2).................................. $240.8 $243.8 $262.7 $287.0 $285.1 $272.5
Depreciation............................... 19.2 19.2 16.2 13.7 12.9 10.8
Net cash provided by operating
activities............................... -- 167.5 127.8 175.8 161.9 180.4
Capital expenditures....................... -- 17.8 20.6 31.5 22.6 11.7
Business combinations net of cash
acquired................................. -- 130.8(3) 17.0 18.8 66.7 20.8
Other investing activities................. -- (1.6) 14.9 31.1 (2.1) 13.3
------ ------ ------ ------ ------ ------
Net cash used in investing activities...... -- 147.0 52.5 81.4 87.2 45.8
Net cash paid to Great Lakes............... -- 31.4 103.0 104.6 83.0 140.9
SELECTED RATIOS:
Pro forma EBITDA to interest expense....... 6.9x -- -- -- -- --
Pro forma total debt to EBITDA............. 1.8x -- -- -- -- --
Ratio of earnings to fixed charges(4)...... 5.1x 68.1x 102.1x 21.5x 17.9x 12.6x
</TABLE>
- - ---------------
(1) Historical interest expense includes interest on intercompany indebtedness
between the Company and Great Lakes. Historical intercompany indebtedness
between the Company and Great Lakes is included in historical total equity.
(2) EBITDA represents income before income taxes and minority interest plus
depreciation, amortization of intangible assets and interest expense, less
interest income. EBITDA is not a substitute for operating income, net
earnings and cash flow from operating activities as determined in accordance
with generally accepted accounting principles as a measure of profitability
or liquidity. EBITDA is presented as additional information because
management believes it to be a useful indicator of the Company's ability to
service and/or incur indebtedness. EBITDA amounts may not be fully available
for management's discretionary use, due to certain requirements to conserve
funds for capital replacement, debt service and other commitments.
(3) Includes $116.8 million for the purchase of Chevron's 10.65% interest in
subsidiaries of Parent. See "The Transactions."
(4) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represents net income before income taxes plus fixed charges,
less capitalized interest. "Fixed charges" consists of interest expense,
including amortization of debt discount and financing costs, capitalized
interest and the portion of rental expense which the Company believes is
representative of the interest component of rental expense.
12
<PAGE> 18
RISK FACTORS
Holders of Old Notes should consider carefully the following factors as
well as the other information and data included in this Offering Circular prior
to tendering Old Notes in exchange for Exchange Notes. The risk factors set
forth below are generally applicable to the Old Notes as well as the Exchange
Notes.
CONTRACTING DEMAND FOR TEL PRODUCTS
In 1997, approximately 82% of the Company's revenues were derived from the
sale of TEL antiknock compounds, a specialized commodity utilized primarily as
an octane enhancer for automobile gasoline. The Company's Lead Alkyls business
operates in a gasoline market characterized by contracting demand for TEL
products. The market for TEL products is contracting primarily as a result of
health and environmental concerns and political pressures to increase the usage
of unleaded gasoline and reduce the lead content of leaded fuels. Global demand
for TEL has decreased and is expected to continue to decrease as a result of
various regulatory initiatives around the world to phase out the use of gasoline
containing TEL ("leaded gasoline"). From 1990 to 1997, total annual sales volume
in the global TEL market decreased from approximately 230,000 metric tons to
approximately 100,000 metric tons as many industrialized countries either banned
TEL or limited allowable TEL levels in gasoline in response to concerns over
health-related issues surrounding TEL. Demand for TEL has also been depressed by
the incompatibility of leaded gasoline and catalytic converters, which have been
increasingly used to minimize automobile exhaust emissions. The Company believes
that the rate of TEL volume decline over the next four to five years will be
between 10% and 15% per year; however, there can be no assurance that such rate
of decline will not be more than the Company's current estimates. The United
States began phasing out the use of TEL in the early 1970s and the use of leaded
gasoline in the United States is now restricted to piston-engined aircraft and
certain other vehicles. Similarly, other industrialized countries, including,
among others, Germany, Switzerland, South Korea, Sweden and New Zealand, have
banned the use of leaded gasoline. In addition, some other countries have
limited the level of TEL in gasoline and are considering initiatives to phase
out the use of leaded gasoline completely.
As a result of contracting world demand for TEL, the Company's primary
product, the Company intends to develop new sources of revenue and growth
through the internal development of new products or through acquisitions, joint
ventures or other collaborative arrangements. The Company does not believe that
the revenues from sales of new products will fully offset the decline in TEL
sales and earnings in the foreseeable future. There can be no assurance that the
Company will be successful in developing and marketing new products that achieve
market acceptance or that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of
such new products. Further, there can be no assurance that the Company's
competitors will not succeed in developing or marketing products that are more
effective or commercially attractive than any that are being developed by the
Company or that such competitors will not succeed in obtaining any required
regulatory approvals for introducing or commercializing any such products before
the Company is able to do so. Additionally, there can be no assurance that the
Company will be able to identify and successfully consummate any acquisitions,
joint ventures or collaborative arrangements or that revenues, if any, from such
acquisitions, joint ventures or other collaborative arrangements would offset
the decline in TEL sales and earnings in the foreseeable future.
COMPETITION
The Company's Lead Alkyls business operates in a contracting market. See
"--Contracting Demand for TEL Products." The Company competes in the sale of TEL
primarily with Alcor Chemie Vertriebs AG ("Alcor"), Ethyl Corporation ("Ethyl")
and Syntez. See "Business--Lead Alkyls Business--Competition." In recent years,
competition has intensified as the demand for TEL has declined, price increases
have slowed and existing competitors have aggressively engaged in price
13
<PAGE> 19
competition. Although the Company currently has a worldwide TEL market share of
approximately 60% with respect to retail TEL sales, there can be no assurance
that it will be able to maintain such market share or its current level of gross
margins and profitability as the market for TEL products continues to contract
and/or its competitors continue to compete aggressively based on price. In
addition to the above retail sales, the Company supplies Ethyl with substantial
quantities of TEL under two long-term wholesale agreements, which also limit the
Company's ability to improve gross margins. See "Business--Lead Alkyls
Business--Ethyl Agreements."
The Company's Petroleum Specialties and Performance Chemicals businesses
operate in highly competitive markets, with many competitors which are larger
than the Company in terms of resources and market share. The Company's ability
to compete effectively in those markets in the future will depend upon, among
other things, its ability to continue to finance research and development of new
products and technologies and its ability to improve existing products and
technologies. See "Business."
SUBSTANTIAL LEVERAGE AND RESTRICTIVE COVENANTS
As of December 31, 1997, on a pro forma basis after giving effect to the
Transactions, the Company would have had $430.0 million principal amount of
long-term indebtedness and total common stockholders' equity of $278.8 million.
See "Capitalization." The degree to which the Company is leveraged could have
important consequences to the holders of the Notes, including the following: (i)
the Company will have significant cash interest expense and principal repayment
obligations with respect to outstanding indebtedness, including the Credit
Facility and the Notes, with the result that a substantial portion of the
Company's cash flow from operations will be required to meet these obligations,
thereby reducing funds available to the Company for other purposes, (ii) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions or other purposes could be adversely affected and
(iii) the Company's substantial degree of leverage could hinder its flexibility
in planning for or reacting to changes in market conditions. In addition,
pursuant to the terms of the Credit Facility and the Indenture, the ability of
the Company to sell assets will be restricted. See "Description of Credit
Facility" and "Description of the Exchange Notes."
The U.K. has enacted legislation (contained within the 1996 Finance Act)
altering the rules concerning the deductibility of interest for corporate tax
purposes. Under this new legislation the U.K. tax authorities may disallow the
deductibility of interest for tax purposes with respect to any loan that is
found not to have been entered into for a business purpose. The Company believes
that the Financings are being entered into for a valid business purpose.
Moreover, the Company has received advice from its tax advisers that the U.K.
tax authorities are unlikely to seek to apply this legislation to the
Financings. However, limited experience and precedent are available to determine
how such legislation might impact on the deductibility of interest incurred in
connection with the Financings. If the legislation was found to limit the
deductibility of interest incurred in connection with the Financings, it could
have an adverse effect on the Company's cash flow and its ability to pay its
debts.
The Credit Facility requires the Company to, among other things, achieve
and maintain certain financial ratios. In addition, the Credit Facility contains
financial and operating covenants, including restrictions on the ability of the
Company to incur indebtedness, merge, consolidate or transfer all or
substantially all of its assets, to make certain sales of assets, to create,
incur or permit the existence of certain liens and to pay dividends. The failure
to maintain the required ratios or to comply with the covenants would result in
a default under the Credit Facility and permit the lenders under the Credit
Facility to accelerate the maturity of the indebtedness governed by such
instrument. See "Description of Credit Facility." The Indenture also contains
restrictive covenants. See "Description of the Exchange Notes."
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<PAGE> 20
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION; PAYMENT BLOCKAGE RIGHTS
The Issuer and Parent are holding companies that conduct all of their
business through their direct and indirect subsidiaries. Therefore, the Issuer's
and Parent's cash flow and ability to service their debts are dependent upon the
earnings of their respective subsidiaries and such subsidiaries' ability to
distribute funds to the Issuer and Parent, respectively, in the form of payment
of debt service, declaration of dividends or otherwise, or the ability of the
Issuer or Parent to otherwise obtain cash from their equity interests in these
subsidiaries. Their subsidiaries (other than the Issuer itself) have no
obligation, contingent or otherwise, to pay amounts due pursuant to the Exchange
Notes or the Note Guarantee or to make funds available therefor, whether in the
form of loans, dividends or otherwise. The ability of these subsidiaries to make
payments to the Issuer and Parent will be subject to, among other things, the
availability of funds and the terms of such subsidiaries' indebtedness,
including the terms of the Credit Facility. The Credit Facility prohibits the
payment of dividends, the making of any distribution or other transfer of monies
to the Issuer or Parent other than, among other things, payments made in
connection with the Distribution and the payment of amounts required by the
Issuer to meet payments of interest and other amounts (but not principal) due
under the Exchange Notes so long as no payment blockage is then in effect. See
"Description of the Credit Facility." Applicable corporate laws also limit the
amount of dividends payable by these subsidiaries. Accordingly, there can be no
assurance that the Issuer or Parent will receive timely payments from their
subsidiaries, if at all, or other cash benefits from their equity interests in
their subsidiaries, in order to make payments on their indebtedness, including
the Exchange Notes and the Note Guarantee, or to otherwise satisfy their cash
flow needs.
The Exchange Notes and the Note Guarantee will be effectively subordinated
to the claims of creditors and holders of preferred stock of the subsidiaries of
the Issuer and Parent, respectively. Any right of the Issuer or Parent to
participate in the assets of any of their subsidiaries upon liquidation or
administration will be subject to the prior claims of the creditors of such
subsidiaries, including the lenders under the Credit Facility and trade
creditors. In addition, the ability of the Issuer's and Parent's creditors,
including the holders of the Notes, to participate in distributions to the
Issuer and Parent of assets of their subsidiaries will be limited to the extent
that the outstanding shares of any of such subsidiaries are either pledged to
secure creditors or are not owned by the Issuer or Parent. As of December 31,
1997, after giving pro forma effect to the Transactions, Parent's subsidiaries
(other than the Issuer) would have had approximately $390.4 million of
liabilities outstanding (including $280.0 million of indebtedness). The
Indenture limits, but does not prohibit, the incurrence of additional
indebtedness by these subsidiaries.
During the continuance of any default with respect to the Credit Facility
pursuant to which the maturity thereof may be accelerated immediately without
further notice, the Indenture will not permit the Issuer to pay the principal
of, or premium, if any, or interest on, the Exchange Notes (except for payments
made from the trusts described under "Description of the Exchange
Notes--Defeasance") or to make any deposit with respect to legal defeasance or
covenant defeasance and to purchase, redeem or (except for Notes credited
against the Issuer's mandatory redemption requirement as described under
"Description of the Exchange Notes--Mandatory Redemption") otherwise retire the
Exchange Notes pursuant to a Change of Control, an Asset Sale or otherwise
(collectively, "pay the Notes") for a period (a "Payment Blockage Period")
commencing upon the receipt by the Issuer and the trustee under the Indenture
(the "Trustee") of written notice (a "Payment Blockage Notice") of such default
from the Representative under the Credit Facility specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (unless earlier
terminated (i) by written notice to the Trustee and the Issuer from the
Representative that submitted such Payment Blockage Notice or (ii) because such
default is no longer continuing or (iii) because the Bank Indebtedness (as
defined) has been paid in full in cash and any outstanding letters of credit,
bonds and guarantees under the Credit Facility and any Hedging Obligations (as
defined) incurred in connection with the Credit Facility have been fully cash
collateralized). Notwithstanding the provisions described in the immediately
preceding sentence provided that the
15
<PAGE> 21
Notes have not become immediately due and repayable, the Issuer may cure any
Event of Default in relation to the Notes and resume payments on the Notes after
the end of such Payment Blockage Period. Not more than one Payment Blockage
Notice may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to the Bank Indebtedness during such period. See
"Description of the Exchange Notes--Payment Blockage."
ABSENCE OF GREAT LAKES FINANCIAL SUPPORT
As a result of the Distribution, the Company is now responsible for
obtaining its own financing and is experiencing a higher cost of capital than
was historically available to the Company as a subsidiary of Great Lakes. In
addition, the Company is no longer able to draw upon the resources, financial or
otherwise, generally available to it prior to the Distribution as a subsidiary
of Great Lakes. See "Description of Credit Facility."
ENVIRONMENTAL MATTERS AND PLANT CLOSURES
The Company is subject to laws, regulations and legal requirements relating
to the use, storage, handling, generation, transportation, emission, discharge,
disposal and remediation of, and exposure to, hazardous and non-hazardous
substances and wastes in all of the countries in which it does business. The
nature of the Company's existing and historical operations exposes it to the
risk of liabilities or claims with respect to environmental matters, including
on- and off-site releases and emissions of hazardous and non-hazardous
substances and wastes. Such liabilities or claims include costs associated with
environmental investigations and remediation activities, as well as plant
closure and restoration projects, at closed manufacturing sites in France, Italy
and Germany, and, ultimately, at the Company's existing manufacturing facility
in Ellesmere Port, U.K. (the "Ellesmere Port Facility"). Such liabilities or
claims also include capital and other costs associated with environmental
compliance matters at the Ellesmere Port Facility.
There can be no assurance that material costs will not be incurred in
connection with such liabilities or claims. Changes in existing laws or
regulations, or the discovery of additional environmental liabilities associated
with the Company's existing or historical operations, could require the Company
to incur material costs or could otherwise have a material adverse effect on the
Company's business, results of operations, or financial condition. See
"--Contracting Demand for TEL Products," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Environmental Matters and
Plant Closures" and "Business--Health, Safety and Environmental Matters."
INTERNATIONAL OPERATIONS
Approximately 94% of the Company's sales in 1997 were derived from
operations outside the United States. A substantial portion of the Company's
international sales is to developing nations in which the TEL market is expected
to decline at a slower rate than in developed countries. See "Business--Lead
Alkyls Business--Industry Overview." Sales outside of the United States,
particularly sales to these developing nations, may be subject to various risks
which are not present in the United States market, including political and
economic instability, governmental embargos and foreign exchange risks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Derivative and Other Financial Instruments" for a more detailed
discussion of the Company's exposure to foreign currency fluctuations.
OPERATING HISTORY AND FUTURE PROSPECTS; TRANSITION TO AN INDEPENDENT PUBLIC
COMPANY
The Company does not have any operating history as an independent company.
Accordingly, the financial statements included herein may not necessarily
reflect the results of operations, financial condition and cash flows that would
have been achieved had the Octel Businesses been operated independently during
the periods presented. Such information has also been adjusted for the parts of
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<PAGE> 22
Great Lakes' Petroleum Additives Business Unit that will remain under Great
Lakes ownership and management following the Distribution. The Company has
historically provided substantially all of its own corporate services. However,
as a result of the Distribution, the Company is now responsible for the
additional costs associated with being an independent public company, including
costs related to corporate governance, listed and registered securities and
investor relations issues.
The financial statements included herein do not reflect many changes that
may occur in the operations of the Company as a result of the Company's future
business strategies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "Business." The Company
believes that these changes, when implemented, will make a positive contribution
to the results of operations of the Company. However, there can be no assurance
as to the timing or amount of any positive contribution which may be realized or
that these changes might not result in material adverse consequences.
The Company's future results of operations will depend upon a number of
factors and events, including the following: (i) the levels of demand for the
Company's existing products, the Company's ability to develop new products and
to adapt existing products to new uses to offset declining TEL sales, the
Company's ability to maintain acceptable margins on product sales and the
Company's ability to control its costs and repay its indebtedness (see
"--Contracting Market for TEL Products," "--Competition" and "--Substantial
Leverage and Restrictive Covenants"); (ii) the substantial competition
encountered by the Company in all of its lines of business (see
"--Competition"); (iii) the effect of future regulatory changes; (iv) the
Company's transition to an independent company and the costs associated
therewith; and (v) possible changes in economic and political conditions
affecting foreign sales (see "--International Operations"). The Company does not
believe that sales attributable to newly developed products and other
operational changes will be sufficient to offset the decline in TEL sales and
earnings for the foreseeable future.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the abilities and continued efforts of its senior management to execute its
business strategy. The loss of the services of any of such individuals could
have a material adverse effect upon the Company's business, results of
operations and financial condition. See "Management--Executive Officers."
FTC INVESTIGATION
In December 1997, the Company, Great Lakes and the United States Federal
Trade Commission ("FTC") staff reached an agreement with respect to a consent
decree governing sales of TEL by the Company to Ethyl for resale in the United
States. The agreement was provisionally approved by the FTC on March 30, 1998,
and received that approval on June 24, 1998. The Company has taken steps to
comply with its provisions by negotiating and putting into effect a new long
term supply contract with Ethyl governing the supply of TEL to Ethyl for resale
in the U.S. market. It should be noted that the entire U.S. TEL market is
relatively small (approximately 1,500 metric tons per annum) and only a small
portion of the Company's sales to Ethyl are directed at the U.S. market. Neither
the terms of the consent decree nor the execution of the new contract with Ethyl
is expected to have a material adverse effect on the Company's business, results
of operation or financial condition. See "Business--Legal Proceedings."
FRAUDULENT TRANSFER STATUTES; INSOLVENCY LAW
Fraudulent conveyance, financial assistance and similar laws have been
enacted for the protection of creditors in a number of jurisdictions. Under
applicable provisions of federal bankruptcy law or comparable provisions of New
York fraudulent transfer law, if, among other things, the Issuer or Parent, at
the time it incurred the indebtedness evidenced by the Notes and the Note
Guarantee, respectively, (i) (a) was or is insolvent or rendered insolvent by
reason of such
17
<PAGE> 23
incurrence or (b) was or is engaged in a business or transactions for which the
assets remaining with the Issuer or Parent, as applicable, constituted
unreasonably small capital or (c) intended or intends to incur, or believed or
believes that it would incur debts beyond its ability to pay such debts as they
mature, and (ii) received or receives less than reasonably equivalent value or
fair consideration for the incurrence of such indebtedness, then the Notes and
the Note Guarantee could be voided, or claims in respect of the Notes could be
subordinated to all other debts of the Issuer and Parent, as the case may be. In
addition, the payment of interest and principal with respect to the Notes could
be voided and required to be returned to the person making such payment, or to a
fund for the benefit of the creditors of the Issuer or Parent, as the case may
be.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, under U.S. law, a company would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the saleable value of all of its assets at a fair valuation or if
the present fair saleable value of its assets were less than the amount that
would be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Issuer and Parent believe that, after giving effect to
the indebtedness incurred in connection with the Transactions, neither the
Issuer nor Parent will be insolvent, will have unreasonably small capital for
the business in which it is engaged or will incur debts beyond its ability to
pay such debts as they mature. There can be no assurance, however, as to what
standard a court would apply in making such determinations or that a court would
agree with the Issuer's or Parent's conclusions in this regard.
Although the Indenture is governed by New York law, such law (or the U.S.
federal bankruptcy law) may not apply to fraudulent conveyance or other claims
by creditors.
The Issuer is organized under the laws of England and Wales and a
substantial portion of the Company's operations are located in the U.K. Further,
the Credit Facility is governed by English law. The procedural and substantive
provisions of United Kingdom insolvency and administrative laws generally are
more favorable to secured creditors than comparable provisions of United States
law and afford debtors and unsecured creditors only limited protection from the
rights of secured creditors. As a result, the ability of the holders of the
Notes to protect their interests in the Issuer and Parent may be more limited
than under U.S. laws. Under U.K. insolvency law, the liabilities of the Issuer
and Parent in respect of the Notes and the Note Guarantee, respectively, will be
paid in the event of a liquidation or similar proceeding after payment of all
secured indebtedness of the Issuer and Parent (including the Issuer's and
Parent's secured obligations as guarantors of indebtedness under the Credit
Facility) and certain other creditors which are entitled to priority under U.K.
law which may include (i) amounts owed to United Kingdom Inland Revenue, (ii)
amounts owed to United Kingdom Customs and Excise, (iii) amounts owed in respect
of U.K. social security contributions, (iv) amounts owed in respect of
occupational pension schemes and (v) certain amounts owed to employees. Under
U.K. insolvency law, the liquidator or administrator of a company may apply to
the court to rescind a transaction entered into by such company at less than
fair value, if such company was insolvent at the time of, or immediately after,
the transaction and enters into a formal insolvency process within two years of
the completion of the transaction. A transaction might be so challenged if it
involved a gift by the company or the company received consideration of
significantly less value than the benefit given by such company. A court
generally will not intervene, however, if the company entered the transaction in
good faith for the purposes of carrying on its business and there were
reasonable grounds for believing the transaction would benefit the company. The
Issuer and Parent believe that the Exchange Notes and the Note Guarantee will
not be issued on terms which would amount to a transaction at less than fair
value and further that such issues are undertaken in good faith for the purposes
of carrying on the Issuer's and Parent's business. There can be no assurance,
however, that the issuance of the Exchange Notes and the Note Guarantee will not
be challenged by a liquidator or administrator of the Issuer or Parent,
respectively.
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<PAGE> 24
LIMITATIONS ON CHANGE OF CONTROL
Upon a Change of Control, the Issuer will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and additional interest, if any, to the date of
repurchase. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to make any required repurchases
of Exchange Notes tendered or that restrictions in the Credit Facility will
allow the Issuer or Parent to make such required repurchases. Notwithstanding
these provisions, the Company could enter into certain transactions, including
certain recapitalizations, that would not constitute a Change of Control but
would increase the amount of debt outstanding at such time. See "Description of
the Exchange Notes--Repurchase at the Option of Holders."
ENFORCEABILITY OF JUDGMENTS
Since substantially all of the operating assets of the Company (including
the Issuer) are located outside the United States, any judgment obtained in the
United States against the Company, including judgments with respect to the
payment of principal, premium, if any, interest, Additional Amounts, if any,
Additional Interest, if any, redemption price and any purchase price with
respect to the Exchange Notes, may not be collectible within the United States.
See "Description of the Exchange Notes--Enforceability of Judgments."
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Issuer believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for Exchange Notes by
holders who are entitled to participate in this Exchange Offer. After
consummation of the Exchange Offer, the market for Old Notes not tendered or
exchanged (or tendered but not accepted for exchange) in the Exchange Offer will
be even more limited than their existing market. The holders of Old Notes (other
than any such holder that is an "affiliate" of the Issuer within the meaning of
Rule 405 under the Securities Act) who are not eligible to participate in the
Exchange Offer are entitled to certain registration rights, and the Issuer is
required to file a Shelf Registration Statement with respect to such Old Notes.
The Exchange Notes will constitute a new issue of securities with no established
trading market. The Issuer does not intend to list the Exchange Notes on any
national securities exchange or seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Initial Purchasers have advised the Issuer that they currently intend to make a
market in the Exchange Notes, but they are not obligated to do so and may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statement. Accordingly, no assurance can be given that an
active public or other market will develop for the Exchange Notes or as to the
liquidity of the trading market for the Exchange Notes. If a trading market does
not develop or is not maintained, holders of the Exchange Notes may experience
difficulty in reselling the Exchange Notes or may be unable to sell them at all.
If a market for the Exchange Notes develops, any such market may be discontinued
at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Issuer and the Guarantor, the Exchange Notes may
trade at a discount from their principal amount.
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<PAGE> 25
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Issuer of
such Old Notes, a properly completed and duly executed Letter of Transmittal
(or, in the case of a book-entry transfer, an Agent's Message in lieu thereof)
and all other required documents. Therefore, holders of the Old Notes desiring
to tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Issuer is under no duty to give notification
of defects or irregularities with respect to the tenders of Old Notes for
exchange. Old Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof, and, upon consummation of the
Exchange Offer certain registration rights under the Registration Rights
Agreement will terminate. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities, and if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected. See "The Exchange Offer."
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<PAGE> 26
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Issuer's
obligations under the Registration Rights Agreement. The Issuer will not receive
any cash proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes contemplated in this Prospectus,
the Issuer will receive Old Notes in like principal amount, the form and terms
of which are the same as the forms and terms of the Exchange Notes (which
replace the Old Notes), except as otherwise described herein. The Old Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of Exchange Notes will not result in
any increase or decrease in the indebtedness of the Issuer or the Company. As
such, no effect has been given to the Exchange Offer in the pro forma combined
financial data or capitalization tables.
The net proceeds to the Issuer from the sale of the Old Notes in the
Initial Offering (after deducting discounts and estimated fees and expenses)
together with the Credit Facility and available cash were utilized to make a
$467.7 million payment to Great Lakes, consisting of $116.8 million for the
repayment of a loan used to repurchase the 10.65% interest in the subsidiaries
of the Company held by Chevron Chemical Company and a $350.9 million special
dividend. See "The Transactions" and "The Financings."
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<PAGE> 27
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1997 on a historical basis and on a pro forma basis after giving
effect to the Transactions. See "Pro Forma Financial Data."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS (UNAUDITED)
---------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Total debt:
Credit Facility(1).................................. $ -- $ 280.0(2) $280.0
Senior Notes........................................ -- 150.0(2) 150.0
------ ------- ------
Total debt.......................................... -- 430.0(2) 430.0
Total equity........................................ 652.8 (374.0)(3) 278.8
------ ------- ------
Total capitalization................................ $652.8 $ 56.0 $708.8
====== ======= ======
</TABLE>
- - ---------------
(1) As of the Distribution Date, the Company estimates that $20.0 million will
be available to the Company under the Revolving Facility. In addition,
management estimates that between January 1, 1998, and the Distribution
Date, the Company will have generated approximately $50.0 million of cash,
$24.0 million of which will be utilized for partial payment of the Special
Dividend, with the remaining $26.0 million available to the Company.
(2) Reflects an estimated $430.0 million of debt the Company expects to incur on
or before the date of the Distribution. Approximately $116.8 million of the
$430.0 million to be borrowed will be used for the repayment to Great Lakes
of a loan used to acquire Chevron's 10.65% interest in subsidiaries of the
Company. An additional $16.0 million is expected to be used to pay $12.0
million in transaction fees associated with the Distribution and the
Financings and $4.0 million of associated costs for certain interest rate
swaps related to the Financings. The balance of the borrowing, together with
$29.7 million of available cash as of December 31, 1997, will be used to
fund $326.9 million of the Special Dividend to Great Lakes. The remaining
$24.0 million of the $350.9 million Special Dividend will be funded out of
cash generated by the Company between January 1, 1998 and the Distribution
Date.
(3) Reflects (i) payments to Great Lakes including $116.8 million for the
repayment of a loan used to acquire Chevron's 10.65% interest in
subsidiaries of Parent and $326.9 million to partially fund the Special
Dividend and (ii) $69.7 million of income tax liabilities transferred by the
Company to Great Lakes.
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<PAGE> 28
PRO FORMA FINANCIAL DATA
The Company was formed by Great Lakes in connection with the Distribution
and has no operating history as a separate, independent company. The historical
financial statements of the Company reflect periods during which the Company did
not operate as a separate, independent company, and certain assumptions were
made in preparing such financial statements. Therefore, such historical
financial statements may not reflect the results of operations or financial
position that would have been achieved had the Company been a separate,
independent company.
The following unaudited pro forma combined financial statements (the "Pro
Forma Financial Statements") are based on the historical financial statements of
the Company for and as of the year ended December 31, 1997 included elsewhere in
this Prospectus adjusted to give effect to the Transactions. The Pro Forma
Statement of Income for the year ended December 31, 1997 gives effect to the
Transactions as if they had occurred as of January 1, 1997 and the Pro Forma
Balance Sheet gives effect to the Transactions as if they had occurred as of
December 31, 1997. The Transactions and the related adjustments are described in
the accompanying notes. The Pro Forma Financial Statements are based upon
available information and certain assumptions that management believes are
reasonable. The Pro Forma Financial Statements do not purport to represent what
the Company's results of operations or financial condition would actually have
been had the Transactions in fact occurred on such dates or to project the
Company's results of operations or financial condition for any future period or
date. The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Company included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Pro Forma Financial Statements assume the completion of the
transactions to be entered into in connection with the Distribution including
the completion of all the asset transfers and contract assignments contemplated
thereby. Assumptions regarding the number of shares of common stock, par value
$0.01 per share, of Parent ("Octel Common Stock") may not reflect the actual
numbers at the Distribution Date.
23
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
Octel Corp.
We have examined the pro forma adjustments reflecting the transactions
described in the notes and the introduction to the Pro Forma Financial Data and
the applications of those adjustments to the historical amounts in the
accompanying pro forma combined balance sheet of Octel Corp. as of December 31,
1997, and the pro forma combined statement of income for the year then ended.
The historical combined financial statements are derived from the historical
financial statements of Octel Corp., which were audited by us, appearing
elsewhere herein. Such pro forma adjustments are based on management's
assumptions described in the notes and the introduction to the Pro Forma
Financial Data. Our examination was made in accordance with standards
established by the American Institute of Certified Public Accountants and,
accordingly, included such procedures as we considered necessary in the
circumstances.
The objective of this pro forma financial data is to show what the
significant effects on the historical financial information might have been had
the transactions occurred at an earlier date. However, the pro forma combined
financial statements are not necessarily indicative of the results of operations
or related effects on financial position that would have been attained had the
above-mentioned transactions actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions described in the notes and the introduction to the Pro Forma
Financial Data, the related pro forma adjustments give appropriate effect to
those assumptions, and the pro forma column reflects the proper application of
those adjustments to the historical financial statement amounts in the pro forma
combined balance sheet as of December 31, 1997, and the pro forma combined
statement of income for the year then ended.
ERNST & YOUNG LLP
Indianapolis, Indiana
April 30, 1998
24
<PAGE> 30
PRO FORMA STATEMENT OF INCOME
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS (UNAUDITED)
---------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................ $539.1 $ -- $539.1
Cost of goods sold................................... 274.4 -- 274.4
------ ------ ------
Gross profit....................................... 264.7 -- 264.7
Operating expenses:
Selling, general and administrative................ 38.6 3.0(1) 41.6
Research and development........................... 3.8 -- 3.8
------ ------ ------
42.4 3.0 45.4
Amortization of intangible assets.................... 27.6 8.1(2) 37.2
1.5(3)
------ ------ ------
Operating income..................................... 194.7 (12.6) 182.1
Interest expense..................................... 2.2 32.6(4) 34.8
Other expenses....................................... 5.6 -- 5.6
Interest income...................................... (3.9) 3.8(5) (0.1)
Other income......................................... (7.9) -- (7.9)
------ ------ ------
Income before income taxes and minority interest... 198.7 (49.0) 149.7
Minority interest.................................... 24.3 (24.3)(2) --
------ ------ ------
Income before income taxes......................... 174.4 (24.7) 149.7
Income taxes......................................... 56.7 (7.8)(6) 48.9
------ ------ ------
Net income......................................... $117.7 $(16.9) $100.8
====== ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
25
<PAGE> 31
NOTES TO PRO FORMA STATEMENTS OF INCOME
(1) Represents an estimate of the additional annual costs to be
incurred by the Company with respect to U.S. corporate governance and
securities-related issues, including issues relating to publicly-traded
stock, Board of Directors' responsibilities, and other related costs.
(2) Represents the following effects of the Company's purchase of
Chevron's interest in subsidiaries of Parent: (i) amortization of $81.1
million over 10 years and (ii) elimination of Chevron's minority interest
in the earnings of such subsidiaries.
(3) Represents the additional amortization of the estimated $12.0
million transaction fees relating to the Distribution and the Financings,
amortized over eight years.
(4) Represents the estimated interest expense the Company would have
experienced during the periods with respect to the $280.0 million
outstanding under the Credit Facility and the $150.0 million of Notes. The
interest rates assumed were 8.6% and 10.0% with respect to the Credit
Facility and the Notes, respectively, for both periods. Interest previously
paid to Great Lakes on borrowings is replaced by the Credit Facility and
the Notes. In determining the pro forma interest expense, the Company has
assumed a $112.0 million repayment of the Credit Facility from available
cash flows.
(5) Represents the estimated reduction in interest income due to
reduced cash balances.
(6) Represents the adjustments to the income tax provision to reflect
the additional expenses and the elimination of the minority interest.
26
<PAGE> 32
PRO FORMA BALANCE SHEET
(AS OF DECEMBER 31, 1997)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS (UNAUDITED)
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Current assets
Cash and cash items................................. $ 29.7 $ 430.0(1) $ --
(12.0)(2)
(443.7)(3)
(4.0)(4)
Accounts receivable................................. 169.8 -- 169.8
Inventories......................................... 78.8 -- 78.8
Prepaid expenses.................................... 4.4 -- 4.4
------ ------- ------
Total current assets................................ 282.7 (29.7) 253.0
Property, plant and equipment......................... 106.0 106.0
Goodwill and other intangible assets.................. 379.3 12.0(2) 395.3
4.0(4)
Other assets.......................................... 64.9 -- 64.9
------ ------- ------
Total assets.......................................... $832.9 $ (13.7) $819.2
====== ======= ======
LIABILITIES AND EQUITY:
Current liabilities
Accounts payable.................................... $ 40.0 $ -- $ 40.0
Accrued expenses.................................... 9.0 -- 9.0
Accrued income taxes................................ 53.8 (56.0)(5) (2.2)
------ ------- ------
Total current liabilities........................... 102.8 (56.0) 46.8
Other liabilities..................................... 57.2 -- 57.2
Deferred income taxes................................. 20.1 (13.7)(5) 6.4
Long-term debt
Credit Facility..................................... -- 280.0(1) 280.0
Notes............................................... -- 150.0(1) 150.0
------ ------- ------
Total debt....................................... -- 430.0(1) 430.0
Equity
Great Lakes investment.............................. 652.8 (443.7)(3) --
69.7(5)
(278.8)(6)
Common stock........................................ -- 0.1(6) 0.1
Additional paid-in capital.......................... -- 278.7(6) 278.7
------ ------- ------
Total equity........................................ 652.8 (374.0) 278.8
------ ------- ------
Total liabilities and equity........................ $832.9 $ (13.7) $819.2
====== ======= ======
</TABLE>
The accompanying notes are an integral part of this statement.
27
<PAGE> 33
NOTES TO PRO FORMA BALANCE SHEET
(1) Approximately $116.8 million of the $430.0 million to be borrowed
was used for the repayment to Great Lakes of a loan used to acquire
Chevron's 10.65% interest in subsidiaries of Parent. An additional $16.0
million was used to pay approximately $12.0 million in transaction fees
associated with the Distribution and the Financings and $4.0 million of
associated costs for certain interest rate swaps related to the Financings.
The balance of the borrowing, together with $29.7 million of available cash
at December 31, 1997, was used to fund $326.9 million of the Special
Dividend to Great Lakes. The remaining $24.0 million of the $350.9 million
Special Dividend was funded out of cash generated by the Company between
January 1, 1998 and the Distribution Date.
(2) Estimated transaction fees associated with the Financings.
Transaction fees will be amortized over the term of the borrowings, eight
years.
(3) Payment to Great Lakes consisting of $116.8 million for the
repayment of a loan used to acquire Chevron's 10.65% interest in
subsidiaries of Parent and $326.9 million to partially fund the Special
Dividend.
(4) Reflects the cost of interest rate swaps arranged to fix a portion
of the interest rate on the borrowing described in (1) above.
(5) Transfer of the income tax liabilities to the Great Lakes
investment.
(6) Reflects the issuance of an estimated 14.7 million shares of Octel
Common Stock. This is based on approximately 58.9 million shares of common
stock of Great Lakes, par value $1.00 per share ("Great Lakes Common
Stock"), outstanding at December 31, 1997 and an assumed distribution of
one share of Octel Common Stock for every four shares of Great Lakes Common
Stock outstanding. Additional paid-in capital represents the excess of the
historical carrying values of the Company's net assets at the Distribution
Date over the amount reflected as Octel Common Stock.
28
<PAGE> 34
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following selected historical financial data of the Company should be
read in conjunction with the historical financial statements and notes thereto
included elsewhere in this Prospectus. The selected historical financial data
relates to the Octel Businesses as they were operated as part of the Petroleum
Additives Business Unit of Great Lakes and as described in Note 1 to the
Combined Financial Statements. The following selected historical financial data
are derived from the historical financial statements of the Company. The annual
historical financial information has been adjusted for those parts of the
Petroleum Additives Business Unit which are to remain under Great Lakes
ownership and management after the Distribution. The selected historical
financial data that relate to the four year period ended December 31, 1997 have
been derived from the historical financial statements audited by Ernst & Young
L.L.P., independent auditors. The selected historical financial data for the
year 1993 has been derived from unaudited historical financial statements. In
the opinion of management, the unaudited historical financial statements reflect
all normal recurring adjustments necessary to present fairly the financial
position of the Company for 1993.
The historical financial data of the Company may not reflect the results of
operations or financial position that would have been achieved had the Company
been a separate, independent Company for the years presented.
29
<PAGE> 35
SELECTED HISTORICAL COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -----------
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $539.1 $597.4 $628.3 $603.1 $569.9
Cost of goods sold.............................. 274.4 298.8 307.0 296.0 260.5
------ ------ ------ ------ ------
Gross profit.................................... 264.7 298.6 321.3 307.1 309.4
Selling, general and administrative............. 38.6 40.2 42.1 37.5 38.1
Research and development........................ 3.8 5.6 5.6 6.7 9.6
Amortization of intangible assets............... 27.6 26.7 19.0 16.7 15.0
------ ------ ------ ------ ------
Operating income................................ 194.7 226.1 254.6 246.2 246.7
Interest expense(1)............................. 2.2 1.6 10.3 12.5 17.4
Other expenses.................................. 5.6 7.5 4.4 (1.4) 3.4
Interest income................................. (3.9) (3.5) (5.1) (4.2) (5.8)
Other income.................................... (7.9) (1.2) (4.1) (7.9) (3.3)
------ ------ ------ ------ ------
Income before income taxes and minority
interest...................................... 198.7 221.7 249.1 247.2 235.0
Minority interest............................... 24.3 29.6 32.3 32.4 31.1
------ ------ ------ ------ ------
Income before income taxes...................... 174.4 192.1 216.8 214.8 203.9
Income taxes.................................... 56.7 63.8 71.7 72.4 40.0
------ ------ ------ ------ ------
Net income...................................... $117.7 $128.3 $145.1 $142.4 $163.9
====== ====== ====== ====== ======
BALANCE SHEET DATA (AT END OF PERIOD):
Total working capital........................... $179.9 $216.1 $175.8 $190.8 $154.5
Property, plant and equipment, net.............. 106.0 113.4 107.3 84.0 67.1
Total assets.................................... 832.9 841.0 798.4 732.6 643.3
Total debt(1)................................... -- -- -- -- --
Total liabilities............................... 180.1 256.4 267.6 244.2 226.7
Total equity.................................... 652.8 584.6 530.8 488.4 416.6
STATEMENT OF CASH FLOW DATA:
EBITDA(2)....................................... $243.8 $262.7 $287.0 $285.1 $272.5
Depreciation.................................... 19.2 16.2 13.7 12.9 10.8
Net cash provided by operating activities....... 167.5 127.8 175.8 161.9 180.4
Capital expenditures............................ 17.8 20.6 31.5 22.6 11.7
Business combinations net of cash acquired...... 130.8(3) 17.0 18.8 66.7 20.8
Other investing activities...................... (1.6) 14.9 31.1 (2.1) 13.3
------ ------ ------ ------ ------
Net cash used in investing activities........... 147.0 52.5 81.4 87.2 45.8
Net cash paid to Great Lakes.................... 31.4 103.0 104.6 83.0 140.9
SELECTED RATIO:
Ratio of earnings to fixed charges(4)........... 68.1x 102.1x 21.5x 17.9x 12.6x
</TABLE>
- - ---------------
(1) Interest expense includes interest on intercompany indebtedness between the
Company and Great Lakes. Intercompany indebtedness between the Company and
Great Lakes is included in total equity.
(2) EBITDA represents income before income taxes and minority interest plus
depreciation, amortization of intangible assets and interest expense, less
interest income. EBITDA is not a substitute for operating income, net
earnings and cash flow from operating activities as determined in accordance
with generally accepted accounting principles as a measure of profitability
or liquidity. EBITDA is presented as additional information because
management believes it to be a useful indicator of the Company's ability to
service and/or incur indebtedness. EBITDA amounts may not be fully available
for management's discretionary use, due to certain requirements to conserve
funds for capital replacement, debt service and other commitments.
(3) Includes $116.8 million for the purchase of Chevron's 10.65% interest in
subsidiaries of Parent.
(4) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represents net income before income taxes plus fixed charges,
less capitalized interest. "Fixed charges" consists of interest expense,
including amortization of debt discount and financing costs, capitalized
interest and the portion of rental expense which the Company believes is
representative of the interest component of rental expense.
30
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Combined Financial Statements of
the Company included elsewhere in this Prospectus.
OVERVIEW
The following discussion is based upon the separate financial statements of
the Company, which present the Company's results of operations, financial
position and cash flows. These financial statements include the assets,
liabilities, income and expenses that were related to the Octel Businesses as
they were operated as a part of the Petroleum Additives Business Unit of Great
Lakes, and the Company's statement of income includes all the related costs of
doing business, including charges for the use of facilities and for employee
benefits. The financial information included herein, however, may not
necessarily reflect the results of operations, financial position and cash flows
of the Company as it will operate in the future or the results of operations,
financial position and cash flows that would have been achieved if the Company
had been an independent company during the periods presented. The historical
financial information included herein also does not reflect the changes in the
Company's operations that may occur following the Distribution.
The Company has three businesses--Lead Alkyls (TEL), Petroleum Specialties
and Performance Chemicals. TEL is the Company's principal product, and the
Company is the world's leading manufacturer of TEL. Over the last few years,
approximately 70% of the Company's TEL production has been sold on a retail
basis to oil refineries, and the remaining 30% has been sold to distributors,
principally Ethyl, under long-term wholesale contracts. Pricing to distributor
customers is substantially below pricing to retail refinery customers. See
"Description of Business."
From 1989 to 1995, the Company was able to substantially offset the
financial effects of the declining demand for TEL through higher TEL pricing.
The magnitude of these price increases reflected the cost effectiveness of TEL
as an octane enhancer as well as the high cost of converting refineries to
produce higher octane grades of fuel. More recently, however, as the optimum TEL
levels in gasoline have been reached, and as competition has intensified due to
the decline in demand for TEL, it has been increasingly difficult for the
Company to secure general price increases. The Company expects that this trend
will continue in the foreseeable future.
As world demand for TEL has declined, the Company has been reducing its
cost base in an attempt to maintain its margins. In 1989, the Company closed its
German manufacturing facility. In 1996, the Company ceased production at its
Italian and French manufacturing facilities. The closure of the Italian and
French facilities has reduced the Company's workforce by 166 employees as of
December 31, 1997 and will result in a further reduction of 59 employees upon
substantial completion of site remediation activities in France. All of the
Company's current TEL requirements are now produced at its sole remaining TEL
manufacturing facility which is located in Ellesmere Port in the United Kingdom.
Since 1996, the Company's cost reduction efforts and operating improvement
programs in the U.K. have reduced the workforce by 525 people resulting in
annual payroll savings of approximately $25 million which have been used to
maintain margins. The Company will continue to downsize its manufacturing and
operating cost base and restructure its operations as the TEL market continues
to decline. See "--Future Outlook."
31
<PAGE> 37
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Company's statement
of income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0%
Cost of goods sold........................................ 50.9 50.0 48.9
------ ------ ------
Gross profit.............................................. 49.1 50.0 51.1
Operating expenses
Selling, general and administrative expenses............ 7.2 6.7 6.7
Research and development................................ 0.7 1.0 0.9
------ ------ ------
Total operating expenses.................................. 7.9 7.7 7.6
Amortization of intangible assets......................... 5.1 4.5 3.0
------ ------ ------
Operating income.......................................... 36.1 37.8 40.5
Interest and other expenses............................... 1.4 1.5 2.3
Other income.............................................. (2.2) (0.8) (1.5)
------ ------ ------
Income before income taxes and minority interests......... 36.9 37.1 39.7
Minority interests........................................ 4.5 4.9 5.2
------ ------ ------
Income before income taxes................................ 32.4 32.2 34.5
Income taxes.............................................. 10.6 10.7 11.4
------ ------ ------
Net income................................................ 21.8% 21.5% 23.1%
====== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales decreased $58.3 million (or 10%) in 1997 to $539.1 million from
$597.4 million in 1996. Net sales by business are set forth in the following
table (dollars in millions):
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
TEL............................................ $442.0 82% $505.1 85% (12)%
Petroleum Specialties.......................... 62.6 12 70.9 12 (12)
Performance Chemicals.......................... 34.5 6 21.4 3 61
------ --- ------ ---
Total........................................ $539.1 100% $597.4 100% (10)%
====== === ====== ===
</TABLE>
This total decrease was primarily attributable to a decline in sales volume
of $67.9 million which was partly offset by a price increase of $8.7 million and
foreign exchange gains of $0.9 million. In 1997 the retail volume of TEL sold
was 55.8 thousand metric tons as compared 63.8 thousand metric tons in 1996, a
decline of approximately 12%, which was slightly improved from the 13% annual
volume decline experienced in 1996. Reduced retail sales in Western Europe, the
Middle East and Australia were partly offset by increases in Eastern Europe and
Central America, but the Company believes it maintained its share of the
worldwide retail TEL market during this period. Retail sales prices of TEL
increased by approximately 2% in 1997 as compared to 1996. Product pricing
reflects (i) the Company's strategy to extend the life of TEL by reducing or
foregoing price increases, (ii) changing refinery economics related to achieving
octane ratings by using different production processes, (iii) a changing mix of
customers and regions of the world where TEL is sold (e.g., TEL demand in higher
priced regions declined at a faster rate than in other regions), and (iv)
aggressive pricing by competitors. Sales of TEL on a wholesale basis decreased
by approximately 20% in 1997 as compared to 1996, declining from 30.2 thousand
metric tons in 1996 to 24.2 thousand metric tons in
32
<PAGE> 38
1997. This higher than normal rate of decline mainly resulted from a Mexican
phase out of leaded gasoline, which market had been supplied by E.I. du Pont de
Nemours & Company ("DuPont") with TEL purchased from the Company. The ratio of
the Company's retail TEL sales to wholesale TEL sales was 70/30 in 1997 as
compared to 68/32 in 1996. Net sales of Petroleum Specialties declined 12% in
1997 as compared to 1996 because of the loss of a major customer, while net
sales of Performance Chemicals increased 61% in 1997 as compared to 1996 because
of increased demand for Octaquest(R), a biodegradable chelating agent used in
laundry products.
Gross profit decreased $33.9 million (or 11%) in 1997 to $264.7 million
from $298.6 million in 1996 because lower TEL volumes and adverse currency
effects offset selling price gains and cost improvements. As a percentage of net
sales, gross profit decreased to 49.1% in 1997 as compared to 50% in 1996. This
decrease also reflects TEL being a lower percentage of total sales in 1997.
Operating expenses decreased $3.4 million (or 7%) in 1997 to $42.4 million
from $45.8 million in 1996 primarily as a result of cost reduction programs,
including a decrease in research and development expenses of $1.8 million, net
of unfavorable currency translations. As a percentage of net sales, operating
expense increased slightly in 1997 to 7.9% as compared to 7.7% in 1996.
Other income increased $6.7 million to $7.9 million in 1997 from $1.2
million in 1996 mainly due to foreign currency gains of $6.8 million.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales decreased $30.9 million (or 4.9%) in 1996 to $597.4 million from
$628.3 million in 1995. Net sales by business are set forth in the following
table (dollars in millions):
<TABLE>
<CAPTION>
INCREASE
1996 1995 (DECREASE)
------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
TEL............................................. $505.1 85% $547.1 87% (8)%
Petroleum Specialities.......................... 70.9 12 65.0 10 9
Performance Chemicals........................... 21.4 3 16.2 3 32
------ --- ------ ---
Total........................................... $597.4 100% $628.3 100% (5)%
====== === ====== ===
</TABLE>
This decrease was primarily attributable to a decline in sales volumes of
$47.6 million, which was partly offset by a price increase of $19.4 million. In
addition, foreign exchange losses totaled $2.7 million. In 1996, the retail
volume of TEL sold was 63.8 thousand metric tons as compared to 73.5 thousand
metric tons in 1995, a decline of approximately 13%, which was higher than the
average 8% to 10% decline experienced over the previous four years. No single
factor accounted for the decline, and the Company believes it maintained its
share of the worldwide retail TEL market during this period. Retail sales prices
of TEL increased by approximately 4% in 1996 as compared to 1995, which is lower
than the rate of increase in 1995. Product pricing reflects (i) the Company's
strategy to extend the life of TEL by reducing or foregoing price increases,
(ii) changing refinery economics related to achieving octane ratings by using
different production processes, (iii) a changing mix of customers and regions of
the world where TEL is sold (e.g.,TEL demand in higher priced regions declined
at a faster rate than in other regions), and (iv) aggressive pricing by
competitors. Sales of TEL on a wholesale basis increased approximately 5% in
1996 as compared to 1995, growing from 28.7 thousand metric tons in 1995 to 30.2
thousand metric tons in 1996. The ratio between the Company's retail TEL sales
and wholesale TEL sales was 68/32 in 1996 as compared to 72/28 in 1995. Finally,
net sales of Petroleum Specialties increased 9% in 1996 because of a 7% increase
in sales quantities combined with an improvement in the average prices of
detergent formulations. Net sales of Performance Chemicals increased 32% in 1996
because of the successful introduction of Octaquest(R) during 1996, which was
offset in part by lower sales of chlor-alkali products.
33
<PAGE> 39
Gross profit decreased $22.7 million (or 7%) in 1996 to $298.6 million from
$321.3 million in 1995 because lower TEL volumes were only partially offset by
increased sales prices. As a percentage of net sales, gross profit decreased in
1996 to 50% as compared to 51.1% in 1995. The decline was also attributable to
an increase of approximately $10 million in the provision for the future closure
of TEL manufacturing plants and an increase in raw materials prices, especially
lead and ethylene. No benefits from plant closures or the staff reductions in
the United Kingdom are reflected in this period.
Operating expenses decreased $1.9 million (or 4%) in 1996 to $45.8 million
from $47.7 million in 1995 primarily as a result of cost reduction programs and
foreign exchange gains. Research and development expenses in 1996 remained
unchanged from 1995 at $5.6 million. As a percentage of net sales, operating
expense increased slightly in 1996 to 7.7% as compared to 7.6% in 1995.
Interest and other expenses in the aggregate decreased $5.6 million in 1996
to $9.1 million from $14.7 million in 1995 as loans from Great Lakes were
repaid. This gain was partially offset by unrealized foreign exchange losses.
Amortization of intangible assets increased $7.7 million to $26.7 million
in 1996 from $19 million in 1995 as the Company accelerated amortization in line
with the anticipated decline of the TEL business.
FINANCIAL CONDITION AND LIQUIDITY
Historically, the Company has not required financing and has transferred
significant amounts of cash to Great Lakes as described in Note 6 to the
Combined Financial Statements. Cash provided by operating activities was $167.5
million in 1997, $127.8 million in 1996 and $175.8 million in 1995. The $39.7
million increase in 1997 compared to 1996 was primarily attributable to reduced
working capital requirements, offset in part by lower net income and increased
spending on plant closure costs. The $48.0 million decrease in 1996 compared to
1995 was primarily attributable to lower income, increased investment in working
capital and higher spending on plant closures, which were partially offset by
increased non-cash charges for depreciation and amortization.
Accounts receivable at December 31, 1997 decreased $26.6 million to $169.8
million from $196.4 million at December 31, 1996. This reduction was
attributable to lower sales in 1997 compared to 1996 and a weaker pound sterling
vis-a-vis the U.S. dollar. Days sales outstanding were 109 at the end of 1997, a
slight increase from 107 days in 1996. Accounts receivable at December 31, 1996
increased $1.8 million to $196.4 million from $194.6 million at December 31,
1995. This slight increase resulted from a $7.5 million increase in trade
accounts receivable and a $5.7 million decrease in other receivables because of
the recovery of insurance claims. In addition, days sales outstanding were 107
days at the end of 1996 compared to 98 days in 1995. The increase in days sales
outstanding reflected the greater number of large bulk customers that received
extended payment terms.
Inventories at December 31, 1997 were $78.8 million, a decrease of $5.2
million from December 31, 1996. Approximately $3.4 million of this decrease was
attributable to currency translation, with the balance attributable to lower
lead costs offset by quantity increases. Inventory turnover for 1997 was 3.5
times, which was consistent with 1996 at 3.6 times. Inventories as at December
31, 1996 were $84 million, an increase of $21.9 million from December 31, 1995.
Approximately $6.5 million of this increase was attributable to currency
translation with the balance attributable to increased lead costs and stocking
levels. Inventory turnover for 1996 was 3.6 times, down from 4.9 times the prior
year, reflecting the build-up of raw materials.
Investing activities include capital expenditures and acquisitions. Capital
expenditures decreased $2.8 million to $17.8 million in 1997 compared to $20.6
million in 1996. Capital spending in 1997 was primarily for capacity
maintenance, whereas in 1996 and 1995 capital expenditures also included the
construction of facilities for the production of Octaquest(R). Capital spending
for
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<PAGE> 40
environmental projects in 1997, 1996 and 1995 was $0.6 million, $1 million and
$0.8 million, respectively. Capital expenditures for 1998 and 1999 are expected
to be approximately $20 million in each year, including approximately $8
million, in the aggregate, for environmental compliance. In 1997, the Company
completed the acquisition of the outstanding minority interest in the Company's
subsidiaries previously owned by Chevron Chemical Company for $116.8 million.
The remainder of investment spending for 1997, and all of the spending for 1996
and 1995, was related to the payment of profit participation payments required
to be made as part of the 1989 acquisition of a majority interest in Octel
Associates. See Note 4 to the Combined Financial Statements.
Total current liabilities have varied with the volume of business. There is
a reduction of approximately $8 million in accrued expenses from 1996 to 1997
following the determination of the profit participation payments in 1997 as
described in Note 4 to the Combined Financial Statements.
Other noncurrent liabilities in 1997 represented a reserve of $57.2 million
for expected future plant closures and related personnel reductions and
decontamination costs at the Company's TEL plants in the U.K., France, Italy and
Germany as demand for TEL diminishes. Approximately $35 million was spent in
1997, as compared to $20 million in 1996. The closures, coupled with staff
reductions in the U.K., were primarily responsible for the increased spending
levels in 1997. Management believes that production at the U.K. plant should
continue well into the next century based on the current rate of market decline.
As part of the Distribution, the Company is expected to incur approximately
$430.0 million of indebtedness, $116.8 million of the borrowings will be used to
repay the loan from Great Lakes utilized to acquire the Chevron interest and
approximately $16.0 million will be used to pay $12.0 million in fees and
expenses related to the Distribution and the Financings and $4.0 million of
associated costs for certain interest rate swaps related to the Financings. The
remainder of the borrowing, together with $29.7 million of available cash at
December 31, 1997 and additional cash generated by the Company between January
1, 1998 and the date of the Distribution, will be distributed to Great Lakes in
the form of the Special Payment.
The Company believes that cash generated by operating activities and funds
available to it through the Revolving Facility of $20 million provided under the
Credit Facility will be sufficient to meet the Company's anticipated funding
requirements. The Company is required by the terms of the Financings to utilize
approximately $175 million of the Company's cash flow over the next two years to
repay debt. Under the terms of the Financings, the Company is permitted, subject
to certain conditions, to use up to $15 million per year for dividends and/or
share repurchases. The balance of the Company's cash flow will be used for
general corporate purposes.
DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
Between 50% and 60% of the Company's sales are in U.S. dollars. Foreign
currency sales, primarily in U.K. pounds sterling, offset most of the Company's
costs, which are also in U.K. pounds sterling. To the extent required by the
Company, dollars are sold forward to cover local currency needs. The instruments
utilized by the Company in its hedging activities are considered risk management
tools, and are not used for trading or speculative purposes. The Company
diversifies the counterparties used and monitors the concentration of risk to
limit its counterparty exposure.
Historically, management of foreign currency exposures has been coordinated
by Great Lakes. The Company forecasts foreign currency denominated cash flow for
12-month periods and aggregates these flows by currency to determine the amount
of exposure. Hedging decisions are made based on the amount of exposure and the
near-term outlook for each currency. Hedges are set to mature coincident with
the estimated timing of the underlying transactions. The Company does not hedge
foreign currency net asset positions currently. Considering the Company's
operating profile, a uniform 10% change in the value of the dollar from December
31, 1997 would result in approximately a $6 million change in annual net income.
This calculation assumes that each exchange rate would change in the same
direction relative to the U.S. dollar, and does not factor in
35
<PAGE> 41
any potential changes in sales levels or local currency prices which may result
from changes in exchange rates.
FUTURE OUTLOOK
The Company is, and for the next several years is likely to remain, highly
dependent on its principal product, TEL. Over the last three years, TEL has
represented more than 80% of the Company's net sales and has provided
essentially all the Company's profits and cash flow. The Company expects that
its strong, although declining, cash flow in the foreseeable future will be
adequate to fund the Company's future capital and operating needs. In addition,
the Company will have access to the $20 million Revolving Facility.
World demand for TEL has been in decline since the 1970s, and this trend is
expected to continue. Through the mid-1990's the Company was able, in part, to
offset the effects of declining volumes with selling price increases. More
recently, however, the Company has reduced or forgone price increases in order
to extend the life of the product and to remain competitive with other TEL
marketers and alternate methods of achieving higher octane levels in gasoline.
The Company expects a competitive pricing environment to continue which will
increasingly limit the ability of the Company to partially offset the effects of
future declines in TEL volumes with price increases.
The Company has and will continue to downsize and restructure its
operations consistent with declining demand for TEL. The recent cessation of TEL
production in France and Italy and the restructuring of the U.K. operations have
reduced total employment by 691 employees between January 1, 1996 and December
31, 1997 and reduced the cost base to maintain operating margins.
Notwithstanding the Company's continuing downsizing and productivity improvement
programs, management expects the fixed cost per ton of TEL, which currently
represents 27% of total cost per ton, to increase in the future as cost
reductions are not expected to keep pace with declining TEL sales volume.
Raw materials, particularly lead, ethylene and salt, account for a
substantial portion of total manufacturing costs of TEL. These materials are
commodities and are subject to significant price fluctuations over time. While
the Company may or may not be able to pass through to its customers the impact
of any such fluctuations in raw material prices in the future, management does
not believe any such fluctuations will have a material effect on the Company's
results of operations.
A strong, although declining, cash flow is expected in future years. The
Company does not anticipate any significant capital expenditures, other than
maintenance and environmental compliance costs in the foreseeable future. See
"--Environmental Matters and Plant Closures." Capital expenditures were $17.8
million in 1997, $20.6 million in 1996, and $31.5 million in 1995.
Although the Company anticipates significant sales growth from the
Petroleum Specialties business and the Performance Chemicals business in the
future, earnings from these businesses will not be sufficient to fully offset
the projected decline in TEL sales and earnings at least over the next several
years.
Management has considered the current economic conditions in the
Asia-Pacific region and does not believe that they will have a material impact
on the Company or its operations.
ENVIRONMENTAL MATTERS AND PLANT CLOSURES
The Company is subject to laws, regulations and legal requirements relating
to the use, storage, handling, generation, transportation, emission, discharge,
disposal and remediation of, and exposure to, hazardous and non-hazardous
substances and wastes ("Environmental Laws") in all of the countries in which it
does business. Under certain Environmental Laws, the Company is responsible for
the remediation of hazardous substances or wastes at currently or formerly owned
or operated properties. Although the Company believes that it is in material
compliance with all applicable Environmental Laws, there can be no assurance
that the Company will not incur costs in
36
<PAGE> 42
the future relating to Environmental Laws that will have a material adverse
effect on the Company's business, results of operations or financial condition.
The manufacturing operations of the Company have been conducted entirely
outside the United States and, therefore, any liability of the Company
pertaining to the investigation and remediation of contaminated properties is
likely to be determined under non-U.S. law.
The Company is conducting environmental and remediation activities to
address soil and groundwater contamination at its manufacturing facility in
Ellesmere Port, U.K. (the "Ellesmere Port Facility"), and at its closed
manufacturing sites in France, Italy and Germany (the "Remediation Projects").
Although the Company has developed estimates for the costs of the Remediation
Projects which management believes to be reasonable (based upon its internal
review and its review of the reports of recognized independent experts), there
can be no assurance that the actual costs will not materially exceed the
Company's estimates. The Company incurred costs of approximately $0.6 million in
1997, $0.1 million in 1996 and a negligible amount in 1995 relating to the
Remediation Projects, and anticipates that it will incur costs of approximately
$3 million and $3.6 million in 1998 and 1999, respectively, in connection with
the Remediation Projects.
Management believes (based upon its internal review and its review of the
reports of recognized independent experts) that the Company is in material
compliance with all applicable Environmental Laws. The Company makes capital
expenditures and incurs other expenses at the Ellesmere Port Facility to
maintain compliance with Environmental Law, and the Company expects that it will
be required to continue to incur such costs and expenses in the future. The
Company made environmental capital expenditures of $0.6 million in 1997, $1
million in 1996 and $0.8 million in 1995 and other expenditures of approximately
$9.8 million in 1997, approximately $9.7 million in 1996 and approximately $8.2
million in 1995. The Company estimates that other expenses related to these
matters will amount to approximately $10 million in 1998 and approximately $10
million in 1999 and environmental capital expenditures are estimated to be none
in 1998 and $7.6 million in 1999. There can be no assurance, however, that these
estimates will prove accurate or that the Company will not incur costs
materially in excess of these estimates. Additionally, there can be no assurance
that changes in existing laws or regulations, or the discovery of additional
environmental liabilities associated with the Company's current or historical
operations, will not require the Company to incur material costs or will not
otherwise materially and adversely affect the Company's business, results of
operations, or financial condition.
The Health and Safety Executive and the Environment Agency in the U.K. are
investigating a July 1997 bromine emission from the Company's bromine
manufacturing facility in Amlwch, U.K., which facility is being transferred to
Great Lakes in connection with the Distribution. Although neither agency has
indicated whether enforcement action will be initiated against the Company, such
an action could result in monetary penalties being imposed upon the Company
which are not likely to exceed $100,000. Although it cannot predict the severity
of any such penalties, management believes that the release was accidental and
therefore that the Company is not likely to incur material penalties or costs in
connection with this matter.
In addition to the Remediation Projects, the Company is engaged in plant
closure and restoration programs to dismantle and decontaminate process
equipment, perform building demolition, and generally decommission (the
"Decontamination and Decommissioning Projects") closed manufacturing facilities
in France, Italy, and Germany. The Decontamination and Decommissioning Projects
are necessary to facilitate the ultimate disposition of these sites.
The Company has also developed a two-phase Decontamination and
Decommissioning Project for the Ellesmere Port Facility. The first phase of the
Ellesmere Port Decontamination and Decommissioning Project involves the
dismantling, decontamination, and removal of TEL process equipment over time as
volumes of TEL decline. The second phase of the Ellesmere Port Decontamination
and Decommissioning Project will involve dismantling and decontamination of
37
<PAGE> 43
process equipment, building demolition, and general decommissioning of the
Ellesmere Port Facility if, and when, all manufacturing operations there cease.
The Company estimates that the Decontamination and Decommissioning Projects
(both at the closed sites in France, Italy and Germany and at the Ellesmere Port
Facility) will cost approximately $52 million. This amount includes
approximately $33 million, the estimated cost of phase two of the Company's
Decontamination and Decommissioning Project at Ellesmere Port (final
dismantling, building demolition, and general decommissioning), which will not
be incurred until and unless all manufacturing operations at Ellesmere Port
cease. The Company incurred costs associated with the Decontamination and
Decommissioning Projects at the closed sites in France, Italy and Germany of
approximately $12.4 million in 1997, $2.8 million in 1996 and $2.8 million in
1995. To date, the Company has incurred costs at the Ellesmere Port Facility,
mainly related to the decommissioning of bulk ships, totaling approximately $0.4
million in 1997, $0.9 million in 1996 and $1.8 million in 1995. The Company does
not anticipate making any material expenditures in 1998 or 1999 on the first
phase of the Ellesmere Port Decontamination and Decommissioning Project.
During the process of reducing production capacity, the Company has also
significantly reduced the number of personnel employed. The costs of personnel
severance were approximately $21.8 million in 1997, $16 million in 1996, and
$0.8 million in 1995. The Company estimates further costs of this nature of
approximately $7.6 million in 1998 and $2.3 million in 1999.
The Company estimates a total cost of $124 million for Environmental
Matters and Plant Closures consisting of Remediation Projects ($17 million),
Decontamination and Decommissioning Projects ($52 million), site management
during the final closure phase ($5 million) and personnel severance ($50
million) plus a $20 million capital expenditure relating to compliance matters.
As of December 31, 1997, the Company had accrued $57.2 million on the balance
sheet for such costs and is providing for the difference over the remaining life
of the TEL business. These estimates do not take into account future inflation
and have not been reduced to present value. The Company estimates that the total
spending on Environmental Matters and Plant Closures will be approximately $15
million in 1998 and $9 million in 1999.
INFLATION
Inflation has not been a significant factor for the Company over the last
several years. Management believes that inflation will continue to be moderate
over the next several years.
YEAR 2000
The Company is aware of the computer systems issues associated with the
transition of dates from 1999 to 2000. The Company has retained consultants to
assist in the evaluation of the impact of these issues on the Company's
operations in order to ensure that all issues are addressed in a timely manner.
On the basis of its preliminary evaluation, the Company does not believe that
the transition to the Year 2000 or the cost of addressing this transition will
have a material impact on its results of operations.
SINGLE EUROPEAN CURRENCY
In 1999, certain European countries will begin the transition to the Euro.
The transition to the Euro will have both internal recordkeeping and external
commercial aspects, neither of which are expected to have a material effect on
the Company's business, results of operations or financial condition.
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<PAGE> 44
BUSINESS
DESCRIPTION OF THE COMPANY
The Associated Octel Company Limited ("AOC"), the Company's principal
subsidiary, was formed in 1938 to manufacture and market TEL as an antiknock
additive for gasoline. The Company is an international chemical company
specializing in the manufacture, distribution and marketing of fuel additives.
The Company is comprised of three primary operating businesses: Lead Alkyls,
Petroleum Specialties and Performance Chemicals. The Lead Alkyls business, which
accounted for approximately 82% of the Company's 1997 sales, is the world's
leading producer of TEL that is used by oil refineries worldwide to boost the
octane levels in gasoline which allows fuel to burn more efficiently and
prevents engine knock during the combustion cycle. The Company manufactures
approximately 80% of TEL used worldwide. The Petroleum Specialties business,
which accounted for approximately 12% of the Company's 1997 sales, supplies a
broad range of petroleum additives, including combustion improvers, fuel
detergents and functional performance products (such as corrosion inhibitors and
conductivity improvers). The Performance Chemicals business, which accounted for
approximately 6% of the Company's 1997 sales, manufactures and distributes a
range of chemicals including sodium, chlor-alkali and Octaquest(R), a
biodegradable chelating agent supplied to Procter & Gamble, which is used in
several European laundry products. In 1997, the Company had net sales of $539.1
million and pro forma EBITDA of $240.8 million. The Company has its
administrative headquarters and principal manufacturing site in Ellesmere Port
(Cheshire, U.K.) with subsidiaries in Europe, Africa and North America. The
Company employed 1,419 employees worldwide as of December 31, 1997.
Worldwide use of TEL has declined since 1973 following the enactment of the
U.S. Clean Air Act in 1970 and similar legislation in other countries and
increasing pressure from legislators and environmental groups. Usage of TEL is
expected to continue to decline and the Company's corporate objective is to
optimize the cash flows from sales of TEL in order to repay debt and return
value to its stockholders by (i) the repurchase of stock and/or the payment of
cash dividends and (ii) the development of its Petroleum Specialties and
Performance Chemicals businesses. To achieve its corporate objective, the
Company's strategy is to: (i) manage profitably the decline of the TEL market
through the implementation of cost control initiatives and the provision of
additional technical and environmental support for customers; (ii) expand the
Petroleum Specialties and Performance Chemical businesses through the
development of core competencies, product innovation and enhanced focus on
satisfying customers and market needs; (iii) efficiently manage its operations
and manufacturing sites consistent with the decline of TEL demand and the growth
of petroleum specialty and performance chemicals products, and (iv) seek, where
feasible, synergistic opportunities through joint ventures, alliances,
collaborative arrangements or acquisitions.
REASONS FOR THE DISTRIBUTION
In July 1997, Great Lakes announced its intention to spin off its Petroleum
Additives Business Unit to its stockholders, thereby creating Parent as a new
independent public company. The Issuer is an indirect wholly owned subsidiary of
Parent.
Management believes that, as an independent company, the Company will be
able to anticipate and respond to its market conditions faster and more
effectively and will also be able to better motivate its employees to execute
its business strategies by more closely aligning its compensation and incentive
programs with the unique opportunities and challenges presented by its business.
Consequently, it is believed that the Company's management team will be better
able to develop and implement a plan to maximize cash flow and earnings from the
TEL business and also to grow the non-TEL portions of the Company.
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<PAGE> 45
COST REDUCTION INITIATIVES
Since January 1, 1996, the Company has assembled an experienced senior
management team (see "Management--Executive Officers") which has effectively
implemented a number of cost-reduction measures focused on maintaining profit
margins of TEL, including (i) a 29% reduction of the work force in the U.K.
resulting in estimated annual payroll savings of $25 million, (ii) the closure
of two foreign manufacturing facilities and (iii) an improved safety record
evidenced by a 40% reduction in lost time accidents. The Company has established
an integrated Supply Chain Department to improve customer service, to utilize
its purchasing power to improve terms and conditions from suppliers and to
improve quality and inventory control.
The Company has developed a plan for downsizing manufacturing capacity at
its Ellesmere Port facility as demand for TEL continues to decline. The TEL
manufacturing plant consists of multiple parallel autoclaves housed in three
discrete buildings. This design lends itself to the sequential shutdown of
operating plants and the progressive reduction of fixed costs as demand
declines. The shutdown plan capitalizes on the experience gained by management
from prior plant closures.
LEAD ALKYLS BUSINESS
INDUSTRY OVERVIEW
TEL, the most significant of the Company's products, accounted for
approximately 82% (or $442 million) of the Company's 1997 sales. TEL was first
developed in 1928 and introduced into the European market for internal
combustion engines to boost octane levels in gasoline allowing it to burn more
efficiently and eliminating engine knock. TEL remains the most cost-effective
octane enhancer for motor gasoline and has the added benefit of acting as a
lubricity aid, reducing engine wear. This product is supplied to customers in
various blends. TEL is used as a gasoline additive in various concentrations,
usually between 0.1 and 0.4 gPb/liter dosage, depending on the intrinsic nature
of the base fuel and the targeted octane number.
While TEL remains the most cost-effective and energy-efficient additive
from an octane-boosting perspective, management expects a steady decline in
worldwide demand for TEL on the basis of increasing pressure from regulators and
environmental groups regarding the alleged harmful effects on human health of
leaded gasoline. Additionally, leaded gasoline undermines the effectiveness of
catalytic converters, which are increasingly being used to reduce automobile
exhaust emissions. Environmental agencies and the World Bank are also advocating
the elimination of TEL in automotive gasoline. As a result, many countries have
passed legislation which has resulted in either the complete phaseout of leaded
automotive gasoline or the establishment of a timetable for its phaseout. An
exception to the overall declining consumption of TEL is for piston engine
aviation gasoline, where only TEL provides the necessary performance levels for
this small market.
The following chart sets forth estimated annual worldwide use of gasoline
and leaded gasoline, respectively, for the periods noted based on an analysis by
a recognized industry expert (in millions of metric tons):
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gasoline Demand............ 739 741 737 745 751 768 784 805
Leaded Gasoline.................. 317 300 271 249 228 209 183 166
TEL equivalent usage............. 0.23 0.20 0.18 0.17 0.14 0.13 0.11 0.10
</TABLE>
- - ---------------
Source: Chem Systems, Ltd.
Despite regulatory pressures to reduce the use of TEL, the Company believes
there are a number of factors which may prolong the use of leaded gasoline, and
therefore the market for TEL. First, it is costly for refineries to switch their
gasoline production process to unleaded gasoline.
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<PAGE> 46
Studies undertaken by the World Bank and others estimate that upgrading an
average refinery to nonleaded gasoline production would require approximately
$100 million in capital expenditures, which equals approximately $.03-.08 per
gallon. Because upgrading some refineries may not be economically justifiable,
these refineries may decide to continue operating until reduced demand for
leaded gasoline forces their closure. Second, there are significant costs and
delays in converting automobiles and gasoline stations to accommodate the
increased use of unleaded fuels.
The Company believes these factors may slow the rate of decline in the
consumption of leaded gasoline, especially in the Middle East, Southeast Asia
and Africa where the proportion of unleaded gasoline to leaded gasoline is very
low and where TEL phaseout legislation has not generally been introduced.
Moreover, even in Western Europe, where legislation mandating a leaded gasoline
phaseout by year 2000 exists, extensions have been applied for by Italy, Greece,
Spain and Portugal.
The following chart shows the decline of leaded gasoline sales as a
percentage of total automobile gasoline sales by region from 1990 to 1996:
<TABLE>
<CAPTION>
ESTIMATE OF LEADED
GASOLINE SALES
AS PERCENTAGE OF
TOTAL GASOLINE SALES
--------------------
1990 1996
----- -----
<S> <C> <C>
Europe...................................................... 80% 41%
Latin America............................................... 71 35
Asia........................................................ 53 30
Africa...................................................... 100 93
Middle East................................................. 100 94
</TABLE>
- - ---------------
Source: Chem Systems, Ltd.
The decline in TEL volume since 1990 has averaged approximately 12% per
annum, and management believes that TEL volume will continue to decline at a
rate of between 10% and 15% per year, although, because of the uncertain
regulatory environment surrounding TEL, the Company is unable to estimate with
any degree of certainty the rate at which TEL is likely to decline in the
future.
While management believes that TEL is the most cost-effective octane
enhancer, the Company is currently exploring, both through its own research
efforts and in collaborative ventures, other octane enhancing additives for
motor gasoline. Although these alternatives, to date, have proven less effective
and more expensive than TEL, they do not present the environmental problems
associated with TEL.
COMPETITION
The Company has three primary competitors. Alcor and Syntez also
manufacture TEL, while Ethyl purchases its requirements, principally from the
Company pursuant to two long-term wholesale supply contracts. See "--Ethyl
Agreements." Management estimates the market shares of the Company and its
principal competitors in 1997 were as follows:
<TABLE>
<CAPTION>
SALES TO REFINERIES TEL MANUFACTURE
------------------- ---------------
<S> <C> <C>
Octel............................................ 59% 80%
Ethyl............................................ 21 --
Alcor............................................ 11 11
Syntez........................................... 9 9
</TABLE>
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<PAGE> 47
Factors influencing TEL customers' purchasing decisions include price,
quality, reliability and service. While the Company competes on each factor,
management believes the Company has the following advantages: (i) the Company is
the only manufacturer of TEL which markets and distributes on a global basis
(e.g., the Company can supply in bulk, ISO containers and drums globally), which
is important for multisited global oil companies, (ii) the Company has a full
set of support and auxiliary services for environmental, decommissioning and
refinery assistance, which is not offered by all of its competitors, and (iii)
the Company provides technical support to oil companies and individual
refineries evaluating the economics of dosage levels of TEL and alternative
octane enhancers tied to specific refinery streams and blends.
CUSTOMERS
Sales of TEL by the Company are made either to the retail refinery market
or to Ethyl pursuant to two long-term wholesale supply agreements. In 1997, 70%
of Octel's sales volume was directed to retail refinery customers, with the
remaining 30% of its sales being made to Ethyl. The Company's retail customers
consist of approximately 200 independent, state or major oil company-owned
refineries located throughout the world. Within the retail market, refineries
owned or managed by British Petroleum, Mobil Oil and Texaco Oil, three former
partners in Octel Associates and former shareholders of AOC (the "Vendor
Partners"), are entitled to profit-participation payments under the terms of the
Octel Sale and Purchase Agreement, dated February 21, 1989, based upon their
ongoing purchases of TEL from the Company. See Note 4 to Combined Financial
Statements. Selling prices to other refineries are principally negotiated under
long-term supply agreements, with varying prices and terms of payment.
ETHYL AGREEMENTS
The Company supplies Ethyl on a wholesale basis with substantial quantities
of TEL for resale to customers under two separate long-term supply agreements at
prices adjusted annually through agreed formulas. Under one of these agreements
(the "U.S. TEL Supply Agreement"), effective January 1, 1998, Ethyl purchases
its requirements for resale to its customers in the United States from the
Company. In the other agreement, dated December 22, 1993, Ethyl purchases TEL
for resale to customers located outside the United States. The maximum
quantities of TEL Ethyl can purchase under the non-U.S. agreement is 35,000
metric tons per year through 1998 and, thereafter, is set at a fixed percentage
of the Company's annual production capacity. Pursuant to a Bulk Transportation
Agreement, dated March 25, 1994, Ethyl supplies the Company with all of its bulk
transportation requirements for TEL. The Company, Ethyl and Great Lakes recently
reached an agreement with FTC staff with respect to the terms of a consent
decree governing sales of TEL by the Company to Ethyl for resale in the United
States market. The agreement was provisionally approved by the FTC on March 30,
1998, and received final approval on June 24, 1998. The Company has taken steps
to comply with its provisions by negotiating and putting into effect a new long
term supply contract with Ethyl governing the supply of TEL to Ethyl for resale
in the U.S. market. It should be noted that the entire U.S. TEL market is
relatively small (approximately 1,500 metric tons per annum) and only a small
portion of the Company's sales to Ethyl are directed at the U.S. market. Neither
the terms of the proposed consent decree nor the execution of the new contract
with Ethyl is expected to have a material adverse effect on the Company's
business, results of operation or financial condition. See "Risk Factors--FTC
Proceeding" and "--Legal Proceedings."
PETROLEUM SPECIALTIES BUSINESS
The Company's Petroleum Specialties business, with revenues in 1997 of
$62.6 million, develops, produces and markets a range of specialty products used
as fuel additives. These fuel additives fall into three main product groups
within the Petroleum Specialties business. Diesel octane improvers aid the
efficient combustion of fuel in diesel engines. Detergent-based packages
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<PAGE> 48
for both gasoline and diesel fuels inhibit formation of deposits in engines,
improving engine efficiency. Functional products, such as corrosion inhibitors,
improve the physical and/or chemical properties of fuels allowing refineries to
be operated safely and efficiently and fuel marketers to meet market
specifications.
The global market for fuel additives (excluding TEL) is approximately $1
billion. Usage of fuel additives is expected to grow over the next five to ten
years driven primarily by legislation placing increasingly stringent limitations
on exhaust emissions. The Company's strategy is to grow this business over time,
utilizing its global sales and distribution network, its strong technical
development capability and its knowledge of current and future customer needs.
The customers of the Petroleum Specialties business are comprised of
multinational oil companies and fuel retailers. Traditionally, a large portion
of the total market was captive to oil companies which had fuel additives
divisions providing supplies directly to their respective refinery customers. As
a result of recent corporate restructurings and various mergers, joint ventures
and other collaborative arrangements involving downstream refining and marketing
operations, the tied supply arrangements between oil companies and their captive
fuel additive divisions have been weakened and many refineries are increasingly
looking to purchase their fuel additive requirements on the open market. This
trend is creating new opportunities for independent additive marketers such as
the Company.
The business operates in a competitive environment with its main
competitors being large oil and chemical companies, such as Lubrizol, Ethyl,
BASF, Chevron and Exxon. No one Company holds a dominant overall market share.
The Company considers its competitive strengths are in its strong technical
development capability, independence from the major oil companies and its
strong, long-term relationships with refinery customers in the TEL market which
provide synergies with the Petroleum Additives business.
PERFORMANCE CHEMICALS BUSINESS
The Company's Performance Chemicals business, with 1997 sales of $34.5
million, is comprised of the following two distinct product lines:
INDUSTRIAL AND INTERMEDIATE CHEMICALS, which accounted for approximately
35% of total Performance Chemical sales in 1997, consists of a small range of
industrial chemicals comprising metallic sodium and chlorine derivatives
(caustic liquor, chlorine, sodium hypochlorite). These products are either
precursors or by-products of the TEL manufacture and are expected to be phased
down consistent with the phase down of TEL. The Company's strategy with respect
to these industrial chemicals is to optimize profits consistent with maximizing
overall corporate financial performance at its Ellesmere Port facility.
SPECIALTY CHEMICALS, which accounted for approximately 65% of total sales
of Performance Chemicals in 1997, is currently comprised of Octaquest(R). The
Company, in conjunction with Proctor & Gamble, its primary customer, has
developed and patented a manufacturing process for Octaquest(R), a biodegradable
chelating agent developed for use in laundry products. The Company believes that
Octaquest(R) has potential for wider application in pulp and paper, cosmetics,
personal care, photographic and other industries. The Company is seeking to
expand its Specialty Chemicals business and is currently evaluating
opportunities to implement this strategy. Growth will be sought from a
combination of internal and external sources, including the in-house development
of new products through research and development, exploitation of current
products into new markets, licensing agreements, custom synthesis of specialty
products and acquisitions of products and/or businesses.
43
<PAGE> 49
RAW MATERIALS
The Company's major purchased raw materials are lead, ethylene and salt,
all of which are commodities that can be readily obtained from a number of
different sources. While changes in the prices of raw materials will have an
impact on the Company's costs, which the Company may or may not be able to
reflect fully in its pricing structure, they are unlikely to have a significant
impact on the profitability of operations.
TECHNOLOGY
The Company's research and development facilities are located at Ellesmere
Port, U.K., while its advanced fuel testing facility to support the Lead Alkyls
and Petroleum Specialties businesses is located at Bletchley, U.K. The Company's
research and development activity has been, and will continue to be, focused
primarily on development of new products and formulations for the Petroleum
Specialties and the Performance Chemicals businesses. Technical customer support
is also provided for the TEL business. Expenditures to support research,
product/application development and technical support services to customers were
$3.8 million, $5.6 million and $5.6 million in 1997, 1996 and 1995,
respectively. The Company considers that its strong technical capability
provides it with a significant competitive advantage. In the last three years,
the Petroleum Specialties business has developed new detergent, lubricity and
combustion improver products, in addition to the introduction of several new
cost effective fuel additive packages. A new patented process for manufacturing
Octaquest(R) has enabled the Company to enter into a new market in the
performance chemicals area.
PATENTS AND INTELLECTUAL PROPERTY
The Company has a portfolio of trademarks and patents, granted and in the
application stage, covering products and processes. These trademarks and patents
relate primarily to the Petroleum Specialties and the Performance Chemicals
businesses, in which intellectual property forms a significant part of the
Company's competitive strength. The majority of these patents were developed by
the Company. Most patents have more than ten years life remaining. The Company
also holds a license for the manufacture of fuel detergents. The Company has
trademark registrations for the use of the name "Octel(R)" and for the Octagon
device in Classes 1 and 4 of the "International Classification of Goods and
Services for the Purposes of the Registration of Marks" in all countries in
which its has a significant market presence except for the U.S. in respect of
which the appropriate applications have been made. Octel also has trademark
registrations for Octaquest(R).
Octel America Inc., a subsidiary of the Company, has trademarks for
Stadis(R), an aviation and ground fuel conductivity improver, Ortholeum(R), a
lube oil additive antioxidant and metal deactivator, Ocenol(R), an antifoam for
refinery use, and Valve Master(R), a valve seat recession additive. The Company
does not consider its business as a whole to be dependent on any one trademark,
patent or license.
HEALTH, SAFETY AND ENVIRONMENTAL MATTERS
The Company is subject to Environmental Laws in all of the countries in
which it does business. The principal Environmental Laws to which the Company is
subject in the U.K. are the Environmental Protection Act 1990, the Water
Resources Act 1991, the Health and Safety at Work Act 1974 and regulations and
amendments thereto. Management believes that the Company is in material
compliance with all applicable Environmental Laws, and does not anticipate that
the continued costs of compliance with Environmental Laws will be material.
Nevertheless, there can be no assurance that changes in existing Environmental
Laws, or the discovery of additional liabilities associated with the Company's
current or former operations, will not have a material adverse effect on the
Company's business, results of operations or financial condition. See
"Management's Discussion
44
<PAGE> 50
and Analysis of Financial Condition and Results of Operations--Environmental
Matters and Plant Closures."
HUMAN RESOURCES
The Company's workforce at December 31, 1997 consisted of 1,419 employees,
of which 1,279 were in the U.K. Approximately half of the Company's employees in
the U.K. are represented by unions, including the Transport and General Workers
Union and the Amalgamated Engineering and Electrical Union.
The Company has a major employee communication program to help its
employees understand the business issues surrounding the Company, the TEL
business and the corporate downsizing program that has been implemented to
respond to declining TEL demand. Regular monthly briefings are conducted by line
managers where Company-wide and departmental issues are discussed. More formal
communication takes place with the trade unions which the Company recognizes for
negotiating and consultative purposes.
Management believes that the communication program has been highly
successful and has contributed to maintaining maximum output at Ellesmere Port
while at the same time achieving a reduction of 525 employees in the Company's
U.K. workforce since January 1, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Environmental Matters and
Plant Closures." The Company has implemented an extensive retraining program
which will enable further improvements in the productivity and flexibility of
the Company's U.K. workforce. A major change in working practices was introduced
during 1996 whereby the workforce began an annualized hours contract, monthly
pay and staff status. This program reflects the cooperative employee relations
climate which exists at Ellesmere Port. A further example of the positive
working relationship is the signing of a two-year salary contract on January 1,
1998, which fixes wage rates and gives predictability of employment costs
through January 1, 2000.
PROPERTIES
A summary of the Company's principal facilities is shown in the following
table. Each of these properties is owned by the Company, except where otherwise
noted:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL OPERATIONS
- - -------- --------------------
<S> <C>
Newark, Delaware, U.S.(1)...... Octel Corp. Headquarters; Petroleum Specialties regional office
London, U.K.(1)................ Sales & Marketing
Ellesmere Port, U.K............ AOC Headquarters; Business Teams;
Manufacturing; Research & Development;
Administration
Bletchley, U.K................. Fuel Technology Center
</TABLE>
- - ---------------
(1) Leased property
The Ellesmere Port facility, which includes 94 acres of land houses the
administrative headquarters and offices for AOC, Research and Development
laboratories and all the Company's manufacturing facilities. These manufacturing
facilities consist of a chlorine plant (capacity-40,000 metric tons per annum),
a sodium plant (capacity-24,000 metric tons per annum), an ethyl chloride plant
(capacity-44,000 metric tons per annum), an EDDS plant for the manufacture of
Octaquest(R) (capacity-2,200 metric tons per annum), a detergents plant for the
Petroleum Specialties business (capacity-5,000 metric tons per annum) and Lead
Alkyls plants for the manufacture of TEL (capacity-90,000 metric tons per
annum).
45
<PAGE> 51
LEGAL PROCEEDINGS
In December 1997, the Company, Great Lakes and the FTC staff reached an
agreement with respect to the terms of a consent decree governing sales of TEL
by the Company to Ethyl for resale in the United States market, which agreement
was provisionally approved by the FTC on March 30, 1998, subject to the FTC's
discretion to review and modify the agreement following a sixty (60) day public
comment period. The proposed consent decree, if finally approved by the FTC,
will not constitute an admission of wrongdoing on Great Lakes' or the Company's
part and will provide, among other things, that the Company will continue to
supply Ethyl with its requirements of TEL for resale in the United States market
in accordance with the U.S. TEL Supply Agreement, effective January 1, 1998.
Under the proposed order, both the Company and Ethyl will be required to provide
prior notice to the FTC with respect to any changes or modifications to the U.S.
TEL Supply Agreement, as well as with respect to certain transactions. Although
the proposed order is not yet effective, the Company has taken steps to comply
with its provisions by negotiating and putting into effect a new long term
supply contract with Ethyl governing the supply of TEL to Ethyl for resale in
the U.S. market. It should be noted that the entire U.S. TEL market is
relatively small (approximately 1,500 metric tons per annum) and only a small
portion of the Company's sales to Ethyl are directed at the U.S. market. Neither
the terms of the proposed consent decree nor the execution of the new contract
with Ethyl is expected to have a material adverse effect on the Company's
business, results of operation or financial condition. See "--Lead Alkyls
Business--Ethyl Agreements" and "Risk Factors--FTC Investigation."
Other than the above-referenced FTC investigation, the Company is not party
to any legal proceedings or administrative actions. In the opinion of the
Company's management, there are no legal proceedings, pending or threatened,
which could have any material adverse effect on the results of operations or
financial condition of the Company or its ability to conduct its operations as
presently conducted.
CORPORATE STRUCTURE
The following diagram presents a summary of the Company's corporate
structure. The Company's principal operating subsidiary is the Associated Octel
Company Limited.
Octel Corp.
(Guarantor of the Notes)
------------------------
|
---------------------------
| |
Octel L.L.C. Octel America Inc.
------------ ------------------
|
Octel International Ltd.
------------------------
|
---------------------------------------
| |
|
Octel Developments PLC |
(Issuer of the Notes) |
- - ---------------------- |
| |
|
Octel Trading Ltd. Octel Resources Ltd.
- - ------------------ --------------------
| |
---------------------------------------
98.78% | 1.22%
partnership share | partnership share
|
Octel Associates
(Borrower under Credit Facility)
--------------------------------
|
Associated Octel Company Limited
(Borrower under the Credit Facility)
|
Subsidiaries
46
<PAGE> 52
MANAGEMENT
DIRECTORS
The Board of Directors of the Issuer consists of two persons, Dennis J.
Kerrison and Alan G. Jarvis, each of whom has been elected for a term expiring
at the 1999 Annual Meeting of Stockholders and until his successor shall have
been elected and qualified.
The Board of Directors of Parent consists of seven persons, each of whom
will be elected for a term expiring at the annual meeting of stockholders
indicated below and until his successor shall have been elected and qualified.
Each of the persons not currently on Board have agreed to serve as directors of
the Parent, effective as of the Distribution Date. The following table sets
forth information concerning the individuals who are serving as directors of
Parent following the Distribution:
<TABLE>
<CAPTION>
TERM EXPIRES AT
NAME AGE ANNUAL MEETING IN
---- --- -----------------
<S> <C> <C>
Dr. Robert E. Bew(1)....................................... 61 2001
Dennis J. Kerrison......................................... 53 2001
Martin M. Hale............................................. 57 2001
Thomas M. Fulton........................................... 64 1999
James Puckridge(1)......................................... 62 2000
Dr. Benito Fiore(1)........................................ 60 2000
Charles M. Hale(1)......................................... 62 1999
</TABLE>
- - ---------------
(1) Dr. Robert E. Bew, James Puckridge, Dr. Benito Fiore and Charles M. Hale
will become directors of Parent effective as of the Distribution Date.
Set forth below is a brief description of the present and past business
experience of each of the persons who will serve as directors of Parent:
DR. ROBERT E. BEW serves as Non-Executive Chairman of Octel Corp. He is
currently Chairman of both European Process Industries Competitiveness Centre
Ltd., an organization specializing in increasing competitiveness in process
industries and The Teesside Chemical Initiative (TCI) Ltd., which focuses on
building and improving investment and competitiveness of the Chemical sector in
the region. He spent 35 years with ICI most recently as CEO of ICI's Chemicals &
Polymer division in Teeside, U.K. Previously he served as head of Corporate
Planning and between 1995 and 1997 was Chairman of Phillips Imperial Petroleum
Ltd., a refinery JV between ICI and Phillips.
DENNIS J. KERRISON serves as President and Chief Executive Officer of Octel
Corp. and Managing Director, AOC. Mr. Kerrison also serves as a Managing
Director of the Issuer. From May 1996 to the Distribution Date, Mr. Kerrison was
the Managing Director of AOC and a Group Vice President and Officer of Great
Lakes. Between 1992 and 1996 he was a Director and Officer of Hickson
International plc, latterly as Chief Executive Officer. Prior to this he worked
in senior management roles for Specialty Chemical Companies, in Europe and the
United States notably, Rhone Poulenc, Rohm & Haas and RTZ Chemicals.
MARTIN M. HALE has been the Executive Vice President and Director of
Hellman, Jordan Management Co., Inc., a registered investment advisor
specializing in asset management and a wholly owned subsidiary of United Asset
Management Company since 1983. Prior to 1983, he was President and Chief
Executive Officer of Marsh & McClennan Asset Management Company. He also serves
as a Director of the Student Conservation Association; as Chairman of the Board
of Governors of the School of The Museum of Fine Arts, Boston; and as a Trustee
of The Museum of Fine Arts. Mr. Hale has been Chairman of the Board of Directors
of Great Lakes since 1995 and has served on the Great Lakes Board of Directors
since 1978.
47
<PAGE> 53
THOMAS M. FULTON serves as President and Chief Executive Officer of
Landauer, Inc., a provider of radiation monitoring services. Prior to joining
Landauer in 1978, his career included various management positions at Union
Carbide Corporation, BASF Corporation and ICN Pharmaceuticals, Inc. Mr. Fulton
serves on the Boards of The Advocate South Suburban Hospital and the Bethel
Community Facility and as Chairman of the Board of Directors of the Chicago
Theological Seminary. Mr. Fulton is currently a Director of Great Lakes and has
served on the Great Lakes Board of Directors since 1995.
JAMES PUCKRIDGE is Chairman of Elf Atochem U.K. Ltd., a position he assumed
in 1990. Prior to that he was Managing Director of the same organization. He is
also Chairman of Ato Findley U.K. Limited and Non-Executive Director of Thomas
Swan & Co. Ltd., a U.K. specialty chemical company. He serves as a Member of
Council for both the British Plastic Federation and the Chemical Industry
Association where he is Chairman of the General Purpose and Finance Committee.
DR. BENITO FIORE is a Director of A.T. Kearney, the consultancy company
specializing in the chemical industry. Between 1990 and 1995 he was Chief
Executive Officer of Enichem U.K. Ltd. Prior to this he held a number of
directorships in the Montedison Group working in Denmark, Canada, Italy and the
U.S. He is a Member of Council of the Italian Chamber of Commerce and a member
of the Accademia Italian della Cucina.
CHARLES M. HALE is Chairman of Donaldson, Lufkin & Jenrette International,
the London based subsidiary of Donaldson, Lufkin & Jenrette Inc., a major New
York based investment bank. Prior to 1984, he was a general partner of Lehman
Brothers Kuhn Leob and Managing Director of A.G. Becker International. Mr. Hale
is a graduate of Stanford University and Harvard Business School.
A brief description of the present and past business experience of Alan G.
Jarvis is set forth below under the heading "-- Executive Officers."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Parent currently intends to establish an
Executive Committee, an Audit Committee, a Finance Committee, a Compensation
Committee and an Environmental, Safety and Health Committee.
The Executive Committee will have all the powers and authority of the Board
of Directors except those powers specifically reserved to the Board of Directors
by Delaware law, the Certificate of Incorporation or the By-laws of Parent.
The Audit Committee will, among other things, recommend independent
certified public accountants; review the scope of the audit examination,
including fees and staffing; review the independence of the auditors; review and
approve non-audit services provided by the auditors; review findings and
recommendations of auditors and management's response; review the internal audit
and control function; and review compliance with the Company's ethical business
practices policy.
The Finance Committee will review and assess the financial affairs of the
Company and present recommendations for action to the Board of Directors.
The Compensation Committee will review management compensation programs,
approve compensation changes for senior executive officers, review compensation
changes for senior management, and administer management stock plans.
The Environmental, Safety and Health Committee will assess the Company's
environmental, safety and health policies and performance, and will make
recommendations to the Board of Directors regarding the promotion and
maintenance of standards of compliance and performance.
48
<PAGE> 54
COMPENSATION OF DIRECTORS
Non-employee directors of Parent receive an annual fee of $23,000. The
Chairman of the Board, who is not employed by the Company, receives an annual
fee of $110,500. A Committee Chairman, not employed by the Company, receives an
additional fee of $5,000 per year. Non-employee directors are paid $1,650 for
attendance at each meeting of the Board of Directors and $825 for attendance at
each committee meeting. A percentage of the annual fee may be paid in the form
of a stock grant, as established by the Compensation Committee. No directors'
fees is paid to directors who are also employees of the Company. All of the
directors of the Issuer are employed by Parent and do not receive additional
compensation for serving as directors. Directors will also be reimbursed for all
reasonable travel and other expenses of attending meetings of the Board or a
Committee thereof.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who are serving as executive officers of Parent and the Issuer. Each such person
was elected to the indicated office with Parent or the Issuer on or prior to the
closing of the Initial Offering and serves at the pleasure of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Dennis J. Kerrison................... 53 President and Chief Executive Officer, Octel Corp.
and Managing Director of AOC and the Issuer
Alan G. Jarvis....................... 48 Chief Financial Officer, Octel Corp. and Finance
Director of AOC and the Issuer
Graham M. Leathes.................... 48 Company Secretary and General Counsel, Octel Corp.,
AOC and the Issuer
Steve W. Williams.................... 42 Operations Director, AOC
Robert A. Lee........................ 50 Commercial Director, Lead Alkyls, AOC
Geoff J. Hignett..................... 47 Commercial Director, Speciality Chemicals, AOC
H. Alan Hanslip...................... 50 Human Resources Director, AOC
Richard T. Shone..................... 49 Safety, Health & Environment Director, AOC
</TABLE>
Set forth below is a description of the position presently held with the
Company by each executive officer as well as positions held prior to the
Distribution.
DENNIS J. KERRISON--See description above under the heading "--Directors."
ALAN G. JARVIS serves as Chief Financial Officer of Octel Corp. and Finance
Director of AOC and the Issuer. From October 1997 until the Distribution Date,
Mr. Jarvis served as Finance Director for AOC. Prior to his tenure with AOC, Mr.
Jarvis served from 1995 to 1997 as Group Finance Director of the Power Plant
Group of GEC Alsthom, an Anglo-French joint venture in the power generation
business worldwide. From 1987 to 1994, Mr. Jarvis served at different times as
Property Director, Group Finance Director and Group Financial Controller for
Simon Engineering PLC, a British engineering company specializing in hydraulic
platforms, process plant contracting and chemical storage.
GRAHAM M. LEATHES serves as Corporate Secretary and General Counsel for
Octel Corp., AOC and the Issuer. From July 1989 until the Distribution Date, Mr.
Leathes served in this position for AOC.
STEVE W. WILLIAMS serves as Operations Director of AOC. From November 1995
to the Distribution Date, Mr. Williams served as Director of Manufacturing for
AOC. Prior to his tenure with AOC, Mr. Williams served for 18 years at the
Fawley Oil Refinery of Exxon/Esso, most recently as Operations Manager.
49
<PAGE> 55
H. ALAN HANSLIP serves as Human Resources Director of AOC. From November
1996 to the Distribution Date, Mr. Hanslip served as Director, Human Resources,
for AOC. Prior to his tenure with AOC, Mr. Hanslip served from 1991 to 1996 as
Director of Human Resources for British Nuclear Fuels, plc.
ROBERT A. LEE serves as Commercial Director, Lead Alkyls of AOC. From
February 1997 to the Distribution Date, Mr. Lee served as Director, Supply
Chain, for AOC. Prior to his tenure with AOC, Mr. Lee spent 27 years with Dow
Chemical Corporation, a multinational chemical and petrochemical manufacturer
most recently as Marketing and Sales Director of its worldwide hydrocarbon
business based in Zurich, Switzerland.
GEOFF J. HIGNETT serves as Commercial Director, Specialty Chemicals of AOC.
From February 1997 to the Distribution Date, Dr. Hignett served as
Director--Petroleum Specialties and Acting Director--Corporate Development for
AOC. Prior to his tenure with AOC, Dr. Hignett served from 1992 to 1997 as
Director of Technology & Business and Director of Water Additives for the
Process Additives Division of FMC Corporation, a multinational engineering,
manufacturing and chemicals concern.
RICHARD T. SHONE serves as Safety, Health & Environment Director of AOC.
From May 1997 until the Distribution Date, Mr. Shone served in this position for
AOC. Prior to his tenure with AOC, Mr. Shone was employed from 1986 to 1997 by
Laporte PLC, an international speciality chemicals company where he served as
General Manager--Group Safety, Hazards & Environment.
COMPENSATION OF EXECUTIVE OFFICERS
All of the information set forth in the following tables reflects
compensation earned based upon services rendered to Great Lakes by the Company's
Chief Executive Officer and the four other most highly paid executive officers
of the Company. The services rendered by such individuals to Great Lakes were,
in some instances, in capacities not equivalent to those positions in which they
will serve for the Company. Therefore, these tables do not reflect the
compensation which will be paid to the executive officers of Parent. The
following tabulation shows compensation for services rendered in all capacities
to the Petroleum Additives Business Unit of Great Lakes and its subsidiaries
during 1997 by the Chief Executive Officer and the next four highest paid
executive officers (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
------------------------------ OTHER ANNUAL OPTIONS GRANTED
NAME AND SALARY PROFIT SHARING COMPENSATION (# NUMBER
PRINCIPAL POSITION (1) CASH (BONUS)(1)(2) (3) OF SHARES)
------------------ -------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C>
Dennis J. Kerrison........ $287,966 $129,665 -- 10,000
Steve W. Williams......... 152,212 44,848 -- 2,000
Geoff J. Hignett.......... 137,264 31,598 46,897(4) 1,200
Graham M. Leathes......... 130,106 25,299 -- 1,000
Robert A. Lee............. 114,090 26,534 -- 1,000
</TABLE>
- - ---------------
(1) Converted from pounds sterling to U.S. dollars based on an exchange rate of
$1.6455:L1.00 on December 31, 1997.
(2) Bonus paid in 1998 for services rendered in 1997.
(3) Amounts paid do not exceed $50,000 or 10% of salary plus bonus for any of
the Named Executive Officers, except Mr. Hignett.
(4) Payment of starting bonus.
50
<PAGE> 56
STOCK OPTIONS TABLE
The following table shows for the Named Executive Officers the specified
information with respect to grants of options to purchase Great Lakes Common
Stock ("Great Lakes Options") during 1997.
OPTION GRANTS IN 1997(1)
<TABLE>
<CAPTION>
INDIVIDUAL POTENTIAL REALIZABLE
GRANTS % OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATES OF
OPTIONS GRANTED TO EXERCISE OR STOCK PRICE
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION APPRECIATION FOR
NAME (#)(2) FISCAL YEAR ($/SH)(3) DATE OPTION TERM(4)(5)
---- ------- ------------- ----------- ---------- ---------------------
5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Dennis J. Kerrison............. 10,000 2.18% $42.50 2/10/07 267,750 675,750
Steve W. Williams.............. 2,000 .44% 42.50 2/10/07 53,550 135,150
Geoff J. Hignett............... 1,200 .26% 42.50 2/10/07 32,130 81,090
Graham M. Leathes.............. 1,000 .22% 42.50 2/10/07 26,775 67,575
Robert A. Lee.................. 1,000 .22% 42.50 2/10/07 26,775 67,575
</TABLE>
- - ---------------
(1) See "Treatment of Great Lakes Employee Stock Options in the Distribution"
for a description of the effect of the Distribution on such options.
(2) All options were granted pursuant to the 1993 Great Lakes Employee Stock
Compensation Plan and have a term of 10 years. Each Named Executive Officer
received one option grant in 1997. These options vest and become exercisable
in cumulative 33% installments commencing no less than one year from date of
grant, with full vesting occurring on the earlier of the third anniversary
date or on the retirement of an employee over 62 years of age.
(3) The exercise price may be paid for by remitting cash or already owned shares
of common stock of Great Lakes, or by a combination thereof.
(4) The potential realizable value portion of the foregoing table indicates the
value that might be realized upon exercise of options immediately prior to
the expiration of their term, assuming the specified amount of compounded
rates of appreciation on Great Lakes Common Stock over the term of the
options. This calculation does not take into account that any shortfall
between the current stock price and the option exercise price will have to
be made up before any value can be realized.
(5) Absent an appreciation in stock price over the option exercise price, the
optionee will not realize any gain. A 0% increase in stock price will result
in an option value of $0.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table shows for each Named Executive Officer the specified
information with respect to exercises of Great Lakes Options during 1997 and the
value of unexercised options at the end of 1997.
AGGREGATED GREAT LAKES OPTION EXERCISES DURING 1997
AND 1997 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED OPTIONS
SHARES UNDERLYING UNEXERCISED IN THE-MONEY AT
ACQUIRED VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END($)
ON REALIZED --------------------------- ---------------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
---- -------- -------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Dennis J. Kerrison... -- -- -- 17,000 -- $23,750
Steve W. Williams.... -- -- -- 3,600 -- $ 4,750
Geoff J. Hignett..... -- -- -- 1,200 -- $ 2,850
Graham M. Leathes.... -- -- 1,370 1,760 -- $ 2,375
Robert A. Lee........ -- -- -- 1,000 -- $ 2,375
</TABLE>
- - ---------------
(1) Based on a closing price of $44.875 as reported on the NYSE on December 31,
1997 and after deduction of the exercise price of each such option
multiplied by the number of shares covered by each such option.
51
<PAGE> 57
EMPLOYMENT AGREEMENTS
Currently, each of the Named Executive Officers is party to a contract of
employment between such officer and AOC. The contracts provide for salary,
holidays and vacations and perquisites. Each of the Named Executive Officers is
entitled to 30 days of annual vacation, private health insurance, permanent
health insurance and a car. Additionally, other than with respect to Mr.
Kerrison, each agreement provides that in the event of a takeover or fundamental
restructuring of the business which results in a loss of the officer's position,
such officer is entitled to two years' salary plus 25% plus approximately
U.S.$49,365. In the event of a qualifying termination following a change of
control, Messrs. Williams, Hignett, Leathes and Lee would be entitled to receive
$616,200, $572,600, $440,171 and $594,400, respectively, pursuant to such
agreements.
COMPENSATION UNDER RETIREMENT PLANS
The following table sets forth the estimated annual benefits payable upon
retirement to Messrs. Williams, Hignett, Leathes and Lee, for the specified
compensation and years of service classifications, under the combined formulas
of the Octel Pension Plan, the Octel Top Hat and the Octel Funded Unapproved
Retirement Benefit Plan. The pension benefits are calculated based upon years of
service and "Final Earnings," which is calculated as final base salary or, if
higher, the average base salary for the last three years of service. Mr.
Kerrison's benefits payable under such plans are calculated on the same basis,
but at a 33% higher rate. The amounts shown have been converted from pounds
sterling to U.S. dollars based on an exchange rate of $1.6455:L1.00 on December
31, 1997.
<TABLE>
<CAPTION>
FINAL EARNINGS 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS
-------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$164,550.......................... $20,569 $ 41,138 $ 61,706 $ 82,275 $102,844
246,825.......................... 30,853 61,706 92,971 123,413 154,266
329,100.......................... 41,138 82,275 123,413 164,550 205,688
411,375.......................... 51,422 102,844 154,266 205,688 257,109
493,650.......................... 61,706 123,413 185,119 246,825 308,531
</TABLE>
As of January 1, 1998, the final base salary (converted to U.S. dollars
using the same exchange rate as specified above) and the eligible years of
credited service for each of the Named Executive Officers were as follows: Mr.
Kerrison, $287,963--1 year; Mr. Williams, $162,485--1 year; Mr. Hignett,
$156,745--0 years; Mr. Leathes, $135,309--8 years; and Mr. Lee, $137,240--0
years.
STOCK PLAN
The Company had adopted (i) the Octel Corp. Approved Company Share Option
Plan, (ii) the Octel Corp. Performance Related Stock Option Plan, (iii) the
Octel Corp. Time Restricted Stock Option Plan, (iv) the Octel Corp. Savings
Related Share Option Scheme and (v) the Octel Corp. Profit Sharing Share Scheme
(collectively, the "Stock Plans"), which provides for the grant of various types
of equity-based compensation to employees of the Company. The Stock Plans were
approved by Great Lakes, as sole stockholder of the Company, prior to the
Distribution Date. The Stock Plans are designed to promote the success of the
Company's business by more closely aligning the interests of management and the
Company's stockholders through the provision of equity-based incentives to those
individuals who are or will be responsible for such success.
The total number of shares of Common Stock that may be issued or awarded
under the Stock Plans may not exceed 1,175,000 in the aggregate, subject to
adjustment as described below.
The Stock Plans provide for the granting of options, including "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options, and the
granting of other stock-based awards (collectively,
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<PAGE> 58
"Awards"). All Awards will be evidenced by an award agreement setting forth the
terms and conditions applicable thereto.
Awards may generally be granted to individuals who are (a) executive
officers, (b) other key employees (including those who are also directors) or
(c) non-employee directors, in each case of the Parent or any of its
subsidiaries.
The Stock Plans are administered by the Board of Directors of the Company,
which may act through its Compensation Committee (such Board of Directors or
committee is referred to herein as the "Plan Administrator"). Eligibility
criteria, the number of participants, and the number of shares subject to Awards
and all other terms and conditions of Awards are determined by the Plan
Administrator.
The following table sets forth the estimated number of restricted stock
units to be granted to certain employees under the Stock Plans within six (6)
months of the Distribution:
<TABLE>
<CAPTION>
NUMBER OF RESTRICTED
NAME STOCK UNITS
---- --------------------
<S> <C>
Dennis J. Kerrison.......................................... 115,071
Alan G. Jarvis.............................................. 50,873
Steve W. Williams........................................... 44,090
Geoff J. Hignett............................................ 40,699
Robert A. Lee............................................... 42,394
H. Alan Hanslip............................................. 32,559
Richard T. Shone............................................ 30,396
Graham M. Leathes........................................... 30,396
All executive officers as a group (8 persons)............... 386,478
All other employees......................................... 46,851
</TABLE>
The restricted stock grant described above has been estimated, based on a
multiple the proposed salaries to be paid to such persons following the
Distribution Date, which salaries will be reviewed and approved by the Board of
Directors of Parent at the time of the Distribution. The actual number of
restricted stock units granted will change depending upon the price of Octel
Common Stock at the time of such grant.
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<PAGE> 59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
All of the outstanding capital stock of the Issuer is owned by Octel
International Ltd., an indirect wholly owned subsidiary of Parent.
Based on information which has been obtained from Great Lakes' records and
a review of statements filed with the Securities and Exchange Commission
pursuant to Sections 13(d) and 13(g) of the Exchange Act with respect to Great
Lakes Common Stock, the following persons are the beneficial owner of more than
5% of the outstanding voting securities of any class of Parent.
<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES OUTSTANDING
- - ------------------------------------ ---------------- ------------
<S> <C> <C>
T. Rowe Price Associates, Inc.(1)
100 East Pratt Street
Baltimore, Maryland 21202................................... 1,478,245 10.2%
State Farm Mutual Automobile Insurance
Company and Related Entities(2)
One State Farm Plaza
Bloomington, Illinois 61710-0001............................ 1,135,900 7.6%
Jeffrey S. Halis and Related Entities(3)
500 Park Avenue
Fifth Floor
New York, New York 10022.................................... 1,012,000 6.9%
</TABLE>
- - ---------------
(1) Based on a Schedule 13G, dated June 10, 1998, filed with the Securities and
Exchange Commission by T. Rowe Price Associates, Inc. ("Price Associates").
These securities are owned by various individual and institutional investors
for which Price Associates serves as investment advisor with power to direct
investments and/or sole power to vote the securities. For purposes of the
reporting requirements of the Securities Exchange Act of 1934, Price
Associates expressly disclaims that it is, in fact, the beneficial owner of
such securities.
(2) Based on a Schedule 13G, dated January 22, 1998, filed with the Securities
and Exchange Commission by State Farm Mutual Automobile Insurance Company.
Each of the following State Farm entities has reported sole voting power and
sole disposition power and disclaims "beneficial ownership" as to all shares
as to which each has no right to receive the proceeds of sale of the
security and disclaims that it is part of a group: State Farm Mutual
Automobile Insurance Company; State Farm Life Insurance Company; State Farm
Investment Management Corporation; and State Farm Insurance Companies
Savings and Thrift Plan for U.S. Employees. State Farm Life Insurance
Company is a wholly owned subsidiary of State Farm Mutual Automobile
Insurance Company. State Farm Investment Management Corporation is a wholly
owned subsidiary of State Farm Fire and Casualty Company which, in turn, is
a wholly owned subsidiary of State Farm Life Insurance Company.
(3) Based on a Schedule 13D dated June 8, 1998 filed with the Securities and
Exchange Commission by Jeffrey S. Halis. As of May 28, 1998, the following
entities controlled by Jeffrey Halis owned securities: Tyndall Partners,
L.P., Tyndall Institutional Partners, L.P. Madison Avenue Partners, L.P.,
and Halo International, Ltd. Jeffrey Halis possesses sole power to vote and
direct the disposition of all shares of Octel Corp. owned by each of these
entities.
BENEFICIAL OWNERSHIP OF MANAGEMENT
Based upon their respective holdings of Great Lakes Common Stock as of
April 1, 1998, and excluding restricted stock to be granted in connection with
the Distribution, no director or officer of Parent or the Issuer will own
beneficially, as of the Distribution Date, any shares of Octel Common Stock at
such date and all directors and executive officers as a group will beneficially
own less than 1% of the Octel Common Stock outstanding at such date.
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<PAGE> 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For purposes of facilitating an orderly transition on the Distribution Date
to the status of two separate independent companies, Great Lakes, and certain of
its subsidiaries, and Parent, and certain of its subsidiaries, have entered or
will enter into various agreements and relationships, including those described
in this section.
DISTRIBUTION AGREEMENT
Prior to the Distribution, Great Lakes and the Company entered into the
Transfer and Distribution Agreement (the "Distribution Agreement"), which
provides for, among other things, the amount of Octel Common Stock to be issued
in connection with the Distribution, the transfer to the Company of the Octel
Businesses, the transfer to Great Lakes of the Company's Amlwch and Palmer
Research Laboratories facilities, the allocation between Great Lakes and the
Company of certain obligations and liabilities relating to the Octel Businesses
and the businesses being retained by or transferred to Great Lakes and the
execution of certain other agreements governing the relationship between Great
Lakes and the Company following the Distribution. The Distribution Agreement
generally provides for the transfer by Great Lakes to the Company of the assets
used in the Octel Businesses, and for the assumption by the Company of
substantially all of the liabilities relating to the Octel Businesses for
periods before, on or after the Distribution Date. The Company will also remain
responsible, up to a maximum aggregate amount of $5 million, for liabilities
relating to the Amlwch and Palmer Research Laboratories facilities to be
transferred to Great Lakes in connection with the Distribution to the extent
that such liabilities arise from acts or omissions occurring on or prior to
January 1, 1998.
TAX DISAFFILIATION AGREEMENT
Great Lakes and the Company have entered into a Tax Disaffiliation
Agreement (the "Tax Disaffiliation Agreement"), detailing their respective
obligations concerning various tax liabilities. The Tax Disaffiliation Agreement
generally requires Great Lakes to pay, and indemnify the Company against, all
federal, state, local and foreign taxes relating to the businesses conducted by
Great Lakes or its subsidiaries for any taxable period, other than the following
taxes which will be paid by the Company and against which the Company will
indemnify Great Lakes:
(i) taxes relating to the Company and its U.S. subsidiaries for
periods after the Distribution Date;
(ii) taxes relating to the Company's non-U.S. subsidiaries or any
predecessor or successor thereof for all periods before and after the
Distribution Date (other than with respect to certain restructuring
transactions incident to the Distribution);
(iii) taxes arising out of certain actions taken by, or in respect of,
the Company or any of its subsidiaries that adversely affect the tax
consequences to Great Lakes, the Company or their respective subsidiaries
with respect to the Distribution or the transactions related thereto,
provided, however, that under certain limited circumstances the Company's
indemnification obligation described in this paragraph (iii) may be
reduced; and
(iv) taxes due and payable by Great Lakes or its subsidiaries with
respect to their interests in Octel Associates for the period from January
1, 1998 to the Distribution Date.
The Tax Disaffiliation Agreement further provides for cooperation with respect
to certain tax matters, the exchange of information and retention of records
which may affect the tax liability of either party. In addition, the Tax
Disaffiliation Agreement requires that the Company refrain from certain actions
during the two-year period commencing on the day after the Distribution Date,
unless it obtains a supplemental ruling from the Internal Revenue Service,
reasonably satisfactory to Great Lakes in form and content, that such actions
will not adversely affect the qualification of the Distribution as a tax-free
distribution under Section 355 of the Code. These actions include (i) a
55
<PAGE> 61
discontinuation of any material portion of the Company's or its subsidiaries'
business and (ii) participation in any transaction within such two-year period
which results in one or more persons owning 50% or more of the stock of the
Company or any of its subsidiaries.
CORPORATE SERVICES TRANSITION AGREEMENT
Great Lakes and the Company entered into a Corporate Services Transition
Agreement pursuant to which the Company will agree to provide to Great Lakes
certain services for a transitional period following the Distribution Date. The
services to be provided by the Company include accounting, payroll, treasury,
management information systems, engineering, regulatory and medical. The
services will be provided for varying periods of time, provided that no services
will be undertaken after December 31, 1999. The Company will be compensated by
Great Lakes on an arm's length basis for the provision of such services.
SUPPLY AND TOLL MANUFACTURING AGREEMENTS
Great Lakes and the Company entered into agreements (the "Supply and Toll
Manufacturing Agreements") providing for the supply by Great Lakes to the
Company of dibromoethane ("DBE"), hydrogen bromide ("HBR") and the toll
manufacture by Great Lakes for the Company of Stadis(R) products and the supply
by the Company to Great Lakes of caustic soda.
Each of the Supply and Toll Manufacturing Agreements contains
representations, warranties, covenants and agreements and are on terms that are
customary for similar agreements in the chemical industry. The Supply and Toll
Manufacturing Agreements provide for, among other things, the following:
(i) Great Lakes will supply certain specified quantities of DBE to the
Company for three years. The Company has the right to extend the agreement
for two additional one year periods. Pursuant to the agreement, Great Lakes
has certain rights to acquire the Company's chlorine membrane plant if the
Company decides to either sell or shutdown the plant. During the first
eighteen months of the agreement, Great Lakes has agreed to make certain
payments to subsidize the Company's operation of the chlorine membrane
plant;
(ii) Subject only to the Company's obligation to purchase certain
minimum quantities based upon the Company's forecasts, Great Lakes is
required to supply HBR to the Company in quantities determined by the
Company. The agreement has an initial four year term with automatic renewal
for subsequent one year periods until canceled by either party with one
year's prior notice;
(iii) The Company will supply caustic soda to Great Lakes on an
ongoing basis, subject to either party's right to terminate the agreement
on six months' prior notice or, at Great Lakes' option, at any time subject
only to an obligation for Great Lakes to acquire all then existing
inventory and work-in-process; and
(iv) Great Lakes will toll manufacture Stadis(R) 425 and Stadis(R) 450
(Enhanced) for the Company. The agreement may be terminated by either party
after December 31, 2001 on one year's prior notice. The Company is
obligated, subject to certain exceptions, to purchase certain specified
minimum amounts of Stadis(R) products from Great Lakes.
Except as referred to above, Great Lakes and the Company ceased to have any
material contractual or other material relationships with each other.
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<PAGE> 62
DESCRIPTION OF CREDIT FACILITY
The Credit Facility provides for (i) a senior secured Term Facility of up
to $280.0 million and (ii) a senior secured Revolving Facility of up to $20.0
million to certain subsidiaries of Parent (the "Borrowers").
The following summary of the Credit Facility does not purport to be
complete and is qualified in its entirety by reference to the definitive
documentation for the Credit Facility.
The obligations of the Borrowers under the Credit Facility are
unconditionally guaranteed by Parent and certain subsidiaries of Parent
(including the Issuer). The Credit Facility and the guarantees are secured by
substantially all of the assets of the Borrowers and certain U.K. subsidiaries
and certain holding companies of the Borrowers, including real property not
subject to other mortgages and personal property (including inventory), and also
are secured by the capital stock of the Borrowers and certain U.K. subsidiaries
and holding companies of the Borrower (but not the Company). The obligations of
the Borrowers are also secured by an interest, granted by Parent, in the
benefits of the agreements entered into in connection with the Distribution.
The Credit Facility will mature on December 31, 2001, and the Term Facility
will amortize in quarterly installments commencing on June 30, 1998. The Company
will be required to repay $115.0 million, $60.0 million, $60.0 million and $45.0
million in 1998, 1999, 2000 and 2001, respectively. In addition, the Company
will be required to prepay the Credit Facility with 50% of surplus cash flow on
a quarterly basis.
The loans under the Credit Facility will bear interest at LIBOR (as defined
in the Credit Facility), plus additional costs, plus 1.75%, subject to
adjustment under certain circumstances. The margin on the interest rate, under
certain circumstances, will adjust to 1.25% over LIBOR when the outstanding
balance under Tranche A of the Credit Facility has been reduced to $140.0
million. Following the occurrence and during the continuance of a default under
the Credit Facility, the overdue amount will bear interest at LIBOR, plus
additional costs, plus 2.75%.
The Credit Facility contains a number of covenants that, among other
things, restrict the ability of Parent and its subsidiaries (including the
Company) to engage in amalgamations, mergers or consolidations, engage in
certain transactions with subsidiaries and affiliates, amend or waive terms of
the agreements entered into in connection with the Distribution, dispose of
assets, create liens on assets, incur additional indebtedness, incur guarantee
obligations, make loans, enter into leases, make investments, issue or acquire
its shares, pay dividends or make capital distributions and otherwise restrict
corporate activities. In addition, the Credit Facility requires compliance with
certain financial covenants, including (i) an EBITDA to net interest ratio
(commencing at 4.5 to 1.0, increasing to 6.5 to 1.0), (ii) a fixed charge
coverage ratio (1.05 to 1.0) and (iii) a total debt to EBITDA ratio (commencing
at 2.0 to 1.0, decreasing to 1.25 to 1.0).
The Credit Facility contains customary events of default including the
failure to pay principal when due or any interest or other amount that becomes
due within one business day after the due date, a default in the performance of
certain covenants, any representation or warranty being incorrect, invalidity of
any guaranty or security document, certain insolvency events, cross default and
certain change of control events.
57
<PAGE> 63
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes offered hereby are to be issued under the Indenture,
dated as of [ ], 1998 (the "Indenture"), between the Issuer and IBJ Schroder
Bank & Trust Company, as Trustee (the "Trustee"). The form and terms of the
Exchange Notes are the same as the form and terms of the Old Notes (which they
replace) except that (i) the Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (ii) the holders of Exchange Notes will not be entitled to certain
rights under the Registration Rights Agreement, including the provisions
providing for an increase in the interest rate on the Old Notes in certain
circumstances relating to the timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated.
The following is a summary of certain provisions of the Indenture and the
Exchange Notes, a copy of which Indenture and the form of Exchange Notes is
available upon request to the Issuer at the address set forth under "Available
Information." Any Old Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities. The following
summary of certain provisions of the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended.
For purposes of this "Description of the Exchange Notes", the term
"Company" refers solely to the Issuer.
BOOK-ENTRY DEPOSITARY INTERESTS
The Notes will be represented initially by a single global note in bearer
form without coupons (the "Global Note"). The Global Note will be issued in a
denomination equal to the outstanding Notes represented thereby and will be held
by The Industrial Bank of Japan (Luxembourg) S.A., as the book-entry depositary
(the "Book-Entry Depositary"). The Global Note will be deposited with the
Book-Entry Depositary pursuant to the Note Depositary Agreement (the "Note
Depositary Agreement") between the Company and the Book-Entry Depositary. For a
description of the Note Depositary Agreement, see "Description of the Note
Depositary Agreement."
The Book-Entry Depositary will issue a single certificateless depositary
interest representing a 100% interest in the underlying Global Note to DTC by
recording such interest in the Book-Entry Depositary's books and records in the
name of Cede & Co., as a nominee for DTC. Beneficial interests in the Global
Note will be shown on, and transfers thereof will be effected only through,
records maintained in book-entry form by DTC (with respect to participants'
interests) and its participants, including, as applicable, the Euroclear
Operator and Cedel. Such beneficial interests in the Exchange Notes are referred
to as "Book-Entry Interests". Book-Entry Interests in the Global Note (and any
Notes issued in exchange therefor) will be subject to certain restrictions on
transfer. See "Description of the Note Depositary Agreement -- Transfers and
Transfer Restrictions."
Holders of Book-Entry Interests will be entitled to receive definitive
Notes in registered form ("Definitive Notes") in exchange for their holdings of
Book-Entry Interests only in the limited circumstances set forth in "Description
of the Note Depositary Agreement -- Issuance of Definitive Notes." In no event
will definitive Notes in bearer form be issued.
The Company intends to apply to list the Exchange Notes on the Luxembourg
Stock Exchange.
The Exchange Notes will be payable as to principal, interest and Additional
Amounts (as defined), if any, either (i) to the Book-Entry Depositary (as Holder
of the Global Note) against presentation and surrender (or, in the case of
partial payment, endorsement) of the Global Note at the office of any agent of
the Company (the "Paying Agent") maintained for such purpose outside
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<PAGE> 64
the United Kingdom or (ii) in the event that Definitive Notes are issued as
described under "Description of the Note Depositary Agreement -- Issuance of
Definitive Notes" at an office of the Paying Agent maintained for such purpose
within the City and State of New York; provided, however, that with respect to
any payment of principal or interest on Definitive Notes with an aggregate
principal amount in excess of $1,000,000 held by any Holder or group of Holders,
such payment will be made, at the written request of such Holder or Holders
(which shall be a single request with appropriate wire transfer instructions)
received by the Paying Agent 15 days before the applicable payment date, by wire
transfer of immediately available funds to the Paying Agent, who in turn will
wire such funds to such single account as such Holder or Holders may in writing
to the Paying Agent direct. Until otherwise designated by the Company, the
office of the Paying Agent in New York will be the Corporate Trust Office of the
Trustee maintained for such purpose. The Notes will be issued in minimum
denominations of $1,000 principal amount and integral multiples thereof, and
Definitive Notes, if issued, will only be issued in registered form. In all
circumstances, the Company shall ensure that (i) at least one Paying Agent is
located outside the United Kingdom and (ii) if and so long as the Exchange Notes
are listed on any securities exchange, any requirement of such securities
exchange as to Paying Agents are satisfied.
TERMS OF THE NOTES
The Exchange Notes will be unsecured senior obligations of the Company,
limited to $150.0 million aggregate principal amount, and will mature on May 1,
2006. The Exchange Notes will bear interest at the rate per annum shown on the
cover page hereof from May 5, 1998 or from the most recent date to which
interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on the April 15 or October 15 immediately
preceding the interest payment date on May 1 and November 1 of each year,
commencing November 1, 1998. The Company will pay interest on overdue principal
at 1% per annum in excess of such rate, and it will pay interest on overdue
installments of interest at such higher rate to the extent lawful.
OPTIONAL REDEMPTION
Except as set forth under "-- Redemption for Changes in U.K. Withholding
Taxes," the Exchange Notes will only be redeemable at the option of the Company
as follows.
Prior to May 1, 2002, the Exchange Notes will be redeemable, in whole or
from time to time in part, at the option of the Company on any date, upon not
less than 30 nor more than 60 days' prior notice, at a redemption price equal to
the greater of (i) 100% of the principal amount of the Exchange Notes to be
redeemed and (ii) the sum of the present values of (A) the redemption price of
such Exchange Note at May 1, 2002 (as set forth in the table below), and (B) the
remaining scheduled payments of interest thereon to May 1, 2002 (exclusive of
interest accrued to such redemption date) discounted to such redemption date on
a semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate plus 50 basis points, plus, in either case, accrued and
unpaid interest on the principal amount being redeemed to such redemption date;
provided that installments of interest on Exchange Notes which are due and
payable on an interest payment date falling on or prior to the relevant
redemption date shall be payable to the Holders of such Exchange Notes at the
close of business on the relevant regular record date according to their terms
and the provisions of the Indenture.
On and after May 1, 2002, the Exchange Notes will be redeemable, at the
Company's option, in whole or in part, at any time or from time to time, upon
not less than 30 nor more than 60 days' prior notice, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
interest to the redemption date (subject to the right of Holders on the relevant
record date
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<PAGE> 65
to receive interest due on the relevant interest payment date), if redeemed
during the 12-month period commencing on May 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002........................................................ 105.000%
2003........................................................ 103.333%
2004........................................................ 101.667%
2005 and thereafter......................................... 100.000%
</TABLE>
MANDATORY REDEMPTION
The Indenture requires the Company to provide for the retirement, by
redemption, of $37.5 million principal amount of the Notes on each of May 1 ,
2003, May 1, 2004 and May 1, 2005, in each case at a redemption price equal to
100% of the principal amount thereof, plus accrued interest to the redemption
date. Such redemptions are calculated to retire approximately 75% of the
principal amount of the Notes prior to maturity. The Company may, at its option,
receive credits against such mandatory redemptions for the principal amount of
Notes acquired or redeemed (other than through this mandatory redemption
provision) by the Company and surrendered to the Trustee for cancelation.
SELECTION AND NOTICE OF REDEMPTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the Luxembourg Stock Exchange (for so long as the Notes are listed thereon) or
such other stock exchange on which the Notes are listed or, if such Notes are
not so listed or such exchange prescribes no method of selection, on a pro rata
basis, by lot or by such other method as the Trustee in its sole discretion
shall deem to be fair and appropriate, although no Note may be redeemed except
in integral multiples of $1,000 in original principal amount. Notice of
redemption shall, so long as the Notes are listed on the Luxembourg Stock
Exchange and the rules of such stock exchange shall so require, be published in
a newspaper having a general circulation in Luxembourg (which is expected to be
the Luxemburger Wort) and, in the case of Definitive Notes, shall also be mailed
by first-class mail to each Holder of Notes to be redeemed at its address
appearing in the register of Holders, in each case at least 30 but not more than
60 days before the redemption date. For so long as any Notes are represented by
the Global Notes, notices to Holders shall (in addition to publication as
described above) also be given by delivery of the relevant notice to DTC,
Euroclear and/or Cedel Bank (as the case may be) for communication to the
relative Holders of the Book-Entry Interests. If any Note is to be redeemed in
part only, the notice of redemption relating to such Note shall state the
portion of the principal amount thereof to be redeemed. A Global Note redeemed
in part will be surrendered to the Trustee who will make a notation thereon to
reduce the principal amount of such Global Note to an amount equal to the
unredeemed portion and, in the case of Definitive Notes, a new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancelation of the original Note.
WITHHOLDING TAXES
All payments made by or on behalf of the Company on or with respect to the
Notes (whether or not in the form of Definitive Notes (as defined)), and all
payments made by or on behalf of Parent under or with respect to the Note
Guarantee, will be made without withholding or deduction for, or on account of,
any present or future taxes, duties, assessments or governmental charges of
whatever nature (collectively, "Taxes") imposed or levied by or on behalf of the
United Kingdom (or the jurisdiction of incorporation of any Successor Company
(as defined below)) or any political subdivision thereof or any authority having
power to tax therein (each a "Tax Authority"), unless the withholding or
deduction of such Taxes is then required by law. If any deduction or withholding
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<PAGE> 66
for, or on account of, any Taxes of any Tax Authority shall at any time be
required on any payments made by the Company (or Successor Company) on or with
respect to the Notes or by Parent (or Successor Company) under or with respect
to the Note Guarantee, including payments of principal, redemption price,
interest, additional interest or premium, the Company or Parent, as the case may
be, will pay such additional amounts (the "Additional Amounts") as may be
necessary in order that the net amounts received in respect of such payments by
the Holders of the Notes (including Additional Amounts) or the Trustee, as the
case may be, after such withholding or deduction, equal the respective amounts
which would have been received in respect of such payments in the absence of
such withholding or deduction; except that no such Additional Amounts will be
payable with respect to:
(i) in the case of Notes listed on a Recognized Stock Exchange at the
time such Additional Amounts would be payable, any payments on a Note held
by or on behalf of a Holder or a beneficial owner who is liable for such
Taxes in respect of such Note by reason of the Holder or beneficial owner
having some connection with the United Kingdom or the jurisdiction of
incorporation of any Successor Company (including being a citizen or
resident or national of, or carrying on a business or maintaining a
permanent establishment in, or being physically present in, the United
Kingdom or the jurisdiction of incorporation of any Successor Company)
other than by the mere holding of such Note or enforcement of rights
thereunder or the receipt of payments in respect thereof;
(ii) in the case of Notes listed on a Recognized Stock Exchange at the
time such Additional Amounts would be payable, any Taxes that are imposed
or withheld as a result of a change in law after the Issue Date where such
withholding or imposition is by reason of the failure of the Holder or
beneficial owner of the Note to comply with any reasonable request by the
Company to provide information concerning the nationality, residence or
identity of such Holder or beneficial owner or to make any declaration or
similar claim or satisfy any information or reporting requirement, (A) if
such compliance is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing jurisdiction as a precondition to
exemption from all or part of such Taxes, (B) such Holder may legally
comply with such requirements and (C) at least 30 days prior to the date on
which the Company shall apply this clause (ii), the Company shall have
notified such Holders of such requirements;
(iii) except in the case of the winding up of the Company, any Note
presented for payment (where presentation is required) in the United
Kingdom or the jurisdiction of incorporation of any Successor Company
(unless presentment could not have been made elsewhere); or
(iv) any Note presented for payment (where Notes are in the form of
Definitive Notes and presentation is required) more than 30 days after the
relevant payment is first made available for payment to the Holder (except
to the extent that the Holder would have been entitled to Additional
Amounts had the Note been presented on any day (including the last day)
within such 30 day period).
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Note been the Holder of the Note, it would not have been entitled
to payment of Additional Amounts by reason of any of clauses (i) to (iv)
inclusive above.
Where required by applicable law, the Company, Parent or any Paying Agent,
as the case may be, will also (a) make any required withholding or deduction in
respect of any Taxes and (b) remit the full amount deducted or withheld to the
relevant Tax Authority in accordance with applicable law. The Company or Parent,
as the case may be, will furnish or cause to be furnished to the Trustee, within
30 days after the date of the payment of any Taxes due pursuant to applicable
law, certified copies of tax receipts satisfactory to the Trustee evidencing
such payment by the Company or Parent, as the case may be. Copies of such
receipts will be made available to Holders of Notes that are outstanding on the
date of such withholding or deduction for or on account of Taxes upon request.
Further, the Company or Parent, as the case may be, will indemnify and hold
harmless each
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Holder of Notes (other than a Holder described in clauses (i)-(iv) above) and
upon written request will promptly reimburse each such Holder for the amount of
(1) any Taxes levied or imposed and paid by such Holder as a result of payments
made on or with respect to the Notes or under or with respect to the Parent
Guarantee, (2) any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto and (3) any Taxes imposed with respect
to any reimbursement under (1) or (2), but excluding any Taxes based on a
Holder's net income.
Whenever in the Indenture there is mentioned, in any context, (a) the
payment of principal, (b) purchase prices in connection with a purchase of
Notes, (c) interest or (d) any other amount payable on or with respect to any of
the Notes or under or with respect to the Note Guarantee, such mention shall be
deemed to include mention of the payment of Additional Amounts provided for in
this section to the extent that, in such context, Additional Amounts are, were
or would be payable in respect thereof.
The foregoing obligations shall survive any termination, defeasance or
discharge of the Indenture.
The Company or Parent, as the case may be, will pay any present or future
stamp, court or documentary taxes, or any other excise or property taxes,
charges or similar levies which arise in any jurisdiction from the execution,
delivery or registration of the Notes, the Note Guarantee or any other document
or instrument referred to therein, or the receipt of any payments on or with
respect to the Notes or under or with respect to the Note Guarantee, excluding
any such taxes, charges or similar levies imposed by any jurisdiction outside of
the United Kingdom, the United States of America or any jurisdiction in which a
Paying Agent is located, other than those resulting from, or required to be paid
in connection with, the enforcement of the Notes or any other such document or
instrument following the occurrence of any Event of Default with respect to the
Notes.
REDEMPTION FOR TAXATION REASONS
The Notes may be redeemed, at the option of the Company, in whole but not
in part, at any time upon giving not less than 30 nor more than 60 days' notice
to the Holders (which notice shall be irrevocable), at a redemption price equal
to the principal amount thereof, together with accrued and unpaid interest, if
any, to the date fixed by the Company for redemption (a "Tax Redemption Date")
and all Additional Amounts (see "-- Withholding Taxes"), if any, then due and
which will become due on the Tax Redemption Date as a result of the redemption
or otherwise, if the Company determines that, as a result of (i) any change in,
or amendment to, the laws or treaties (or any regulations, protocols or rulings
promulgated thereunder) of the United Kingdom (or any political subdivision or
taxing authority of the United Kingdom) affecting taxation which change or
amendment becomes effective on or after the Issue Date, (ii) any change in
position regarding the application, administration or interpretation of such
laws, treaties, regulations or rulings (including a holding, judgment or order
by a court of competent jurisdiction), which change, amendment, application or
interpretation becomes effective on or after the Issue Date or (iii) the
issuance of Definitive Notes due to (A) DTC (as defined) being at any time
unwilling or unable to continue as or ceasing to be a clearing agency registered
under the Exchange Act, and a successor to DTC registered as a clearing agency
under the Exchange Act is not able to be appointed by the Company within 90 days
or (B) the Book-Entry Depositary being at any time unwilling or unable to
continue as a book-entry depositary and a successor Book-Entry Depositary is not
able to be appointed by the Company within 90 days, the Company is or on the
next interest payment date the Company would be, required to pay Additional
Amounts, and the Company determines that such payment obligation cannot be
avoided by the Company taking reasonable measures. Notwithstanding the
foregoing, no such notice of redemption shall be given earlier than 90 days
prior to the earliest date on which the Company would be obligated to make such
payment or withholding if a payment in respect of the Notes was then due. Prior
to the publication or, where relevant, mailing of any notice of redemption of
the Notes pursuant to the foregoing, the Company will deliver to the Trustee an
Opinion of Counsel to the effect that the circumstances referred to above exist.
The Trustee shall accept such
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opinion as sufficient evidence of the satisfaction of the conditions precedent
described above, in which event it shall be conclusive and binding on the
Holders.
GUARANTEE
Parent has irrevocably and unconditionally guaranteed (the "Note
Guarantee") on a senior unsecured basis the performance and punctual payment
when due, whether at Stated Maturity, by acceleration or otherwise, of all
obligations of the Company under the Indenture and the Notes, whether for
principal or interest on the Notes, expenses, indemnifications or otherwise (all
such obligations guaranteed by Parent pursuant to the Note Guarantee being
herein called the "Guaranteed Obligations"). Parent will agree to pay, on a
senior unsecured basis and in addition to the amount stated above, any and all
expenses (including reasonable counsel fees and expenses) incurred by the
Trustee or the Holders of the Notes in enforcing any rights under the Note
Guarantee with respect to Parent.
The Note Guarantee is a continuing guarantee and shall (i) remain in full
force and effect until payment in full of all the Guaranteed Obligations, (ii)
be binding upon Parent and (iii) enure to the benefit of and be enforceable by
the Trustee, the Holders of the Notes and their successors, transferees and
assigns.
RANKING
The Notes and the Note Guarantee are unsecured senior indebtedness of the
Company and Parent, respectively, will rank pari passu in right of payment with
all existing and future unsecured indebtedness of the Company and Parent,
respectively, other than Subordinated Obligations and will be senior in right of
payment to all existing and future Subordinated Obligations, except that the
lenders under the Credit Facility will have certain payment blockage rights. See
"-- Payment Blockage." The Notes and the Note Guarantee will be effectively
subordinated to any secured indebtedness of the Company and Parent,
respectively, to the extent of the value of the assets securing such
indebtedness and to all liabilities of their direct and indirect subsidiaries
(except, in the case of Parent, the Company). The Company and Parent are holding
companies that conduct all of their business through subsidiaries. Claims of
creditors of such subsidiaries, including trade creditors, secured creditors and
creditors holding indebtedness and guarantees issued by such subsidiaries and
claims of preferred stockholders (if any) of such subsidiaries generally will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of creditors of the Company and Parent, including holders of the
Notes. The Notes and the Note Guarantee, therefore, will be effectively
subordinated to creditors (including trade creditors) and preferred stockholders
(if any) of subsidiaries of the Company and Parent, respectively. As of December
31, 1997, after giving pro forma effect to the Transactions, Parent's
subsidiaries (other than the Company) would have had approximately $390.4
million of liabilities outstanding (including $280.0 million of indebtedness).
Although the Indenture limits the incurrence of Indebtedness and preferred stock
of certain of such subsidiaries, such limitation is subject to a number of
significant qualifications. Moreover, the Indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities that are not
considered Indebtedness under the Indenture. See "-- Certain
Covenants -- Limitation on Consolidated Indebtedness".
As described below, the Notes and the Note Guarantee are subject to certain
payment blockage provisions for the benefit of "Bank Indebtedness", which
consists of borrowings and other obligations under certain credit facilities of
subsidiaries of the Company. See "Payment Blockage".
PAYMENT BLOCKAGE
During the continuance of any default with respect to the Bank Indebtedness
(which is defined in the Indenture to mean obligations under certain credit
facilities of Subsidiaries of the Company) pursuant to which the maturity
thereof may be accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or the expiry of any
applicable
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grace periods, the Company may not pay the principal of, or premium, if any, or
interest on, the Notes (except for payments made from the trusts described under
"-- Defeasance") or make any deposit with respect to legal defeasance or
covenant defeasance and may not purchase, redeem or (except for Notes previously
acquired by the Company that are credited against the Company's mandatory
redemption requirement as described above under "-- Mandatory Redemption")
otherwise retire the Notes pursuant to a Change of Control, an Asset Sale or
otherwise and Parent may not make any payments under the Note Guarantee
(collectively, "pay the Notes") for a period (a "Payment Blockage Period")
commencing upon the receipt by the Company and the Trustee of written notice (a
"Payment Blockage Notice") of such default from the Representative under the
Credit Agreement specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (unless earlier terminated (i) by written notice to
the Trustee and the Company from the Representative that submitted such Payment
Blockage Notice or (ii) because such default is no longer continuing or (iii)
because the Bank Indebtedness has been paid in full in cash and any outstanding
letters of credit, bonds and guarantees under the Credit Agreement and any
Hedging Obligations Incurred in connection with the Credit Agreement have been
fully cash collateralized). Notwithstanding the provisions described in the
immediately preceding sentence, provided that the Notes have not become
immediately due and payable, the Company may cure any Event of Default in
relation to the Notes and resume payments on the Notes after the end of such
Payment Blockage Period. Not more than one Payment Blockage Notice may be given
in any consecutive 360-day period, irrespective of the number of defaults with
respect to the Bank Indebtedness during such period. No default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
shall be, or be made, the basis for commencement of a second Payment Blockage
Period by the Representative under the Credit Agreement whether or not within a
period of 360 consecutive days, unless such default shall have been cured or
waived for a period of not less than 180 consecutive days (it being acknowledged
that any subsequent action, omission or any breach of any financial covenants
for a period commencing after the date of commencement of such Payment Blockage
Period or other matter or thing that, in any case, would give rise to a default
pursuant to any provisions under which a default previously existed or was
continuing shall constitute a new default for this purpose).
The above described payment blockage provisions shall become permanently
inoperable upon the retirement of all Indebtedness Incurred pursuant to the
Credit Agreement or upon the amendment of the Credit Agreement to eliminate the
provisions relating to payment blockage.
As described below, subject to certain exceptions, the Indenture requires
Parent and the Company to include payment blockage provisions substantially the
same as those set forth above in any Indebtedness that either of them may Incur
in the future for so long as the Company or Parent is subject to the payment
blockage provisions described above.
SAME-DAY PAYMENT
The Indenture will require that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by those entitled to receive such
funds as described in the last paragraph of "-- Book-Entry Depositary Interest".
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Issuer on May 5, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to (i) qualified institutional buyers in
reliance on Rule 144A and (ii) qualified buyers outside the United
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States in reliance upon Regulation S under the Securities Act under the
Securities Act. As a condition to the Purchase Agreement, the Company and Parent
have agreed pursuant to an exchange and registration rights agreement (the
"Exchange and Registration Rights Agreement") with the Initial Purchasers, for
the benefit of the holders of the Notes, that the Company would, at its cost,
(i) within 60 days after the date of original issue of the Old Notes, file a
registration statement (the "Exchange Offer Registration Statement") with the
SEC with respect to a registered offer to exchange the Notes for new notes of
the Company (the "Exchange Notes") having terms substantially identical in all
material respects to the Old Notes (except that the Exchange Notes will not
contain terms with respect to transfer restrictions) and (ii) use its best
efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 150 days after the date of original
issue of the Old Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer the Exchange Notes in exchange
for surrender of the Old Notes. The Company will keep the Registered Exchange
Offer open for not less than 20 business days (or longer if required by
applicable law) after the date notice of the Registered Exchange Offer is mailed
to the holders of the Notes. For each Old Note surrendered to the Company
pursuant to the Registered Exchange Offer, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Note. Interest on each Exchange Note will accrue from the last
interest payment date on which interest was paid on the Note surrendered in
exchange thereof or, if no interest has been paid on such Old Note, from the
date of its original issue. Under existing SEC interpretations, the Exchange
Notes would be freely transferable by holders other than affiliates of the
Company after the Registered Exchange Offer without further registration under
the Securities Act if the holder of the Exchange Notes represents that it is
acquiring the Exchange Notes in the ordinary course of its business, that it has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the SEC; provided, however, that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Registered Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to Exchange Notes (other than a resale of an unsold allotment from
the original sale of the Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers and other persons, if
any, with similar prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such Exchange Notes.
A Holder of Old Notes (other than certain specified holders) who wishes to
exchange such Old Notes for Exchange Notes in the Registered Exchange Offer will
be required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
"affiliate" of the Company, as defined in Rule 405 of the Securities Act, or if
it is an affiliate, that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If (i) the Company is not permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or SEC policy or
(ii) any holder of Transfer Restricted Securities notifies the Company prior to
the 20th day following consummation of the Exchange Offer that (A) it is
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) that it may not sell the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and a prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales or (C) that it is a broker dealer and owns Notes acquired directly
from the Company or an affiliate of the Company, the Company will, at its cost,
(a) as promptly as practicable, file a shelf registration statement (a "Shelf
Registration Statement") covering resales of the Notes or the Exchange Notes, as
the case may be, (b) use its
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best efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act and (c) keep the Shelf Registration Statement effective
until the time when the Notes covered by the Shelf Registration Statement can be
sold pursuant to Rule 144 without any limitations under clauses (c), (e), (f)
and (h) of Rule 144. The Company will, in the event a Shelf Registration
Statement is filed, among other things, provide to each holder for whom such
Shelf Registration Statement was filed copies of the prospectus which is a part
of the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes or the Exchange Notes,
as the case may be. A holder selling such Notes or Exchange Notes pursuant to
the Shelf Registration Statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations). 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 an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Old Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Note has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Note is distributed to the public pursuant to Rule 144 under
the Securities Act.
If (i) by the 60th day after the date of original issuance of the Old
Notes, neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the SEC; (ii) by the 180th day after
the date of original issuance of the Notes, the Registered Exchange Offer is not
consummated; (iii) by the 45th day after the Company is obligated to file the
Shelf Registration Statement such filing has not occurred; (iv) by the 90th day
after the Company becomes obligated to file a Shelf Registration Statement such
Shelf Registration Statement has not been declared effective by the SEC or (v)
after either the Exchange Offer Registration Statement or the Shelf Registration
Statement is declared effective, such Registration Statement thereafter ceases
to be effective or usable (subject to certain exceptions) in connection with
resales of Notes or Exchange Notes in accordance with and during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (i) through (v) a "Registration Default"), additional interest will
accrue on the Transfer Restricted Securities from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured, such additional interest to
accrue at a rate of 0.25% per annum and increase by an additional 0.25% per
annum at the end of each 90-day period until all Registration Defaults have been
cured; provided, however, that such additional interest shall not exceed a rate
of 1.00% per annum. Such interest is payable in addition to any other interest
payable from time to time with respect to the Notes and the Exchange Notes.
If the Company effects the Registered Exchange Offer, it will be entitled
to close the Registered Exchange Offer 20 business days after the commencement
thereof provided that it has accepted all Notes theretofore validly tendered in
accordance with the terms of the Registered Exchange Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
The Issuer presently intends to submit an application to list the Exchange
Notes on the Luxembourg Stock Exchange and will seek clearance of the Exchange
Notes through Cedel Bank and Euroclear (and new codes shall be obtained). All
documentation prepared in connection with such listing of the Exchange Notes
will be available at the offices of the Luxembourg Paying Agent,
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which will provide all services and actions in connection with the Old Note
exchange. All notices to be given in connection with the Old Note Exchange and
any increase in the interest rate of the Old Notes will be made in the manner
described under "--Notices."
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Consolidated Indebtedness. (a) Parent shall not, and shall
not permit any Restricted Subsidiary to, Incur, directly or indirectly, any
Indebtedness; provided, however, that Parent and its Restricted Subsidiaries may
Incur Indebtedness if, on the date of such Incurrence, the Consolidated Debt to
EBITDA Ratio does not exceed the ratio indicated below:
<TABLE>
<CAPTION>
CONSOLIDATED DEBT
DATE OF INCURRENCE TO EBITDA RATIO
------------------ -----------------
<S> <C>
Period ended June 30, 1999.................................. 2.00 to 1.0
Period ended June 30, 2000.................................. 1.75 to 1.0
Period ended June 30, 2001
and thereafter............................................ 1.50 to 1.0
</TABLE>
(b) Notwithstanding the foregoing paragraph (a), Parent and its Restricted
Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Term Loan Facility;
provided, however, that, after giving effect to any such Incurrence, the
aggregate principal amount of all Indebtedness Incurred under this clause
(1) and then outstanding does not exceed $280 million less the aggregate
sum of all principal payments actually made from time to time after the
Issue Date with respect to such Indebtedness (other than principal payments
made from any Refinancings thereof);
(2) Indebtedness Incurred pursuant to the Revolving Credit Facility;
provided, however, that the aggregate principal amount outstanding at any
time under this clause (2) does not exceed $20 million;
(3) Indebtedness which is intercompany Indebtedness between or among
Parent and any of its Restricted Subsidiaries; provided, however, that (i)
any subsequent issuance or transfer of Capital Stock that results in any
such Indebtedness being held by a Person other than Parent or a Restricted
Subsidiary thereof or (ii) any sale or other transfer of any such
Indebtedness to a person that is not either Parent or a Restricted
Subsidiary thereof shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness by Parent or such Restricted Subsidiary, as
the case may be, that was not permitted by this clause (3);
(4) the Notes and the Exchange Notes;
(5) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3) or (4) of this covenant);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (4) or (5) or this clause
(6); provided, however, that Parent and its Restricted Subsidiaries shall
not Incur any Indebtedness pursuant to this paragraph (b)(6) if the
proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated to
the Notes to at least the same extent as such Subordinated Obligations;
(7) Hedging Obligations consisting of Interest Rate Agreements and
Currency Agreements directly related to Indebtedness permitted to be
Incurred by Parent or a Restricted Subsidiary pursuant to the Indenture;
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(8) Guarantees by Parent and its Restricted Subsidiaries of each
other's Indebtedness; provided that such Indebtedness is permitted to be
incurred under the Indenture; and
(9) other Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of Parent and the Restricted
Subsidiaries outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (1) through (7) above or paragraph (a))
does not exceed $10 million.
(c) For purposes of determining compliance with the foregoing paragraphs
(a) and (b), (i) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, Parent, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
(d) Neither Parent nor the Company shall Incur any Indebtedness (exclusive
of Hedging Obligations) unless such Indebtedness is subject to payment blockage
provisions that are substantially the same as those described above under
"Payment Blockage" for so long as the Notes are subject to such provisions (for
the avoidance of doubt it is understood that this clause shall not apply to the
Incurrence of Indebtedness by Restricted Subsidiaries other than the Company).
Limitation on Restricted Payments. (a) Parent shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time Parent or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) Parent is not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Consolidated Indebtedness"; or (3) the aggregate amount of
such Restricted Payment and all other Restricted Payments since the Issue Date
would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
during which the Notes are originally issued to the end of the most recent
fiscal quarter for which financial statements are publicly available on the
date of such Restricted Payment (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit); provided, however, that
the incremental amount added to amounts otherwise available under this
clause (A) shall not exceed (i) $20.0 million for any 12-month period
ending on or before June 30, 2002 and (ii) $15.0 million for any 12-month
period ending after June 30, 2002; provided further, however, that, for
purposes of this clause (A), Consolidated Net Income shall be calculated in
the same manner as for determining whether an Incurrence of Indebtedness
would be permitted pursuant to the covenant described under "-- Limitation
on Consolidated Indebtedness";
(B) the aggregate Net Cash Proceeds received by Parent from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of Parent and other than an issuance or sale to an employee
stock ownership plan or to a trust established by Parent or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of Parent is reduced on Parent's
balance sheet upon the conversion or exchange (other than by a Subsidiary
of Parent) subsequent to the Issue Date of any Indebtedness of Parent
convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of Parent (less the amount of any cash, or the fair value of any
other property, distributed by Parent upon such conversion or exchange);
and
(D) an amount equal to the sum of (i) the net reduction in Investments
(other than Investments in Restricted Subsidiaries) resulting from
dividends, repayments of loans or advances or other transfers of assets, in
each case to Parent or any Restricted Subsidiary, or sales of assets to
third parties and (ii) the portion (proportionate to Parent's equity
interest in
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such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the amount in
clause (ii) shall not exceed, in the case of any Unrestricted Subsidiary,
the amount of Investments previously made (and treated as a Restricted
Payment) by Parent or any Restricted Subsidiary in such Unrestricted
Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of any Capital Stock of Parent or any purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value of Subordinated Obligations made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of Parent
(other than Disqualified Stock and other than Capital Stock issued or sold
to a Subsidiary of Parent or an employee stock ownership plan or to a trust
established by Parent or any of its Subsidiaries for the benefit of their
employees); provided, however, that such Restricted Payment shall be
excluded in the calculation of the amount of Restricted Payments;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock (other than Disqualified Stock) of Parent or Indebtedness
of Parent which is permitted to be Incurred pursuant to the covenant
described under "--Limitation on Consolidated Indebtedness"; provided,
however, that such purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value shall be excluded in the calculation of
the amount of Restricted Payments;
(iii) the payment of any dividend or the consummation of any
irrevocable redemption within 60 days after the date of declaration of such
dividend or notice of such redemption if the dividend or payment of the
redemption price, as the case may be, would have been permitted on the date
of declaration or notice; provided, however, that at the time of payment of
such dividend or redemption, no other Default shall have occurred and be
continuing (or result therefrom); provided further, however, that such
dividend or redemption shall be included in the calculation of the amount
of Restricted Payments; or
(iv) the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of Parent or any of its Subsidiaries from
employees, former employees, directors or former directors of Parent or any
of its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
such common stock; provided, however, that the aggregate amount of such
repurchases and other acquisitions shall not exceed $0.5 million in any
calendar year; provided further, however, that such repurchases and other
acquisitions shall be excluded in the calculation of the amount of
Restricted Payments;
(v) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the exercise
price thereof; or
(vi) distributions to Great Lakes to fund the Transactions and to make
the Special Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. Parent shall not, and shall not permit any Restricted Subsidiary
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to Parent or a Restricted
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Subsidiary or pay any Indebtedness owed to Parent, (b) make any loans or
advances to Parent or (c) transfer any of its property or assets to Parent,
except:
(i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date, including the Credit Agreement;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by Parent (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by Parent) and outstanding on such
date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement referred to in clause (i) or
(ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less
favorable to the Noteholders than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such predecessor
agreements;
(iv) any such encumbrance or restriction consisting of customary non
assignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
thereunder;
(v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; and
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) Parent shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) Parent or such Restricted Subsidiary
receives consideration at the time of such Asset Disposition at least equal to
the fair market value (including as to the value of all non-cash consideration),
as determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 85% of the consideration thereof
received by Parent or such Restricted Subsidiary is in the form of cash or cash
equivalents and (ii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by Parent (or such Restricted Subsidiary, as the
case may be) (A) to the extent Parent elects (or is required by the terms of any
Indebtedness), to prepay, repay, redeem or purchase Indebtedness (other than
Subordinated Obligations) of Parent or the Company or Indebtedness (other than
any Disqualified Stock) of a Restricted Subsidiary (in each case other than
Indebtedness owed to Parent or an Affiliate of Parent) within one year from the
later of the date of such Asset Disposition or the receipt of such Net Available
Cash; (B) to the extent Parent elects, to acquire Additional Assets within one
year from the later of the date of such Asset Disposition or the receipt of such
Net Available Cash; and (C) to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A) and (B), to cause the
Company to make an offer to the holders of the Notes (and if necessary or
desirable to holders of other Indebtedness designated by Parent) to purchase
Notes (and such other Indebtedness) pursuant to and subject to the conditions
contained in the Indenture (provided that if Parent or the Company would be
prohibited from repurchasing Notes in accordance with this clause (a)(ii)(C) by
the terms of any Indebtedness described in clause (a)(ii)(A) above,
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Parent shall be required, at its option, either to repay such Indebtedness or to
obtain any required consents under the instruments governing any such
Indebtedness in order to permit the repurchase of the Notes), in each case
within one year from the later of the receipt of such Net Available Cash and the
date the offer described in clause (b) below is consummated; provided, however,
that in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A) or (C) above, Parent or such Restricted Subsidiary shall
permanently retire such Indebtedness and shall cause the related loan commitment
(if any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this
paragraph, Parent and the Restricted Subsidiaries shall not be required to apply
any Net Available Cash in accordance with this paragraph except to the extent
that the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this paragraph exceeds $5.0 million. Pending
application of Net Available Cash pursuant to this covenant, such Net Available
Cash may be used for any purpose not prohibited by the Indenture.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of Parent or any Restricted
Subsidiary and the release of Parent or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition and (y)
securities received by Parent or any Restricted Subsidiary from the transferee
that are promptly converted by Parent or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Indebtedness) pursuant to clause (a)(ii)(C) above, Parent will
be required to cause the Company to purchase Notes tendered pursuant to an offer
by Parent and the Company for the Notes (and other Indebtedness) at a purchase
price of 100% of their principal amount (without premium) plus accrued but
unpaid interest (or, in respect of such other Indebtedness, such greater or
lesser price, if any, as may be provided for by the terms of such Indebtedness)
in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. Parent shall not be required to
cause the Company to make such an offer to purchase Notes (and other
Indebtedness) pursuant to this covenant if the Net Available Cash available
therefor is less than $7.5 million (which lesser amount shall be carried forward
for purposes of determining whether such an offer is required with respect to
the Net Available Cash from any subsequent Asset Disposition). To the extent
that the aggregate amount of Notes tendered pursuant to clause (a)(ii)(C) above
is less than the Net Available Cash, Parent may use any remaining Net Available
Cash for general corporate purposes. Upon completion of any such offer pursuant
to clause (a)(ii)(C), the Net Available Cash amount shall be reset at zero.
(c) Parent and the Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Parent and the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached their obligations under this clause by virtue
thereof.
Limitation on Affiliate Transactions. (a) Parent shall not, and shall not
permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of Parent (an "Affiliate Transaction") unless the terms thereof (1)
are no less favorable to Parent or such Restricted Subsidiary than those that
could be obtained at the time of such transaction in arm's-length dealings with
a Person who is not such an Affiliate, (2) if such Affiliate Transaction
involves an amount in excess of $2.0 million, (i) are set forth in writing and
(ii) have been approved by a majority of the members of the Board of Directors
having no personal stake in such Affiliate Transaction or have been determined
by a nationally recognized appraisal or investment banking firm to be fair, from
a financial standpoint, to Parent and its Restricted Subsidiaries and (3) if
such Affiliate Transaction involves an amount in excess of $7.5 million, have
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been determined by a nationally recognized appraisal or investment banking firm
to be fair, from a financial standpoint, to Parent and its Restricted
Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "-- Limitation on Restricted Payments", (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of Parent and its
Restricted Subsidiaries pursuant to plans approved by the Board of Directors,
(iv) loans or advances to employees in the ordinary course of business in
accordance with the past practices of Parent or its Restricted Subsidiaries, but
in any event not to exceed $0.5 million in the aggregate outstanding at any one
time, (v) reasonable fees and compensation paid to, and indemnity provided on
behalf of, officers, directors, employees or consultants of Parent or any
Restricted Subsidiary as determined in good faith by Parent's Board of Directors
or senior management, (vi) any Affiliate Transaction between Parent and a
Restricted Subsidiary or between Restricted Subsidiaries, (vii) the issuance or
sale of any Capital Stock (other than Disqualified Stock) of Parent and (viii)
transactions and agreements with Great Lakes and its Affiliates as described
herein arising out of the Spinoff and the Reorganization.
Repurchase of Notes upon a Change of Control. (a) Upon the occurrence of a
Change of Control, each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date) in
accordance with the terms contemplated in paragraph (b) below; provided,
however, that notwithstanding the occurrence of a Change of Control, the Company
shall not be obligated to purchase Notes pursuant to this covenant in the event
that the Company has theretofore exercised its right to redeem all the Notes as
described under "-- Optional Redemption" above.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness or other Indebtedness restrict or prohibit the repurchase of
Notes pursuant to this provision, then prior to the mailing of the notice to
Holders provided for in the next paragraph below but in any event within 30 days
following any Change of Control, the Company covenants to (i) repay in full all
Bank Indebtedness or such other Indebtedness or to offer to repay in full all
Bank Indebtedness or such other Indebtedness and to repay the Bank Indebtedness
or such other Indebtedness of each lender who has accepted such offer or (ii)
obtain the requisite consent under the agreements governing the Bank
Indebtedness or such other Indebtedness to permit the repurchase of the Notes as
provided for in this covenant.
(b)(i) Subject to paragraph (b)(ii), promptly, and in any event within 30
days following the date upon which the Company becomes aware that a Change of
Control has occurred, Parent and the Company shall, so long as the Notes are
listed on the Luxembourg Stock Exchange and the rules of such Stock Exchange
shall so require, publish notice thereof in a newspaper having a general
circulation in Luxembourg (which is expected to be the Luxemburger Wort) and, in
the case of Definitive Notes, shall also mail a notice to each Holder at its
address appearing in the register of Holders, with a copy to the Trustee, which
notice shall govern the terms of the Change of Control Offer (the "Change of
Control Offer"). For so long as any Notes are represented by Global Notes, the
Change of Control Offer shall (in addition to publication as described above)
also be given by delivery of the notice to DTC, Euroclear and/or Cedel Bank (as
the case may be) for communication to the relative Holders of the Book-Entry
Interests. Such notice shall state: (1) that a Change of Control has occurred
and that such Holder has the right to require the Company to purchase such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders on the relevant record date to receive interest
on the relevant interest payment date); (2) the circumstances and relevant facts
regarding such Change of Control (including information with respect to
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pro forma historical income, cash flow and capitalization after giving effect to
such Change of Control); (3) the repurchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Company, consistent with the covenant described
hereunder, that a Holder must follow in order to have its Notes purchased.
(ii) 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.
(c) Parent and the Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, Parent and the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached their
obligations under the covenant described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenant described under "-- Certain Covenants -- Limitation on Consolidated
Indebtedness," "-- Limitation on Liens" and "-- Limitation on Sale/Leaseback
Transactions." Such restrictions can only be waived with the consent of the
holders of a majority in principal amount of the Notes then outstanding. Except
for the limitations contained in such covenants, however, the Indenture will not
contain any covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
The Credit Agreement restricts the Company's ability to purchase Notes
prior to termination of the Credit Agreement in 2001, and also provides that the
occurrence of certain change of control events with respect to the Company would
constitute a default thereunder. In the event a Change of Control occurs at a
time when the Company is prohibited from purchasing Notes, the Company could
seek the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the Indenture
which would, in turn, constitute a default under the Credit Agreement. In such
circumstances, the payment blockage provisions in the Indenture would, in the
event the Bank Indebtedness was due and payable or subject to acceleration,
likely restrict payment to the Holders of Notes for up to 179 days.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be
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no assurance that sufficient funds will be available when necessary to make any
required repurchases.
The provisions under the Indenture relative to the Company's obligation to
make an offer to repurchase the Notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the Notes.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Parent shall not sell or otherwise dispose of any Capital Stock of
a Restricted Subsidiary, and shall not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell or otherwise dispose of any of its
Capital Stock except (i) to Parent or a Restricted Subsidiary, (ii) if,
immediately after giving effect to such issuance, sale or other disposition,
neither Parent nor any of its Subsidiaries own any Capital Stock of such
Restricted Subsidiary or (iii) if, immediately after giving effect to such
issuance, sale or other disposition, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such Person remaining
after giving effect thereto would have been permitted to be made under the
covenant described under "-- Limitation on Restricted Payments" if made on the
date of such issuance, sale or other disposition.
Limitation on Liens. Parent shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur or permit to exist any Lien of any
nature whatsoever on any of its properties (including Capital Stock of a
Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired,
other than Permitted Liens, without effectively providing that the Notes shall
be secured equally and ratably with (or prior to) the obligations so secured for
so long as such obligations are so secured.
Limitation on Sale/Leaseback Transactions. Parent shall not, and shall not
permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction
with respect to any property unless (i) Parent or such Subsidiary would be
entitled to (A) Incur Indebtedness in an amount equal to the Attributable Debt
with respect to such Sale/Leaseback Transaction pursuant to the covenant
described under "-- Limitation on Consolidated Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Notes pursuant to the covenant described under
"-- Limitation on Liens," (ii) the net proceeds received by Parent or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors) of such
property and (iii) Parent applies the proceeds of such transaction in compliance
with the covenant described under "-- Limitation on Sale of Assets and
Subsidiary Stock."
Limitation on Lines of Business. Neither Parent nor the Company shall and
shall not permit any Restricted Subsidiary to, directly or indirectly, engage in
any business other than a Related Business.
Merger and Consolidation. Neither Parent nor the Company shall consolidate
with or merge with or into, or convey, transfer or lease, in one transaction or
a series of transactions, all or substantially all its assets to, any other
Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a Person organized and existing under the laws of
England and Wales or the laws of the United States of America, any State thereof
or the District of Columbia and the Successor Company (if not Parent or the
Company) shall expressly assume, by an indenture supplemental thereto, executed
and delivered to the Trustee, in form reasonably satisfactory to the Trustee,
all the obligations of Parent or the Company under the Note Guarantee or the
Notes and the Indenture, respectively; (ii) immediately after giving effect to
such transaction (and treating any Indebtedness which becomes an obligation of
the Successor Company or any Subsidiary as a result of such transaction as
having been Incurred by such Successor Company or such Subsidiary at the time of
such transaction), no Default shall have occurred and be continuing; (iii)
except in the case of a merger of Parent or the Company with or into a Wholly
Owned Subsidiary of Parent or the Company, respectively, and except in the case
of a merger entered into solely for the purpose of reincorporating Parent or the
Company in another jurisdiction, immediately after giving effect to such
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transaction, the Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Consolidated Indebtedness;" (iv) immediately after giving
effect to such transaction, the Successor Company shall have Consolidated Net
Worth in an amount that is not less than the Consolidated Net Worth of Parent or
the Company, as the case may be, immediately prior to such transaction; (v)
Parent or the Company, as the case may be, shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture; and (vi) Parent or the Company, as the case may be,
shall have delivered to the Trustee Opinions of Counsel to the effect that (A)
the Holders will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such transaction; (B) any payment of principal,
redemption price or purchase price of, premium (if any), Additional Amounts (if
any) and interest on the Notes by the Successor Company to a Holder after the
consolidation, merger, conveyance, transfer or lease of assets will be exempt
from the Taxes described and defined under "-- Withholding Taxes" and (C) no
other taxes on income (including taxable capital gains) will be payable under
the laws of the United Kingdom or any other jurisdiction where the Successor
Company is or becomes located by a Holder of the Notes who is not or is not
deemed to be a resident of the United Kingdom or other jurisdiction where the
Successor Company is or becomes located and does not carry on a trade in the
United Kingdom through a branch, agency or permanent establishment to which the
Notes of that Holder are attributable (or, as the case may be, does not carry on
any business activities through a branch, agency or permanent establishment in
such other jurisdiction where the Successor Company is or becomes located) in
respect of the acquisition, ownership or disposition of Notes, including the
receipt of principal, premium (if any), Additional Amounts (if any) or interest
paid pursuant to such Notes.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Parent or the Company under the Note
Guarantee or the Indenture, as the case may be, but the predecessor company in
the case of a conveyance, transfer or lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the Notes.
SEC Reports. Notwithstanding that Parent may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Parent shall
file with the SEC and provide the Trustee and Noteholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest or any Additional Amounts on the Notes when due, continued
for 30 days, (ii) a default in the payment of principal of any Note when due at
its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by Parent or the Company to comply
with its obligations under "-- Certain Covenants -- Merger and Consolidation"
above, (iv) the failure by the Company to comply for 30 days after written
notice with any of their obligations in the covenants described above under
"-- Certain Covenants" under "-- Limitation on Consolidated Indebtedness,"
"-- Limitation on Restricted Payments," "-- Limitation on Restrictions on
Distributions from Restricted Subsidiaries," "-- Limitation on Sales of Assets
and Subsidiary Stock" (other than a failure to purchase Notes), "-- Limitation
on Affiliate Transactions," "-- Repurchase of Notes upon a Change of Control"
(other than a failure to purchase Notes), "-- Limitation on the Sale or Issuance
of Capital Stock of Restricted Subsidiaries," "-- Limitation on Liens,"
"-- Limitation on Sale/Leaseback Transactions," "-- Limitation on Lines of
Business," or "-- SEC Reports," (v) the failure by Parent or the Company to
comply for 60 days after written notice with their other agreements contained in
the Indenture, (vi) Indebtedness of Parent, the Company or any Significant
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Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
principal amount or accreted value of such Indebtedness unpaid or accelerated
exceeds $5.0 million (the "cross acceleration provision"), (vii) certain events
of bankruptcy, insolvency or reorganization of Parent, the Company or a
Significant Subsidiary (the "bankruptcy provisions") or (viii) any judgment or
decree for the payment of money in excess of $5.0 million is entered against
Parent, the Company or a Significant Subsidiary, remains outstanding for a
period of 60 days following such judgment and is not discharged, waived or
stayed (the "judgment default provision"). However, a default under clauses (iv)
and (v) will not constitute an Event of Default until the Trustee or the holders
of 25% in principal amount of the outstanding Notes notify the Company of the
default and Parent or the Company does not cure such default within the time
specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable by notice in writing to the Company (and the Trustee, if applicable)
specifying the Event of Default and that such notice is a "notice of
acceleration" ("Acceleration Notice"), and the same shall become immediately due
and payable; provided, however, that until such time as the Bank Indebtedness is
paid in full, no such Acceleration Notice with respect to an Event of Default
described in clause (i) of the preceding paragraph shall be effective until the
earlier of (a) the fifth Business Day after the giving of the Acceleration
Notice to the Company and the Representative under the Credit Agreement (but
only if such Event of Default is then continuing) and (b) the acceleration of
the Bank Indebtedness, in each case subject to the provisions described under
"--Payment Blockage." Upon such a declaration, such principal and interest shall
be due and payable immediately. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of Parent or the Company
occurs and is continuing, the principal of and interest on all the Notes will
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences. Subject to the provisions of the Indenture relating to the duties
of the Trustee, in case an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Notes unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
of a Note may pursue any remedy with respect to the Indenture or the Notes
unless (i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate
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indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Parent or
the Company, as such, shall have any liability for any obligations of Parent or
the Company under the Note Guarantee, the Notes or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of the Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver may not be effective to waive liabilities
under federal securities laws and it is the view of the SEC that such a waiver
is against public policy.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a purchase of, or a
tender offer or exchange for, the Notes) and any past default or compliance with
any provisions may also be waived with the consent of the holders of a majority
in principal amount of the Notes then outstanding (including consents obtained
in connection with a purchase of, or tender offer or exchange offer for, Notes).
However, without the consent of each holder of an outstanding Note affected
thereby, no amendment may, among other things, (i) reduce the amount of Notes
whose holders must consent to an amendment, (ii) reduce the rate of or extend
the time for payment of interest on any Note, (iii) reduce the principal of or
extend the Stated Maturity of any Note, (iv) reduce the amount payable upon the
redemption of any Note or change the time at which any Note may be redeemed as
described under "-- Optional Redemption" or "Redemption for Taxation Reasons"
above or shall be redeemed as described under "-- Mandatory Redemption" above,
(v) make any Note payable in money other than that stated in the Note, (vi)
impair the right of any holder of the Notes to receive payment of principal of
and interest on such holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
holder's Notes, (vii) make any change in the amendment provisions which require
each holder's consent or in the waiver provisions, or (viii) make any change in
the provisions of the Indenture described under "-- Withholding Taxes" that
adversely affects the rights of any Noteholder or amend the terms of the Notes
or the Indenture in a way that would result in the loss of an exemption from any
of the Taxes described thereunder.
Without the consent of any holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder of the Notes or
to comply with any requirement of the SEC in connection with the qualification
of the Indenture under the Trust Indenture Act. However no amendment may be made
to the Payment Blockage Provisions of the Indenture that adversely affects the
rights of any holder of Bank Indebtedness then outstanding unless the holders of
such Bank Indebtedness (or their Representative) consent to such change to the
extent such consent is required pursuant to the terms of such Bank Indebtedness.
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The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
NOTICES
Notices regarding the Notes will be (so long as the Notes are listed on the
Luxembourg Stock Exchange and the rules of such stock exchange shall so require)
published in a newspaper having a general circulation in Luxembourg (which is
expected to be the Luxemburger Wort) and, in the case of Definitive Notes, shall
also be mailed by first class mail to each Holder of Notes at its address
appearing in the register of Holders. For so long as any Notes are represented
by the Global Note, notices to Holders shall (in addition to publication as
described above) also be given by delivery of the relevant notice to DTC,
Euroclear and/or Cedel Bank (as the case may be) for communication to the
relative Holders of the Book-Entry Interests. If and so long as the Notes are
listed on any securities exchange, notices will also be given in accordance with
any applicable requirements of such securities exchange. Notices given by
publication will be deemed given on the first date on which publication is made
and notices given by first-class mail, postage prepaid, will be deemed given
five calendar days after mailing.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of Definitive Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "-- Certain Covenants" (other than the covenant described under
"-- Merger and Consolidation"), the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under "-- Defaults" above and the
limitations contained in clauses (iii) and (iv) under "-- Certain
Covenants -- Merger and Consolidation" above ("covenant defeasance"). In the
event that the Company exercises its legal defeasance option (but not its
covenant defeasance option), Parent will be released from all of its obligations
with respect to the Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "-- Certain
Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that (i) holders of the Notes will not recognize income, gain or loss for
U.S. Federal income tax purposes as a result of such deposit and defeasance and
will be subject to U.S. Federal income tax and United Kingdom income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and,
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in the case of legal defeasance only, such Opinion of Counsel as to U.S. Federal
income tax must be based on a ruling of the Internal Revenue Service or other
change in applicable U.S. Federal income tax law) and (ii) after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally under any applicable English or U.S. Federal or
state law, and that the Trustee has a perfected security interest in such trust
funds for the ratable benefit of the Holders.
CONCERNING THE TRUSTEE
IBJ Schroder Bank & Trust Company is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes. The Paying Agent shall at all times be a separate legal entity
from the Book-Entry Depositary.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
ENFORCEABILITY OF JUDGMENTS
Since substantially all of the operating assets of the Company and its
Subsidiaries are outside the United States, any judgment obtained in the United
States against the Company or a Subsidiary, including judgments with respect to
the payment of principal, premium, if any, interest, Additional Amounts, if any,
redemption price and any purchase price with respect to the Notes, may not be
collectible within the United States.
CONSENT TO JURISDICTION AND SERVICE
The Indenture will provide that the Company will appoint CT Corporation
System, 1633 Broadway, New York, New York 10019 as its agent for actions brought
under Federal or state securities laws brought in any Federal or state court
located in the Borough of Manhattan in The City of New York and will submit to
such jurisdiction.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a
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Restricted Subsidiary; provided, however, that any such Restricted Subsidiary
described in clauses (ii) or (iii) above is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Restricted Payments," "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of Parent or of rights or warrants to purchase
such Capital Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Disposition" means any sale, lease (other than operating leases
entered into in the ordinary course of business), transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by Parent or any
Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than Parent or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of Parent or any Restricted Subsidiary or (iii) any other
assets of Parent or any Restricted Subsidiary outside of the ordinary course of
business of Parent or such Restricted Subsidiary; provided, however, that Asset
Disposition shall not include (A) a disposition by a Restricted Subsidiary to
Parent or by Parent or a Restricted Subsidiary to a Restricted Subsidiary, (B)
for purposes of the covenant described under "-- Certain Covenants -- Limitation
on Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a
Restricted Payment permitted by the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments", (C) disposition of assets with
a fair market value of less than $250,000, (D) the disposition of all or
substantially all of the assets of Parent or the Company as permitted under the
provisions described above at the caption "-- Certain Covenants -- Merger and
Consolidation", (E) the factoring of accounts receivable arising in the ordinary
course of business pursuant to arrangements customary in the industry, (F) the
licensing of intellectual property and (G) disposals or replacements of
obsolete, uneconomical, negligible, worn out or surplus property in the ordinary
course of business.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/ Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means all Obligations pursuant to the Credit Agreement.
"Banks" has the meaning specified in the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board; provided,
however, that "Board of Directors" means the Board of Directors of Parent when
designated as such.
"Business Day" means each day which is not a Legal Holiday.
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"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that for purposes of this
clause (i) such person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 40% of the total voting power of the
Voting Stock of Parent; provided that a Change of Control shall be deemed
not to have occurred where (through a merger, consolidation or other
transaction) Parent becomes a Wholly Owned Subsidiary of a holding company
substantially all of the Voting Stock of which is held by shareholders of
Parent immediately prior to such transaction (a "Parent Reorganization");
(ii) individuals who on the Issue Date constituted the Board of
Directors of the Company or Parent, as the case may be (together with any
new directors whose election by such Board of Directors of the Company or
Parent, as the case may be, or whose nomination for election by the
shareholders of the Company or Parent, as the case may be, was approved by
a vote of 66 2/3% of the directors of the Company or Parent, as the case
may be, then still in office who were either directors on the Issue Date or
whose election or nomination for election was previously so approved),
cease for any reason to constitute a majority of the Board of Directors of
the Company or Parent, as the case may be, then in office;
(iii) the merger or consolidation of Parent with or into another
Person or the merger of another Person with or into Parent, or the sale of
all or substantially all the assets of Parent to another Person, and, in
the case of any such merger or consolidation, the securities of Parent that
are outstanding immediately prior to such transaction and which represent
100% of the aggregate voting power of the Voting Stock of Parent are
changed into or exchanged for cash, securities or property, unless pursuant
to such transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving
corporation that represent immediately after such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the surviving
corporation; provided that a Change of Control shall be deemed not to have
occurred solely as a result of a Parent Reorganization;
(iv) the failure at any time by (A) Parent to beneficially own (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, 100% of the Voting Stock of the Company and, after the
occurrence of the Spinoff, Octel or (B) the Company to beneficially own (as
so defined), directly or indirectly, at least 98.78% of Octel; or
(v) the adoption of a plan relating to the liquidation or dissolution
of Parent or the Company.
For the avoidance of doubt, the occurrence of the Spinoff shall not
constitute a Change of Control.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Notes.
"Comparable Treasury Price" means with respect to any Redemption Date for
the Notes (i) the average of three Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference Treasury
Dealer Quotations, or (ii) if the Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such quotations.
"Consolidated Debt to EBITDA Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of Indebtedness of Parent and its
Restricted Subsidiaries calculated on a consolidated basis as of the end of the
most recent fiscal quarter for which financial statements are publicly available
prior to the date of such determination (such fiscal quarter being herein called
the "most recent fiscal quarter") to (ii) EBITDA for the four consecutive fiscal
quarters ending with the most recent fiscal quarter for which financial
statements are publicly available (the "Reference Period"); provided, however,
that
(1) if Parent or any Restricted Subsidiary has Incurred any
Indebtedness since the end of the Reference Period that remains outstanding
or if the transaction giving rise to the need to calculate the Consolidated
Debt to EBITDA Ratio is an Incurrence of Indebtedness, the amount of such
Indebtedness shall be calculated after giving effect on a pro forma basis
to such Indebtedness as if such Indebtedness had been outstanding as of the
end of the most recent fiscal quarter and to the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such new Indebtedness had been
Incurred and such other Indebtedness had been discharged as of the end of
such fiscal quarter;
(2) if Parent or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness that was outstanding as
of the end of the most recent fiscal quarter or if any Indebtedness that
was outstanding as of the end of the most recent fiscal quarter is to be
repaid, repurchased, defeased or otherwise discharged on the date of the
transaction giving rise to the need to calculate the Consolidated Debt to
EBITDA Ratio (other than, in each case, Indebtedness Incurred under any
revolving credit agreement unless such Indebtedness has been permanently
repaid and has not been replaced), the aggregate amount of Indebtedness
shall be calculated on a pro forma basis as if such discharge has occurred
as of the end of the most recent fiscal quarter and EBITDA shall be
calculated as if Parent or such Restricted Subsidiary had not earned the
interest income, if any, actually earned during the Reference Period in
respect of cash or Temporary Cash Investments used to repay, repurchase,
defease or otherwise discharge such Indebtedness;
(3) if since the beginning of the Reference Period (including on the
date of the transaction giving rise to the need to calculate the
Consolidated Debt to EBITDA Ratio) Parent or any Restricted Subsidiary
shall have made any Asset Disposition, the EBITDA for the Reference Period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition
for the Reference Period or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for the Reference Period;
(4) if since the beginning of the Reference Period (including on the
date of the transaction giving rise to the need to calculate the
Consolidated Debt to EBITDA Ratio) Parent or any Restricted Subsidiary (by
merger or otherwise) shall have made an Investment in any Restricted
Subsidiary (or any Person which becomes a Restricted Subsidiary) or an
acquisition of assets which constitutes all or substantially all of an
operating unit of a business, EBITDA for the Reference Period shall be
calculated after giving pro forma effect thereto (including the
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Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of the Reference Period (and irrespective of the
method (purchase or pooling) of accounting for such Investment or
acquisition of assets); and
(5) if since the beginning of the Reference Period (including on the
date of the transaction giving rise to the need to calculate the
Consolidated Debt to EBITDA Ratio) any Person (that subsequently became a
Restricted Subsidiary or was merged with or into Parent or any Restricted
Subsidiary since the beginning of such Reference Period) shall have made
any Asset Disposition, any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (3) or (4) above if made by
Parent or a Restricted Subsidiary during the Reference Period, EBITDA for
the Reference Period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition occurred on
the first day of the Reference Period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of EBITDA relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of Parent. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of Parent and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such total interest expense, and to the extent incurred
by Parent or its Restricted Subsidiaries, without duplication, (i) interest
expense attributable to capital leases and the interest expense attributable to
leases constituting part of a Sale/Leaseback Transaction, (ii) amortization of
debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash
interest expenses, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi) net
costs associated with Hedging Obligations (including amortization of fees),
(vii) Preferred Stock dividends (other than dividends paid in Capital Stock of
Parent (other than Disqualified Stock)) in respect of all Preferred Stock of
Parent or a Restricted Subsidiary held by Persons other than Parent or a Wholly
Owned Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) Parent or any Restricted Subsidiary and (x) the cash contributions to
any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than Parent) in connection with Indebtedness Incurred by such plan
or trust.
"Consolidated Net Income" means, for any period, the net income of Parent
and its consolidated Subsidiaries; provided, however, that there shall not be
included in such Consolidated Net Income:
(i) any net income of any Person (other than Parent) if such Person is
not a Restricted Subsidiary, except that (A) subject to the exclusion
contained in clause (iv) below, Parent's equity in the net income of any
such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to Parent or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained
in clause (iii) below) and (B) Parent's equity in a net loss of any such
Person for such period shall be included in determining such Consolidated
Net Income;
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(ii) any net income (or loss) of any Person acquired by Parent or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Parent; provided, however, that (A)
subject to the exclusion contained in clause (iv) below, Parent's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to
Parent or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause) and (B)
Parent's equity in a net loss of any such Restricted Subsidiary for such
period shall be included in determining such Consolidated Net Income;
provided further, however, that, for purposes of determining whether an
Incurrence of Indebtedness (1) by Parent will be permitted pursuant to the
covenant described under "-- Limitation on Consolidated Indebtedness", the
entire net income of each Restricted Subsidiary that is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions to Parent will be included in determining
Consolidated Net Income so long as the agreements or instruments imposing
such restrictions (including with respect to the Indebtedness being
Incurred) permit such Restricted Subsidiary to pay dividends or make
distributions sufficient to pay interest on the Indebtedness being Incurred
and any other Indebtedness of Parent in existence as of the date of
determination and (2) by a Restricted Subsidiary (including the Company)
(the "Borrowing Subsidiary") will be permitted pursuant to the covenant
described under "-- Limitation on Consolidated Indebtedness", the entire
net income of the Borrowing Subsidiary will be included in determining
Consolidated Net Income and the entire net income of each Restricted
Subsidiary that is a Subsidiary of the Borrowing Subsidiary and that is
subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions to Parent will be included in
determining Consolidated Net Income so long as the agreements or
instruments imposing such restrictions (including with respect to the
Indebtedness being Incurred) permit such Restricted Subsidiary to pay
dividends or make distributions sufficient to pay interest on the
Indebtedness being Incurred and any other Indebtedness of the Borrowing
Subsidiary and Indebtedness of Parent in existence as of the date of
determination;
(iv) any gain (but not loss) realized upon the sale or other
disposition of any assets of Parent, its consolidated Subsidiaries or any
other Person (including pursuant to any sale-and-leaseback arrangement)
which is not sold or otherwise disposed of in the ordinary course of
business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person together with any related
tax effects according to GAAP associated with the foregoing;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of Parent and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of Parent ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of Parent plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Credit Agreement" means the Facility Agreement dated April 27, 1998, by
and among Octel, certain of its Subsidiaries, the lenders referred to therein,
and Goldman Sachs Credit Partners, L.P. and Barclays Bank PLC, as joint
arrangers and joint syndication agents, together with the related
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documents thereto (including the term loans and revolving loans thereunder, any
guarantees and security documents), as amended, extended, renewed, restated,
supplemented or otherwise modified (in whole or in part, and without limitation
as to amount, terms, conditions, covenants and other provisions) from time to
time, and any agreement (and related document) governing Indebtedness incurred
to refund or refinance, in whole or in part, the borrowings and commitments then
outstanding or permitted to be outstanding under such Credit Agreement or a
successor Credit Agreement, whether by the same or any other lender or group of
lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain events
or otherwise, by such Person at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if (x) the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the terms applicable to the Notes and described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and
"-- Certain Covenants -- Repurchase of Notes upon a Change of Control" and (y)
any such requirement only becomes operative after compliance with such terms
applicable to the Notes, including the purchase of any Notes tendered pursuant
thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of Parent
and its consolidated Restricted Subsidiaries, (b) depreciation expense of Parent
and its consolidated Restricted Subsidiaries, (c) amortization expense of Parent
and its consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid cash item that was paid in a prior period) and (d) all
other non-cash charges of Parent and its consolidated Restricted Subsidiaries
(excluding any such non-cash charge to the extent that it represents an accrual
of or reserve for cash expenditures in any future period), in each case for such
period. EBITDA shall be increased or decreased, as the case may be, to the
extent of non-cash reductions or increases, respectively, in Consolidated Net
Income in such period due solely to fluctuations in currency values and the
related tax effects according to GAAP. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and non-cash charges of, a Restricted Subsidiary shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession
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and (iv) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and similar
written statements from the accounting staff of the SEC. All ratios and
computations based on GAAP contained in this "Description of the Notes" shall be
computed in conformity with GAAP. Any accounting term not otherwise defined has
the meaning assigned to it in accordance with GAAP.
"Great Lakes" means Great Lakes Chemical Corporation, a Delaware
corporation.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the several persons who are for the time
being holders of the Notes (being, in the case of Definitive Notes, the several
persons whose names are entered in the register of Holders of the Definitive
Notes as the holders thereof) which expression shall, while any Global Note
remains outstanding, mean in relation to the Notes represented thereby each
person who is for the time being shown in the records of DTC, Euroclear or of
Cedel Bank as the holder of a particular Book-Entry Interest in respect of such
Notes (in which regard any certificate or other document issued by DTC,
Euroclear or Cedel Bank as to the principal amount of Notes represented by a
Global Note standing to the account of any person shall be conclusive and
binding for all purposes) for all purposes other than with respect to the
payment of principal, premium, if any, and interest on such Notes, the right to
which shall be vested, as against the Company, solely in the bearer of such
Global Note (being at the Issue Date the Book-Entry Depositary) in accordance
with and subject to its terms and the terms of the Indentures and the words
"holder" and "holders" and related expressions shall (where appropriate) be
construed accordingly.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
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(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit or
performance bonds securing obligations (other than obligations described in
clauses (i) through (iii) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit or performance
bonds are not drawn upon or, if and to the extent drawn upon, such drawing
is reimbursed no later than the tenth Business Day following payment on the
letter of credit or performance bond);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Independent Investment Banker" means an independent investment banking
institution of national standing appointed by the Trustee after consultation
with the Company.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments", (i) "Investment" shall include the portion (proportionate to Parent's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of Parent at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, Parent shall be deemed to continue to
have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount
(if positive) equal to (x) Parent's "Investment" in such Subsidiary at the time
of such redesignation less (y) the portion
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(proportionate to Parent's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, accounting and investment
banking fees, and sales commissions and all other legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by Parent or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to the documentation governing such
Indebtedness.
"Octel" means Octel Associates and any successor Person.
"Parent" means Octel Corp., a Delaware corporation, and any successor
Person.
"Permitted Investment" means an Investment by Parent or any Restricted
Subsidiary in (i) Parent, a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Parent or a Restricted Subsidiary; provided,
however, that such Person's primary business is a Related Business; (iii)
Temporary Cash Investments; (iv) receivables owing to Parent or any Restricted
Subsidiary if created or acquired in the ordinary course of business and payable
or dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as Parent or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to
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employees made in the ordinary course of business consistent with past practices
of Parent or such Restricted Subsidiary; (vii) stock, obligations or securities
received in settlement of debts created in the ordinary course of business and
owing to Parent or any Restricted Subsidiary or in satisfaction of judgments;
(viii) any Investment in any Person to the extent such Investment represents the
non-cash portion of the consideration received for an Asset Disposition as
permitted pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock"; (ix)
Investments existing on the date of the Indenture; (x) Hedging Obligations
otherwise in compliance with the Indenture; and (xi) Investments the total
payment for which consists exclusively of Capital Stock (excluding Disqualified
Stock) of Parent.
"Permitted Liens" means, with respect to any Person, (a) liens, pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
and other types of social security laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the payment
of Indebtedness) or leases to which such Person is a party, or deposits to
secure public or statutory obligations of such Person or deposits of cash or
government bonds to secure surety or appeal bonds to which such Person is a
party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business; (b)
statutory liens of landlords and other Liens imposed by law, including
carriers', warehousemen's, supplier's, materialmen's, repairmen's and mechanics'
Liens, in each case for sums not yet due or being contested in good faith or
other Liens arising out of judgments or awards against such Person with respect
to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) liens for taxes, assessments or governmental charges
not yet subject to penalties for non-payment, or which are being contested in
good faith; (d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of credit
do not constitute Indebtedness; (e) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real property or
Liens incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens securing Indebtedness Incurred to finance the
construction, purchase or lease of, or repairs, improvements or additions to,
property of such Person; provided, however, that the Lien may not extend to any
other property owned by such Person or any of its Subsidiaries at the time the
Lien is Incurred, and the Indebtedness (other than any interest thereon) secured
by the Lien may not be Incurred more than 180 days after the later of the
acquisition, completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien; (g) Liens to
secure Indebtedness of Restricted Subsidiaries (other than the Company)
permitted under "-- Certain Covenants -- Limitation on Consolidated
Indebtedness"; (h) Liens existing on the Issue Date; (i) Liens on property or
shares of Capital Stock of another Person at the time such other Person becomes
a Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such other
Person becoming such a Subsidiary; provided further, however, that such Lien may
not extend to any other property owned by such Person or any of its
Subsidiaries; (j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such acquisition; provided further,
however, that the Liens may not extend to any other property owned by such
Person or any of its Subsidiaries; (k) liens securing intercompany indebtedness
of a Restricted Subsidiary of Parent other than the Company on assets of any
Subsidiary of Parent other than the Company; (l) Liens securing Hedging
Obligations so long as such Hedging Obligations relate to Indebtedness that is,
and is permitted to be under the Indenture, secured by a Lien on the same
property securing such Hedging
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Obligations; (m) Liens to secure any Refinancing (or successive Refinancings) as
a whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clauses (f), (h), (i) and (j); provided, however, that (x) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements to or on such property) and (y) the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clauses (f), (h), (i) or
(j) at the time the original Lien became a Permitted Lien and (B) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement; (n) judgment Liens
not giving rise to an Event of Default; (o) an interest or title of a lessor
under any Capitalized Lease Obligation; (p) Liens on specific items of inventory
or other goods and proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment, or storage of such inventory or other
goods Incurred in the ordinary course of business; (q) liens securing
reimbursement obligations with respect to commercial letters of credit which
encumber documents and other property relating to such letters of credit and
products and proceeds thereof Incurred in the ordinary course of business; (r)
Liens incurred with respect to obligations that do not in the aggregate exceed
$10.0 million at any one time outstanding; (s) leases or subleases granted to
others that do not materially interfere with the ordinary course of business of
Parent and its Restricted Subsidiaries; and (t) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of custom
duties so long as the underlying obligations are not in default or are being
contested in good faith. Notwithstanding the foregoing, "Permitted Liens" will
not include any Lien described in clauses (f), (i) or (j) above to the extent
such Lien applies to any Additional Assets acquired directly or indirectly from
Net Available Cash pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sale of Assets and Subsidiary Stock". For purposes of
this definition, the term "Indebtedness" shall be deemed to include interest on
such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Recognized Stock Exchange" means a recognized Stock exchange within the
meaning of Section 841 of the U.K. Income and Corporation Taxes Act 1988.
"Reference Treasury Dealer" means any nationally recognized primary U.S.
Government securities dealer in New York City.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such Redemption Date.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of Parent or any Restricted Subsidiary existing on the Issue Date
or Incurred in compliance with the Indenture,
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including Indebtedness that Refinances Refinancing Indebtedness; provided,
however, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced, (ii) such
Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding or committed (plus fees and expenses, including any
premium and defeasance costs associated with Refinancing) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness shall
not include Indebtedness of a Subsidiary that Refinances Indebtedness of Parent.
"Related Business" means any business related, ancillary or complementary
to the businesses of Parent, the Company and the Restricted Subsidiaries on the
Issue Date.
"Reorganization" means the final reorganization of the corporate and
partnership entities of Parent and its subsidiaries, including Parent, prior to
or concurrently with the Spinoff.
"Representative" means any trustee, agent or representative (if any) for an
issue of Bank Indebtedness.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to Parent or a Restricted Subsidiary,
and other than pro rata dividends or other distributions made by a Subsidiary
that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation)), (ii) the purchase, redemption or other acquisition or retirement
for value of any Capital Stock of Parent held by any Person or of any Capital
Stock of a Restricted Subsidiary held by any Affiliate of Parent (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of Parent that is not Disqualified
Stock), (iii) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
(other than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of the
date of acquisition) or (iv) the making of any Investment in any Person (other
than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of Parent that is not an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit facility contained
in the Credit Agreement and any other facility or financing arrangement that
Refinances, in whole or in part, any such revolving credit facility.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Parent or a Restricted Subsidiary transfers
such property to a Person and Parent or a Restricted Subsidiary leases it from
such Person.
"SEC" means the Securities and Exchange Commission.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Parent within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Spinoff" means the distribution of shares of the common stock of Parent to
the holders of common stock of Great Lakes to be effected as described in the
Offering Circular.
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"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of Parent or the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Note Guarantee or the Notes, as
applicable, pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United Kingdom or the
United States of America or any agency thereof or obligations guaranteed by
the United Kingdom or the United States of America or any agency thereof;
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United Kingdom, the United States of America, any state thereof or
any foreign country recognized by the United States or the United Kingdom,
and which bank or trust company has capital, surplus and undivided profits
aggregating in excess of $50 million (or the foreign currency equivalent
thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act);
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above;
(iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of Parent) organized and in existence under the laws of the
United Kingdom, the United States of America or any foreign country
recognized by the United Kingdom or the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard & Poor's Ratings Group; and
(v) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Moody's Investors Service, Inc. or "A" by Standard & Poor's Ratings
Group.
"Term Loan Facility" means the term loan facility contained in the Credit
Agreement and any other facility or financing arrangement that Refinances in
whole or in part any such term loan facility.
"Treasury Rate" means, with respect to any Redemption Date for the Notes,
(i) the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published statistical
release designated "H.15(519)" or any successor publication which is published
weekly by the Board of Governors of the Federal Reserve System and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities", for the
maturity corresponding to the
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Comparable Treasury Issue (if no maturity is within three months before or after
the maturity date of the Notes, yields for the two published maturities most
closely corresponding to the Comparable Treasury Issue shall be determined and
the Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month) or (ii) if such release (or
any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date. The Treasury Rate shall be calculated on the third
Business Day preceding the Redemption Date.
"Unrestricted Subsidiary" means (i) any Subsidiary of Parent other than the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of Parent (other than the Company, but including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, Parent or any other
Subsidiary of Parent that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) Parent could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Consolidated Indebtedness" and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the resolution of the Board of Directors giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by Parent or
one or more Wholly Owned Subsidiaries.
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DESCRIPTION OF THE NOTE DEPOSITARY AGREEMENT
GENERAL
The Exchange Notes will be represented initially by the Global Note, which
will be issued in bearer form without coupons and which will represent the
aggregate principal amount of the outstanding Notes. The Global Note will be
deposited with The Industrial Bank of Japan (Luxembourg) S.A., as Book-Entry
Depositary, pursuant to the terms of the Note Depositary Agreement. The
Book-Entry Depositary will issue a certificateless depositary interest
(representing a 100% interest in the underlying Global Note) to DTC or its
nominee. The summary of certain provisions of the Note Depositary Agreement
contained in this section does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the Note
Depositary Agreement, a copy of the form of which will be available from Parent
upon request.
Upon confirmation by DTC that the Book-Entry Depositary has custody of the
Global Note and upon acceptance by DTC of the certificateless depositary
interests pursuant to the Letter of Representations to be entered into with DTC,
DTC will record beneficial interests in the Global Notes. Book-Entry Interests
will be recorded in denominations of $1,000 and integral multiples thereof.
Ownership of Book-Entry Interests will be limited to Persons that have accounts
with DTC ("participants") or Persons that hold interests in the Book-Entry
Interests through participants ("indirect participants"), including, as
applicable, the Euroclear Operator, Cedel, banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with DTC,
either directly or indirectly. Indirect participants shall also include Persons
that hold through such indirect participants. The Book-Entry Interests will not
be held in definitive form. Instead, DTC will credit, on its book-entry
registration and transfer system, the participants' accounts with the respective
interests beneficially owned by such participants. Ownership of Book-Entry
Interests will be shown on, and the transfer of these Book-Entry Interests or
the interests therein will be effected only through, records maintained by DTC
or its nominee (with respect to interests of its participants) and on the
records of participants (with respect to interests of indirect participants).
The laws of some states in the United States may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. The foregoing limitations may impair the ability to own, transfer or
pledge Book-Entry Interests.
So long as the Book-Entry Depositary, or its nominee, is the Holder of the
Global Note underlying Book-Entry Interests, the Book-Entry Depositary or such
nominee, as the case may be, will be considered the sole Holder of the Global
Note for all purposes under the Indenture and the Notes. Except as set forth
below under "-- Issuance of Definitive Notes", participants or indirect
participants will not be entitled to have Notes or Book-Entry Interests
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in definitive bearer or registered form and will not be
considered the owners or Holders thereof under the Indenture. Accordingly, each
Person holding a Book-Entry Interest must rely on the procedures of the
Book-Entry Depositary and DTC, the Euroclear Operator and Cedel and indirect
participants must rely on the procedure of the participant or indirect
participants through which such Person owns its interest in the Book-Entry
Interests, including, as applicable, the Euroclear Operator and Cedel, to
exercise any rights and obligations of a Holder under the Indenture. See
"-- Action in Respect of the Global Note and the Book-Entry Interests". If any
Definitive Notes are issued, they will only be issued in registered form.
Unless and until Book-Entry Interests are exchanged for Definitive Notes,
the certificateless depositary interests held by DTC may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a successor of DTC or a
nominee of such successor.
All interests in the Global Note, including those held through the
Euroclear Operator or Cedel, may be subject to the procedures and requirements
of DTC. Those interests held through the
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Euroclear Operator or Cedel may also be subject to the procedures and
requirements of such system.
Investors may hold their beneficial interests in the Regulation S Global
Note through the Euroclear Operator or Cedel (in accordance with the provisions
set forth under "-- Transfers and Transfer Restrictions"), if they are account
holders in such systems, or indirectly through organizations which are account
holders in such systems. After the expiration of the Restricted Period (as
defined) but not earlier, investors may also hold such interests through
organizations, other than the Euroclear Operator and Cedel, that are
participants in the DTC system. The Euroclear Operator and Cedel will hold
beneficial interests in the Regulation S Global Note on behalf of their account
holders through securities accounts in the respective account holders' names on
the Euroclear Operator's and Cedel's respective book-entry registration and
transfer systems, which in turn, will hold such interests in the Regulation S
Global Note in accounts in the Euroclear Operator's or Cedel's name on the books
of DTC.
Although DTC, the Euroclear Operator and Cedel have agreed to certain
procedures to facilitate transfers of beneficial interests in the Global Note
among participants of DTC and account holders of the Euroclear Operator and
Cedel, they are under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of Parent,
the Trustee or any of their respective agents will have any responsibility for
the performance by DTC, the Euroclear Operator or Cedel or their respective
participants or account holders of their respective obligations under the rules
and procedures governing their operations.
PAYMENTS ON GLOBAL NOTE
Payment of principal of and interest on, and any other amount due in
respect of, the Global Notes will be made through one or more paying agents
appointed under the Indenture to the Book-Entry Depositary and the liability of
the Company with respect to any such payment will be discharged upon the payment
in full of such amount. All such amounts will be payable, by a Paying Agent
located outside of the United Kingdom, in dollars or in such other coin or
currency of the United States of America as at the time of payment is legal
tender for the payment therein of public and private debts. Upon receipt of any
payment of principal of or premium (if any) or interest or any other amount on
the Global Note, the Book-Entry Depositary will distribute all such payments to
Cede & Co., as nominee of DTC. All such payments will be distributed without
deduction or withholding for any taxes, duties, assessments or other
governmental charges of whatever nature except as may be required by law. If any
such deduction or withholding is required to be made, then except as provided in
"Description of the Notes -- Withholding Taxes", such Additional Amounts will be
paid by Parent or the Company, as the case may be, to the Book-Entry Depositary
as may be necessary in order that the net amounts received by the Holder of the
Global Note or owners of Book-Entry Interests after such deduction or
withholding shall be not less than the amounts specified in such Note to which
such Holder or owner is entitled. DTC, upon receipt of any payment made in
respect of the Global Note, will promptly credit participants' accounts with
payments in amounts proportionate to their respective ownership of Book-Entry
Interests, as shown on the records of DTC. Parent expects that payments by
participants to owners of interests in Book-Entry Interests held through such
participants or indirect participants will be governed by standing customer
instructions and customary practices, as is now the case with the securities
held for the accounts of customers in bearer form or registered in "street
name", and will be the responsibility of such participants or indirect
participants. Distribution with respect to ownership of Book-Entry Interests
held through the Euroclear Operator or Cedel will be credited to the cash
accounts of participants in the Euroclear Operator or Cedel in accordance with
the relevant system's rules and procedures, to the extent received by its
depositary. None of Parent, the Trustee, the Book-Entry Depositary or any other
agent of Parent, the Trustee or the Book-Entry Depositary will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of a
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participant's ownership of Book-Entry Interests or for maintaining, supervising
or reviewing any records relating to a participant's ownership of Book-Entry
Interests.
INFORMATION REGARDING DTC, THE EUROCLEAR OPERATOR AND CEDEL
DTC, the Euroclear Operator and Cedel have advised Parent as follows:
DTC. DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities of its participants and to facilitate the
clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC participants include securities brokers and dealers (including
the Initial Purchasers), banks, trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives) own
DTC.
The Euroclear Operator and Cedel. The Euroclear Operator and Cedel each
hold securities for their account holders and facilitate the clearance and
settlement of securities transactions by electronic book-entry transfer between
their respective account holders, thereby eliminating the need for physical
movements of certificates and any risk from lack of simultaneous transfers of
securities.
The Euroclear Operator and Cedel provide various services including
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. The Euroclear Operator and
Cedel also deal with domestic securities lending and borrowing. The Euroclear
Operator and Cedel also deal with domestic securities markets in several
countries through established depository and custodial relationships. The
Euroclear Operator and Cedel have established an electronic bridge between their
two systems across which their respective account holders may settle trades with
each other.
Account holders in the Euroclear Operator and Cedel are worldwide financial
institutions including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the Euroclear
Operator and Cedel is available to other institutions that clear through or
maintain a custodial relationship with an account holder of either system.
Account holders' overall contractual relations with the Euroclear Operator
and Cedel are governed by the respective rules and operating procedures of the
Euroclear Operator and Cedel and any applicable laws. The Euroclear Operator and
Cedel act under such rules and operating procedures only on behalf of their
respective account holders, and have no record of or relationship with persons
holding through their respective account holders.
Parent understands that under existing industry practices, if either Parent
or Trustee requests any action of owners of Book-Entry Interests or if an owner
of a Book-Entry Interest desires to give or take any action that a Holder is
entitled to give or take under the Indenture, DTC would authorize the
participants owning the relevant Book-Entry Interests to give or take such
action, and such participants would authorize indirect participants to give or
take such action or would otherwise act upon the instructions of such indirect
participants.
REDEMPTION
In the event any Global Note (or a portion thereof) is redeemed, the
Book-Entry Depositary will, through DTC, redeem, from the amount received by it
in respect of the redemption of such Global Note, an equal amount of the
Book-Entry Interests in such Global Note. The redemption price payable in
connection with the redemption of Book-Entry Interests will be equal to the
amount received by the Book-Entry Depositary in connection with the redemption
of the Global Notes (or
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portion thereof). For any redemptions of a Global Note in part, selection of
Book-Entry Interests to be redeemed will be made by DTC on a pro rata basis (or
on such other basis as DTC deems fair and appropriate) provided that no
Book-Entry Interest of $1,000 principal amount or less shall be redeemed in
part. Once redeemed in part, a new Global Note in the principal amount equal to
the unredeemed portion thereof will be issued and delivered to the Book-Entry
Depositary.
TRANSFERS AND TRANSFER RESTRICTIONS
All transfers of Book-Entry Interests will be recorded in accordance with
the book-entry system maintained by DTC, pursuant to customary procedures
established by DTC and its participants. See "-- General". Pursuant to the Note
Depositary Agreement, the Global Notes may be transferred only to a successor
Book-Entry Depositary.
ISSUANCE OF DEFINITIVE NOTES
Holders of Book-Entry Interests will be entitled to receive Definitive
Notes in registered form in exchange for their holdings of Book-Entry Interest
(i) if DTC is at any time unwilling or unable to continue as, or ceases to be, a
clearing agency registered under the Exchange Act, and a successor to DTC
registered as a clearing agency under the Exchange Act is not able to be
appointed by Parent within 90 days of such notification or (ii) if the
Book-Entry Depositary is at any time unwilling or unable to continue as
Book-Entry Depositary and a successor Book-Entry Depositary is not able to be
appointed by Parent within 90 days. Any Definitive Notes issued in exchange for
Book-Entry Interests will be registered in such name or names as the Book-Entry
Depositary shall instruct the Trustee based on the instructions of DTC. It is
expected that such instructions will be based upon directions received by DTC
from participants with respect to ownership of Book-Entry Interests.
In addition to the foregoing, on or after the occurrence of an Event of
Default, holders of Book-Entry Interests will be entitled to request and receive
Definitive Notes. Such Definitive Notes will be issued to and registered in the
name of, or as directed by, such Person only upon the request in writing by the
Book-Entry Depositary (based upon the instructions of DTC).
To the extent permitted by law, Parent, the Trustee and any Paying Agent
shall be entitled to treat the Person in whose name any Definitive Note is
registered as the absolute owner thereof. The Indenture contains provisions
relating to the maintenance by a registrar of a register reflecting ownership of
Definitive Notes, if any, and any other provisions customary for a registered
debt security. Any payments in respect of a Definitive Note will be made to the
Holder appearing on the register at the close of business on the record date at
his address shown on the Register.
HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. TAX LAW, UPON THE ISSUANCE
TO A HOLDER OF DEFINITIVE NOTES, SUCH HOLDER WILL BECOME SUBJECT TO U.K. INCOME
TAX (CURRENTLY 20%) TO BE WITHHELD ON ANY PAYMENTS OF INTEREST ON THE DEFINITIVE
NOTES AS SET FORTH UNDER "CERTAIN UNITED KINGDOM TAX CONSEQUENCES".
However, U.S. Holders of Definitive Notes may be entitled to receive a
refund of withheld amounts from the U.K. Inland Revenue in certain
circumstances. See "Certain Income Tax Considerations -- Material U.K. Tax
Consequences". In addition, if a Holder receives Definitive Notes, under certain
circumstances such Holder will be entitled to receive Additional Amounts with
respect to such Notes. See "Description of the Notes -- Withholding Taxes".
TRANSFER AND EXCHANGE OF DEFINITIVE NOTES
In the event that Definitive Notes are in issue, a Holder may transfer or
exchange the Definitive Notes in accordance with the Indenture. The Registrar
and the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and Parent may require a Holder to pay any
taxes and fees required by law or permitted by the Indenture. Parent is not
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required to transfer or exchange any Notes selected for redemption or for a
period of 15 days before a selection of Notes to be redeemed. In addition,
transfers and exchanges of Definitive Notes will be subject to such procedures,
which will be substantially consistent with the procedures described above with
respect to Global Notes (including the certification requirements intended to
ensure that transfers and exchanges comply with applicable securities laws), as
may from time to time be adopted by Parent and the Registrar. If Definitives
Notes are issued, Parent will appoint a Person located in London and reasonably
acceptable to the Trustee, as an additional paying and transfer agent. Upon the
issuance of Definitive Notes, Holders will be able to transfer and exchange
Definitive Notes at the London office of such paying and transfer agent provided
that all transfers and exchanges must be effected in accordance with the terms
of the Indenture and, among other things, be recorded in the register maintained
by the registrar.
ACTION IN RESPECT OF THE GLOBAL NOTE AND THE BOOK-ENTRY INTERESTS
Not later than 10 days after receipt by the Book-Entry Depositary of notice
of any solicitation of consents or requests for a waiver or other action by the
Holder of the Global Note or holders of the Book-Entry Interests, the Book-Entry
Depositary will mail to DTC a notice containing (a) such information as is
contained in such notice, (b) a statement that at the close of business on a
specified record date DTC will be entitled to instruct the Book-Entry Depositary
as to the consent, waiver or other action, if any, pertaining to the Book-Entry
Interests or the Global Note and (c) a statement as to the manner in which such
instructions may be given. Upon the written request of DTC, the Book-Entry
Depositary shall endeavor insofar as practicable to take such action regarding
the requested consent, waiver or other action in respect of the Book-Entry
Interests or the Global Note in accordance with any instructions set forth in
such request. DTC is expected to follow the procedures described under
"-- General" above with respect to soliciting instructions from its
participants. The Book-Entry Depositary will not exercise any discretion in the
granting of consents or waivers or the taking of any other action in respect of
the Book-Entry Interests or the Global Note.
REPORTS
The Book-Entry Depositary will immediately, and in no event later than ten
days from receipt, send to DTC a copy of any notices, reports and other
communications received relating to Parent, the Global Notes or the Book-Entry
Interests. Copies of all such notices, reports and communications will be
available for inspection at the offices of the listing agent for the Notes. All
notices regarding the Notes will be (i) in the case of Global Note, published in
a leading newspaper having a general circulation in New York (which is expected
to be the Wall Street Journal) or (ii) in the case of Definitive Notes, mailed
to Holders by first-class mail at their respective addresses as they appear on
the registration books of the Registrar. If and so long as the Notes are listed
on any other securities exchange, notices will also be given in accordance with
any applicable requirements of such securities exchange.
ACTION BY BOOK-ENTRY DEPOSITARY
Subject to certain limitations, upon the occurrence of a default with
respect to the Notes, or in connection with any other right of the Holder of the
Global Notes under the Indenture or the Note Depositary Agreement, if requested
in writing by DTC, the Book-Entry Depositary will take any such action as shall
be requested in such notice.
CHARGES OF BOOK-ENTRY DEPOSITARY
Parent has agreed to pay all charges of the Book-Entry Depositary under the
Note Depositary Agreement. Parent has also agreed to indemnify the Book-Entry
Depositary against certain liabilities incurred by it under the Note Depositary
Agreement.
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AMENDMENT AND TERMINATION
The Note Depositary Agreement may be amended by agreement among Parent and
the Book-Entry Depositary. The consent of DTC shall not be required in
connection with any amendment to the Note Depositary Agreement: (i) to cure any
inconsistency, omission, defect or ambiguity in such Agreement; (ii) to add to
the covenants and agreements of the Book-Entry Depositary or Parent; (iii) to
effectuate the assignment of the Book-Entry Depositary's rights and duties to a
qualified successor; (iv) to comply with the Securities Act, the Exchange Act,
the U.S. Investment Company Act of 1940, as amended, or the Trust Indenture Act;
or (v) to modify, alter, amend or supplement the Note Depositary Agreement in
any other manner that is not adverse to DTC or the holders of Book-Entry
Interests. Except as set forth above, no amendment that adversely affects DTC or
the holders of Book-Entry Interests may be made to the Note Depositary Agreement
or the Book-Entry Interests without the consent of DTC.
Upon the exchange of the Global Note in whole for Definitive Notes and the
issuance of Definitive Notes, the Note Depositary Agreement will terminate. The
Note Depositary Agreement may be terminated upon the resignation of the
Book-Entry Depositary if no successor has been appointed within 90 days as set
forth under "-- Resignation or Removal of Book-Entry Depositary" below.
RESIGNATION OR REMOVAL OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary may at any time resign as Book-Entry Depositary
upon 60 days' written notice delivered to each of Parent and the Trustee. Parent
may remove the Book-Entry Depositary at any time upon 90 days' written notice.
No resignation or removal of the Book-Entry Depositary and no appointment of a
successor Book-Entry Depositary shall become effective until (i) the acceptance
of appointment by the successor Book-Entry Depositary or (ii) the issuance of
Definitive Notes.
OBLIGATION OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary will assume no obligation or liability under the
Note Depositary Agreement other than to use good faith and reasonable care in
the performance of its duties under such Agreement.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences
associated with the acquisition, ownership, and disposition of the Notes by
holders who acquire the Notes at original issue for cash. The following summary
does not discuss all of the aspects of federal income taxation that may be
relevant to a prospective holder of the Notes in light of his or her particular
circumstances, or to certain types of holders (including dealers in securities,
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, S corporations, and except as discussed below, foreign
corporations, persons who are not citizens or residents of the United States and
persons who hold the Notes as part of a hedge, straddle, "synthetic security" or
other integrated investment) who are subject to special treatment under the
federal income tax laws. This discussion also does not address the tax
consequences to nonresident aliens or foreign corporations that are subject to
United States federal income tax on a net basis on income with respect to a Note
because such income is effectively connected with the conduct of a U.S. trade or
business. Such holders generally are taxed in a similar manner to U.S. Holders
(as defined below); however, certain special rules apply. In addition, this
discussion is limited to holders who hold the Notes as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"). This summary also does not describe any tax consequences under state,
local, or Non-United States federal income tax laws.
This discussion is based upon the Code, Treasury Regulations, Internal
Revenue Service ("IRS") rulings and pronouncements and judicial decisions all in
effect as of the date hereof, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the Notes. The
Company has not sought and will not seek any rulings or opinions from the IRS or
counsel with respect to the matters discussed below. There can be no assurance
that the IRS will not take positions concerning the tax consequences of the
acquisition, ownership or disposition of the Notes which are different from
those discussed herein.
PROSPECTIVE PURCHASERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY APPLY TO THEM, AS
WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A U.S. Holder is any holder who or which is (i) a citizen or resident of
the United States; (ii) a corporation, or other entity taxable as a corporation
created or organized in or under the laws of the United States; (iii) an estate
the income of which is subject to United States federal income taxation
regardless of its source; (iv) a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust; (v) a former citizen or resident of the United States
whose income and gain on the Notes will be subject to United States federal
income taxation; or (vi) a person otherwise included within the definition of
United States person under the Code and the regulations thereunder.
Taxation of Stated Interest. In general, a U.S. Holder of the Notes will
be required to include interest received thereon in taxable income as ordinary
income at the time it accrues or is received, in accordance with the holder's
regular method of accounting for federal income tax purposes.
Effect of Optional Redemption and Repurchase. Under certain circumstances
the Company may be entitled to redeem a portion of the Notes. In addition, under
certain circumstances, each holder of Notes will have the right to require the
Company to repurchase all or any part of such holder's Notes. Treasury
Regulations contain special rules for determining the yield to maturity and
maturity on a debt instrument in the event the debt instrument provides for a
contingency that could result in the acceleration or deferral of one or more
payments. The Company does not believe that these rules should apply to either
the Company's right to redeem Notes or to the holders' rights to
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require the Company to repurchase Notes. Therefore, the Company has no present
intention of treating such redemption and repurchase provisions of the Notes as
affecting the computation of the yield to maturity or maturity date of the
Notes.
Sale or other Taxable Disposition of the Notes. The sale, exchange,
redemption, retirement or other taxable disposition of a Note will result in the
recognition of gain or loss to a U.S. Holder in an amount equal to the
difference between (a) the amount of cash and fair market value of property
received in exchange therefor (except to the extent attributable to the payment
of accrued but unpaid stated interest) and (b) the holder's adjusted tax basis
in such Note.
A holder's tax basis in a Note purchased by such holder will be equal to
the price paid for the Note, less any principal payments received by such
holder.
Any gain or loss on the sale or other taxable disposition of a Note
generally will be capital gain or loss and will be long-term capital gain or
loss if the Note had been held for more than one year as of the date of any such
sale or other taxable disposition and otherwise will be short-term capital gain
or loss. Long-term capital gain realized by an individual U.S. Holder is
generally subject to a maximum tax rate of 28% in respect of property held for
more than one year and to a maximum rate of 20% in respect of property held in
excess of 18 months. Payments on such sale or other taxable disposition for
accrued interest not previously included in income will be treated as ordinary
interest income.
If additional interest is paid, although not free from doubt, such payment
should be taxable to a U.S. Holder as ordinary income at the time it accrues or
is received in accordance with such holder's regular method of accounting. It is
possible, however, that the IRS may take a different position, in which case the
timing and amount of income inclusion may be different.
The exchange of Notes for Exchange Notes pursuant to the exchange offer
will not constitute a taxable event for U.S. Federal income tax purposes. As a
result, (i) a U.S. Holder of Notes will not recognize taxable gain or loss as a
result of the exchange of Notes for Exchange Notes pursuant to the exchange
offer, (ii) the holding period of the Exchange Notes will include the holding
period of the Notes surrendered in exchange therefor and (iii) a U.S. Holder's
adjusted tax basis in the Exchange Notes will be the same as such U.S. Holder's
adjusted tax basis in the Notes surrendered in exchange therefor.
Backup Withholding. The backup withholding rules require a payor of
principal, premium, if any, and interest on a Note to deduct and withhold a tax
if (i) the payee fails to furnish a correct taxpayer identification number
("TIN") in the prescribed manner, (ii) the IRS notifies the payor that the TIN
furnished by the payee is incorrect, (iii) the payee has failed to report
properly the receipt of "reportable payments" and the IRS has notified the payor
that withholding is required, or (iv) the payee fails to certify under penalty
of perjury that such payee is not subject to backup withholding. If any one of
the events discussed above occurs with respect to a holder of Notes, the
Company, its paying agent or other withholding agent will be required to
withhold a tax equal to 31% of any "reportable payment" made in connection with
the Notes of such holder. A "reportable payment" includes, among other things,
payments of principal, premium, if any, and interest on a Note. Any amount
withheld from a payment to a holder under the backup withholding rules will be
allowed as a refund or credit against such holder's federal income tax, provided
that the required information is furnished to the IRS. Certain holders
(including, among others, corporations and certain tax-exempt organizations) are
not subject to backup withholding.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses special rules applicable to a Non-U.S. Holder of
Notes. This summary does not address the tax consequences to stockholders,
partners or beneficiaries in a Non-U.S. Holder. For purposes hereof, a "Non-U.S.
Holder" is any person who is neither (i) a U.S. Holder nor (ii) a person whose
income with respect to a Note is subject to U.S. federal income
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tax on a net basis because such income is effectively connected with the conduct
of a U.S. trade or business.
Interest. In general, payments of principal, premium (if any) and interest
to a Non-U.S. Holder will not be subject to U.S. Federal income tax or
withholding.
Sale, Exchange or Retirement of Notes. Any gain realized by a Non-U.S.
Holder on the sale, exchange or retirement of the Notes, will generally not be
subject to U.S. Federal income tax or withholding unless (i) the Non-U.S. Holder
is an individual who was present in the U.S. for 183 days or more in the taxable
year of the disposition and meets certain other requirements; or (ii) the Non-
U.S. Holder is subject to tax pursuant to certain provisions of the Code
applicable to certain individuals who renounce their U.S. citizenship or
terminate long-term U.S. residency. If a Non-U.S. Holder falls under (ii) above,
the holder will be taxed on the net gain derived from the sale under the
graduated U.S. Federal income tax rates that are applicable to U.S. citizens and
resident aliens, and may be subject to withholding under certain circumstances.
If a Non-U.S. Holder falls under (i) above, the holder generally will be subject
to U.S. Federal income tax at a rate of 30% on the gain derived from the sale
(or reduced treaty rate) and may be subject to withholding in certain
circumstances. Such gains may also be subject to U.S. Federal income tax if the
Non-U.S. Holder has a present or former status as a personal holding company, a
foreign personal holding company with respect to the United States, a controlled
foreign corporation, a passive foreign investment company, or a foreign private
foundation or foreign tax exempt entity for United States tax purposes, or a
corporation which accumulates earnings to avoid United States federal income
tax.
U.S. Information Reporting and Backup Withholding Tax. Back-up withholding
and information reporting generally will not apply to a Note issued in
registered form that is beneficially owned by a Non-U.S. Holder if such Non-U.S.
Holder furnishes the Company or its paying agent with a properly executed
certification on IRS Form W-8 (or a suitable substitute form) signed under
penalties of perjury stating that the beneficial owner is not a "U.S. person"
for U.S. federal income tax purposes and setting forth such Non-U.S. Holder's
name and address.
If payments of principal and interest are made to the beneficial owner of a
Note by or through the foreign office of a custodian, nominee or other agent of
such beneficial owner, or if the proceeds of the sale of a Note are paid to the
beneficial owner of a Note through a foreign office of a "broker" (as defined in
the pertinent Regulations), the proceeds will not be subject to backup
withholding (absent actual knowledge that the payee is a U.S. person).
Information reporting (but not backup withholding) will apply, however, to a
payment by a foreign office of a custodian, nominee, agent or broker (i) that is
a U.S. person or a controlled foreign corporation for U.S. federal income tax
purposes or (ii) that derives 50% or more of its gross income from the conduct
of a U.S. trade or business for a specified three-year period, unless the broker
has in its records documentary evidence that the holder is a Non-U.S. Holder,
has no actual knowledge to the contrary, and certain other conditions are met,
or unless the holder otherwise establishes an exemption. Payment through the
U.S. office of a custodian, nominee, agent or broker is subject to both backup
withholding at a rate of 31% and information reporting, unless the holder
certifies that it is a Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such holder's
U.S. federal income tax liability, provided that certain information is provided
by the holder to the IRS.
Recently finalized Treasury regulations (the "Withholding Regulations")
will change the methods for satisfying the certification requirements discussed
above. The Withholding Regulations also will require, in the case of Notes held
by a foreign partnership, that (a) this certification generally be provided by
the partners rather than the foreign partnership and (b) the partnership provide
certain information, including a United States employer identification number. A
look-through rule would apply in the case of tiered partnerships. The
Withholding Regulations are generally effective for payments made after December
31, 1999, subject to certain transition rules.
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Non-United States Holders should consult their own tax advisors with respect to
the impact, if any, of the new Withholding Regulations.
CERTAIN UNITED KINGDOM TAX CONSEQUENCES
The following summary describes certain U.K. tax matters with respect to
ownership of the Notes. Except where noted below, it relates only to the
position of persons who are the absolute beneficial owners of Notes and may not
apply to certain classes of persons such as dealers in securities. It does not
necessarily apply where the income is deemed to belong to any other person.
PAYMENTS OF INTEREST ON THE NOTES
So long as the Notes are represented by the Global Notes and are and
continue to be listed on a recognized stock exchange within the meaning of
Section 841 of the Income and Corporation Taxes Act 1988 (the Luxembourg Stock
Exchange has been designated a "recognized stock exchange" for this purpose),
payments of interest on the Notes may be made without withholding on account of
U.K. income tax where (i) the payment of interest is made by or through a paying
agent outside the U.K. or (ii) the payment of interest is made by or through a
person who is in the U.K. but either (x) the person who is the beneficial owner
of the Notes and beneficially entitled to the interest is not resident in the
U.K. or (y) the Notes are held in a "recognized clearing system" within the
meaning of Section 841A of the Income and Corporation Taxes Act 1988 (Euroclear,
Cedel Bank and DTC have each been designated as a "recognized clearing system"
for this purpose) and, in each case, a declaration to that effect in the
required form has been given to the person by whom the payment is made or the
Inland Revenue has issued a notice to that person.
In all other cases (and, in particular, where the Notes are represented by
Definitive Notes), interest will be paid after the deduction of U.K. income tax
at the prescribed rate (currently 20%) subject to any direction to the contrary
by the Inland Revenue in respect of such relief as may be available pursuant to
the provisions of any applicable double tax treaty.
So long as the Notes are represented by the Global Notes in bearer form and
are and continue to be listed on a recognized stock exchange, where a collecting
agent in the U.K. either: (i) acts as custodian of the Notes and receives
interest on the Notes or directs that interest on the Notes be paid to another
person or consents to such payment; or (ii) collects or secures payment of, or
receives interest on, the Notes for a holder of Notes or for another person
(except in any case by means only of clearing a check or arranging for the
clearing of a check), the collecting agent will be required to withhold on
account of U.K. income tax at the prescribed rate (currently 20%) unless (x) the
person who is the beneficial owner of the relevant Notes and beneficially
entitled to the interest is not resident in the U.K. and a declaration to that
effect in the required form has been given to the collecting agent or the Inland
Revenue has issued a notice to that person, or (y) the relevant Notes are held
in a "recognized clearing system" and the collecting agent pays or accounts for
the interest directly or indirectly to the clearing system and a declaration in
a form required by law has been given by the clearing system or its depositary,
or (z) one of certain other exceptions to the obligation to withhold is
available.
As the interest paid on the Notes has a U.K. source it may be chargeable to
U.K. income tax by direct assessment. Where interest is paid without deduction
or withholding, the interest will not be assessed to U.K. tax in the hands of
holders of Notes who are not resident for tax purposes in the U.K. unless any
such holders carry on a trade, profession or vocation in the U.K. through a
branch or agency in the U.K. in connection with which the interest is received
or to which the Notes are attributable (subject to certain exemptions for
interest received by certain specified categories of agent (such as some brokers
and investment managers)).
Where interest has been paid under deduction of U.K. income tax, holders of
Notes who are not resident in the U.K. may be able to recover all or part of the
tax deducted if there is an appropriate
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provision in an applicable double taxation treaty. A U.S. Holder who is entitled
to the benefit of the U.S./U.K. double taxation convention relating to income
and capital gains (the "Treaty") will normally be eligible to recover in full
any U.K. tax withheld from payments of interest to which such holder is
beneficially entitled by making a claim under the Treaty on the appropriate
form. Alternatively, a claim may be made by a holder in advance of a payment of
Interest. If the claim is accepted by the U.K. Inland Revenue, it will authorize
subsequent payments to that U.S. Holder to be made without deduction of U.K.
withholding tax. Claims for repayment must be made within six years of the end
of the U.K. year of assessment (April 5 of each year) to which the interest
relates and must be accompanied by the original statement provided by the Issuer
when the interest payment was made showing the amount of U.K. income tax
deducted.
Holders in other jurisdictions also may be entitled to a refund of all or
part of any tax withheld or to make a claim for interest on the Notes to be paid
without, or subject to a reduced rate of, deduction or withholding under the
provisions of an applicable double taxation treaty.
The provisions relating to Additional Amounts referred to in "Description
of the Notes" above would not apply if the Inland Revenue sought to assess
directly the person entitled to the relevant interest to U.K. tax.
SALE OR DISPOSAL (INCLUDING REDEMPTION)
Individual Holders--Capital Gains. A disposal (which includes redemption)
of a Note by an individual holder of such Note who is resident or ordinarily
resident for tax purposes in the U.K. or carries on a trade, profession or
vocation in the U.K. through a branch or agency to which the Note is
attributable may give rise to a liability to U.K. taxation on capital gains.
Corporate Holders. Holders of Notes which are within the charge to U.K.
corporation tax will be subject to tax as income on all profits and gains
arising from, and from fluctuations in the value of, the Notes, and will
generally be charged in each accounting period by reference to interest and any
profit or loss which, in accordance with such holder's authorized accounting
method, is applicable to that period. Fluctuations in value relating to foreign
exchange gains and losses in respect of the Notes will be brought into account
under the Forex rules as contained in the Finance Act 1993.
Non-U.K. Holders. A disposal (including redemption) of a Note by a holder
who is not resident nor (if an individual) ordinary resident for tax purposes in
the U.K. and does not carry on a trade, profession or vocation in the U.K.
through a branch or agency to which the Note is attributable will generally not
be subject to U.K. tax on capital gains.
UNITED KINGDOM STAMP DUTY AND STAMP DUTY RESERVE TAX
No U.K. stamp duty or stamp duty reserve tax is payable on the issuance of
a Note.
No U.K. stamp duty will be payable in respect of any transfer of a Note. No
stamp duty reserve tax will be payable on an agreement to transfer Certificated
Notes.
Section 105 of the Finance Act 1997 imposes a charge to stamp duty reserve
tax on an agreement to transfer certain bearer securities made in specified
circumstances at the rate of 0.5% of the amount or value of the consideration.
The Company has been advised that Section 105 will not apply to an agreement to
transfer the Notes so long as such Notes are represented by the Global Notes and
such Notes are and continue to be listed on a recognized stock exchange unless
such agreement is entered into in connection with a takeover.
THE EXCHANGE OFFER
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further
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registration rights and such Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such Old
Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuer will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Issuer will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Old Notes, (ii) the Exchange Notes have
been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange Offer,
all of which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Old Notes and will be entitled
to the benefits of the Indenture.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of Old Notes were outstanding. The Issuer has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware, or the Indenture in connection with the
Exchange Offer. The Issuer intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Issuer shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuer 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 Exchange Notes from the Issuer.
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, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer 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 Exchange Offer. The Issuer will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Issuer, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuer will notify the Exchange
Agent of any extension by oral or written notice and will notify the holders by
issuing a press release regarding such extension, each prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
expiration date.
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The Issuer reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on November 1, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 1 and
November 1, commencing on November 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to tender Old Notes validly pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-entry
transfer) an Agent's Message in lieu of the letter of Transmittal, and any other
required documents must be received by the Exchange Agent at the address set
forth under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, prior to 5:00 p.m., New York City time, on the
Expiration Date, either (a) certificates for tendered Old Notes must be received
by the Exchange Agent at such address or (B) such Old Notes must be transferred
pursuant to the procedures for book-entry transfer described below (and a
confirmation of such tender received by the Exchange Agent, including an Agent's
Message if the tendering holder has not delivered a Letter of Transmittal). The
term "Agent's Message" means a message, transmitted by the book-entry transfer
facility, The Depository Trust Issuer (the "Book-Entry Transfer Facility"), to
and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from the tendering participant that such participant has
received and agrees to be bound by the Letter of Transmittal and that the Issuer
may enforce such Letter of Transmittal against such participant.
By executing the Letter of Transmittal, (or, in the case of a book-entry
transfer, an Agent's Message in lieu thereof) each holder will make to the
Issuer the representations set forth above in the third paragraph under the
heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Issuer will
constitute agreement between such holder and the Issuer in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL,
INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE
TRANSMITTED THROUGH THE DTC AUTOMATED TENDER OFFER PROGRAM, AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE ISSUER. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
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Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the Issuer
of their authority to so act must be submitted with the Letter of Transmittal.
The Issuer understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the Old
Notes at the Book-Entry Transfer Facility. The Depository Trust Issuer (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Old Notes by causing such Book-Entry Transfer Facility to
transfer such Old Notes into the Exchange Agent's account with respect to the
Old Notes in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. Although delivery of the Old Notes may be effected through book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility, an appropriate Letter of Transmittal properly completed and duly
executed with any required signature guarantee, or (in the case of a book-entry
transfer) an Agent's Message in lieu of the Letter of Transmittal, and all other
required documents must in each case be transmitted to and received or confirmed
by the Exchange Agent at its address set forth below on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Issuer in its sole discretion, which determination
will be final and binding. The Issuer reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Issuer's acceptance
of which would, in the opinion of counsel for the Issuer, be unlawful. The
Issuer also reserves the right in their sole discretion to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Issuer's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Issuer shall determine.
Although the Issuer intends to notify holders of defects or irregularities with
respect to tenders of Old Notes, neither the Issuer, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
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irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or in the case of a book-entry transfer) an Agent's Message in lieu
thereof) or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer (including delivery of an
Agent's Message), 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 (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Issuer or (ii) 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,
the certificate number(s) 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) (or,
in the case of a book-entry transfer, an Agent's Message in lieu thereof)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), 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 (of
facsimile thereof) (or, in the case of a book-entry transfer, an Agent's
Message in lieu thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon five New York
Stock Exchange trading days after the Expiration Date.
Upon request to 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.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Issuer, whose
determination shall be final and binding on all parties. Any Old
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Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder 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 above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuer shall not
be required to accept for exchange, or Exchange Notes for, any Old Notes, and
may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Issuer, might materially impair the
ability of the Issuer to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Issuer or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Issuer, might materially impair the ability of the Issuer
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Issuer; or
(c) any governmental approval has not been obtained, which approval
the Issuer shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Issuer determine in its sole discretion that any of the conditions
are not satisfied, the Issuer may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Old Notes (see "--
Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect
to the Exchange Offer and accept all properly tendered Old Notes which have not
been withdrawn.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
By Mail: Overnight Courier:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
One State Street One State Street
New York, New York 10004 USA New York, New York 10004 USA
By Hand: Facsimile Transmission:
IBJ Schroder Bank & Trust Company (212) 858-2952
One State Street
New York, New York 10004 USA
Confirm by Telephone:
(212) 858-2000
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
109
<PAGE> 115
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuer The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuer and its affiliates.
The Issuer has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Issuer, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuer Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Issuer's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Issuer The expenses of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Issuer (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Issuer), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Issuer believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old 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 Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading
110
<PAGE> 116
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Issuer in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Issuer within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives a New Note for
its own account in exchange for Old Notes must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
see "Plan of Distribution."
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Issuer has
agreed that for a period of 180 days after the Expiration Date, they will make
this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
, 1998 (90 days after the commencement of the Exchange Offer),
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Issuer will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
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, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
111
<PAGE> 117
For a period of 180 days after the Expiration Date the Issuer will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker-Dealer that requests such documents
in the Letter of Transmittal.
LISTING AND GENERAL INFORMATION
1. Application has been made to list the Exchange Notes on the Luxembourg Stock
Exchange. Prior to the listing, a legal notice relating to the issue of the
Exchange Notes and the Memorandum and Article of Association of the Issuers
will be deposited with the Chief Register of the District Court of Luxembourg
(Greffier en Chef du Tribunal d'Arrondissement de et a Luxembourg), where
such documents may be examined or copies obtained.
2. So long as the Exchange Notes are listed on the Luxembourg Stock Exchange and
the rules of such Stock Exchange shall so require, copies of the constituent
documents of each Issuer and Guarantor (including the articles of
association), the Indenture (including the terms of the Guarantees and the
forms of Global Note), the Revolving Facility, the Term Facility, and the
Registration Rights Agreement will be available for inspection at the office
of the Luxembourg Listing Agent. So long as the Exchange Notes are listed on
the Luxembourg Stock Exchange and the rules of such Stock Exchange shall so
require, copies of any and all annual and quarterly reports of the Issuer
obtained during normal business hours on any weekday at the office of the
Luxembourg Listing Agent.
3. Octel Developments PLC and Octel Corp. were each incorporated on February 25,
1998 and January 27, 1998, respectively. The creation and issuance of the Old
Notes and the Exchange Notes were authorized by resolutions adopted by the
Board of Directors of Issuer on May 6, 1998. The creation and issuance of the
Guarantee was authorized by resolutions adopted by the Board of Directors of
the Guarantor on May 6, 1998.
4. There has been no material adverse change in the consolidated financial
position of the Company, the Issuer or the Guarantor since December 31
Financials Date (1997) as disclosed herein.
5. None of the Issuer, the Guarantor or any of their subsidiaries is a party to
any litigation that, in the judgment of the Issuer, is material in context of
the issue of the Exchange Notes, except as disclosed herein.
6. The independent chartered accountants of the Company are Ernst & Young, LLP,
Indianapolis, Indiana.
7. The Exchange Notes have been accepted for clearance through operator of
Euroclear and Cedel under the following Common Code: [ ]. The ISIN and the
CUSIP number for the Exchange Notes is [ ] and [ ], respectively.
Application will be made for acceptance of the Exchange Notes into DTC's
book-entry settlement system.
LEGAL MATTERS
Certain U.S. legal matters in connection with the Exchange Notes offered
hereby will be passed upon for the Company by Kirkland & Ellis, London, England.
Certain U.K. legal matters in connection with the Exchange Notes offered hereby
will be passed upon for the Company by Linklaters & Paines, London, England.
112
<PAGE> 118
INDEPENDENT AUDITORS
The Company has appointed Ernst & Young LLP as the Company's independent
auditors to audit the Company's financial statements as of and for the year
ending December 31, 1997. Ernst & Young LLP has audited the Company's historical
financial statements as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain "forward-looking statements."
Forward-looking statements, which are based upon certain assumptions and
describe future plans, strategies and expectations of the Company are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. The ability of the Company to
predict results or the actual effect of future plans or strategies is inherently
uncertain. Important factors which may cause actual results to differ materially
from the forward-looking statements contained herein or in other public
statements by the Company are described in the section entitled "Risk Factors."
113
<PAGE> 119
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Combined Statements of Income for each of the three years in
the period ended December 31, 1997........................ F-3
Combined Balance Sheets as of December 31, 1997 and 1996.... F-4
Combined Statements of Cash Flows for each of the three
years in the period ended December 31, 1997............... F-5
Notes to Combined Financial Statements...................... F-6
</TABLE>
F-1
<PAGE> 120
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
OCTEL CORP.
We have audited the accompanying combined balance sheets of the businesses
that comprise Octel Corp. as of December 31, 1997 and 1996, and the related
combined statements of income and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 combined financial position of the businesses that
comprise Octel Corp. at December 31, 1997 and 1996, and the combined results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
April 4, 1998
F-2
<PAGE> 121
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $539.1 $597.4 $628.3
Cost of goods sold.......................................... 274.4 298.8 307.0
------ ------ ------
Gross profit.............................................. 264.7 298.6 321.3
Operating expenses:
Selling, general and administrative....................... 38.6 40.2 42.1
Research and development.................................. 3.8 5.6 5.6
------ ------ ------
Total.................................................. 42.4 45.8 47.7
Amortization of intangible assets........................... 27.6 26.7 19.0
Operating income............................................ 194.7 226.1 254.6
Interest expense............................................ 2.2 1.6 10.3
Other expenses.............................................. 5.6 7.5 4.4
Interest income............................................. (3.9) (3.5) (5.1)
Other income................................................ (7.9) (1.2) (4.1)
------ ------ ------
Income before income taxes and minority interest............ 198.7 221.7 249.1
Minority interest........................................... 24.3 29.6 32.3
------ ------ ------
Income before income taxes.................................. 174.4 192.1 216.8
Income taxes................................................ 56.7 63.8 71.7
------ ------ ------
Net income.................................................. $117.7 $128.3 $145.1
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 122
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 29.7 $ 54.9
Accounts receivable....................................... 169.8 196.4
Inventories............................................... 78.8 84.0
Prepaid expenses.......................................... 4.4 4.3
------ ------
Total current assets........................................ 282.7 339.6
Property, plant and equipment............................... 106.0 113.4
Goodwill.................................................... 379.3 319.0
Other assets................................................ 64.9 69.0
------ ------
$832.9 $841.0
====== ======
LIABILITIES AND GREAT LAKES INVESTMENT
Current liabilities
Accounts payable.......................................... $ 40.0 $ 37.6
Accrued expenses.......................................... 9.0 20.5
Accrued income taxes...................................... 53.8 65.4
------ ------
Total current liabilities................................... 102.8 123.5
Other liabilities........................................... 57.2 90.3
Deferred income taxes....................................... 20.1 7.5
Minority interest........................................... -- 35.1
Great Lakes investment...................................... 652.8 584.6
------ ------
$832.9 $841.0
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 123
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 117.7 $ 128.3 $ 145.1
Non-cash items included in net income:
Depreciation............................................. 19.2 16.2 13.7
Amortization............................................. 27.6 26.7 19.0
Deferred income taxes.................................... 13.3 4.0 6.0
Other.................................................... 0.5 1.3 (0.5)
Changes in operating assets and liabilities:
Accounts receivable...................................... 26.6 9.2 (16.9)
Inventories.............................................. 1.6 (12.4) (5.1)
Accounts payable and accrued expenses.................... (2.6) (19.0) 19.3
Income taxes and other current liabilities............... (11.6) (9.8) 3.0
Other non-current liabilities............................ (24.8) (16.7) (7.8)
------- ------- -------
Net cash provided by operating activities.................. 167.5 127.8 175.8
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures....................................... (17.8) (20.6) (31.5)
Business combinations, net of cash acquired................ (130.8) (17.0) (18.8)
Other...................................................... 1.6 (14.9) (31.1)
------- ------- -------
Net cash used in investing activities...................... (147.0) (52.5) (81.4)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash paid to Great Lakes............................... (31.4) (103.0) (104.6)
Minority interest.......................................... 3.3 7.1 4.8
------- ------- -------
Net cash used in financing activities...................... (28.1) (95.9) (99.8)
Effect of exchange rate changes on cash.................... (17.6) 21.1 (6.8)
------- ------- -------
Net change in cash and cash equivalents.................... (25.2) 0.5 (12.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 54.9 54.4 66.6
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 29.7 $ 54.9 $ 54.4
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 124
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BACKGROUND & BASIS OF PRESENTATION
Octel Corp. ("the Company") is a recently-formed Delaware corporation,
which prior to the Distribution was a wholly-owned subsidiary of Great Lakes
Chemical Corporation ("Great Lakes"). In July 1997, the Board of Directors
approved a plan to spin off the Company's petroleum additives business as an
independent, publicly owned company. The transaction will be effected through
the distribution of shares in the Company to the Great Lakes' stockholders and
is expected to be tax free to stockholders. The transaction is subject to the
receipt of a favorable tax ruling from the Internal Revenue Service, which was
received on March 13, 1998, and the final approval by the Great Lakes Board of
Directors of the structure and financing of the Company.
Prior to the Distribution, the Company anticipates that certain of its
subsidiaries will enter into a $300.0 million senior secured credit facility
(the "Credit Facility") and issue $150.0 million of Senior Notes due 2006 (the
"Notes"). The Credit Facility will consist of a $280.0 million senior secured
term loan and a $20.0 million senior secured revolving credit facility. The
Credit Facility will mature on December 31, 2001, with the term loan amortizing
in quarterly installments. The loans under the Credit Facility will bear
interest at LIBOR plus 1.75%, subject to adjustment under certain circumstances.
The Notes will mature in 2006. The Company is required to redeem $37.5 million
principal amount of Notes in each of 2003, 2004 and 2005. Both the Credit
Facility and the Notes will be guaranteed by the Company and will contain
substantial restrictions on the Company's operations. The proceeds of the
borrowings, along with cash available at the Distribution Date, will be used to
repay $116.8 million of intercompany loans and pay a special dividend to Great
Lakes of $350.9 million.
BASIS OF PRESENTATION
The combined financial statements reflect the assets, liabilities, revenues
and expenses of the Petroleum Additives Business Unit ("Petroleum Additives") of
Great Lakes, adjusted only for those parts of Petroleum Additives Business Unit
which are to remain part of Great Lakes after the Distribution. The financial
statements are prepared using the historical cost of Great Lakes.
The Company's combined statements of income include all material costs of
doing business including costs related to Great Lakes services. Charges for such
services are based on a number of factors including time and effort which
Management believes to be reasonable.
The Company has not presented historical earnings per share information
since it was not a separate operating company with a capital structure of its
own during the periods presented.
The financial information included herein may not necessarily be indicative
of the financial position, results of operations or cash flows of the Company in
the future or the financial position, results of operations or cash flows that
would have been achieved if the Company had been a separate, independent company
during the periods presented.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a major manufacturer and distributor of TEL, Petroleum
Specialties and Performance Chemicals. Its primary manufacturing operation is
located at Ellesmere Port in the United Kingdom. The Company's products are sold
globally, primarily to oil refineries. Principal product lines are lead alkyl
antiknock compounds (TEL), other petroleum additives and performance chemicals.
F-6
<PAGE> 125
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PRINCIPLES OF COMBINATION
The combined financial statements include all subsidiaries of the Company
after elimination of significant intercompany accounts and transactions.
USE OF ESTIMATES
The preparation of the combined financial statements requires management to
make estimates and assumptions that affect the amount reported in the combined
financial statements and accompanying notes. Actual results could differ from
those estimates.
REVENUE RECOGNITION
Revenue from sales of products is recognized at the time products are
shipped to the customer or, in the case of bulk shipments, at the time of
delivery to the customer.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses various derivative instruments including forward contracts
and options to manage certain foreign currency exposures. These instruments are
entered into under the Company's corporate risk management policy to minimize
exposure and are not for speculative trading purposes. Management periodically
reviews the effectiveness of the use of the derivative instruments.
Derivatives used for hedging purposes must be designed as, and effective
as, a hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in the market value of the derivative contract must be
highly correlated with changes in the market value of the underlying hedged item
at inception of the hedge and over the life of the hedge contract. Any
derivative instrument designated but no longer effective as a hedge would be
reported at market value and the related gains and losses would be recognized in
earnings.
Derivatives that are designated as, and effective as, a hedge of firm
foreign currency commitments are accounted for using the deferral method. Gains
and losses from instruments that hedge firm commitments are deferred and
recognized as part of the economic basis of the transactions underlying the
commitments when the associated hedged transaction occurs. Gains and losses from
instruments that hedge foreign-currency-denominated receivables, payables and
debt instruments are reported in earnings and offset the effects of foreign
exchange gains and losses from the associated hedged items.
CASH EQUIVALENTS
Investment securities with maturities of three months or less when
purchased are considered to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (FIFO method) or market price.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets using the straight-line method.
F-7
<PAGE> 126
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL
Goodwill, the excess of investment over net assets of subsidiaries
acquired, is amortized over periods of up to 40 years. The majority of the
goodwill relates to the TEL business and is being amortized over approximately
10 years, the expected remaining life of the business. The Company regularly
evaluates the realizability of goodwill based on projected undiscounted cash
flows and operating income for each business having material goodwill balances.
Based on its most recent analysis, the Company believes that no impairment of
goodwill exists at December 31, 1997.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental compliance costs include ongoing maintenance, monitoring and
similar costs. Such costs are expensed as incurred. Environmental remediation
costs are accrued when environmental assessments or remedial efforts are
probable and the cost can be reasonably estimated.
MINORITY INTEREST
Minority interest represents income before income taxes as earnings is
predominantly from a partnership; therefore, taxes are paid by each partner
individually.
F-8
<PAGE> 127
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1997 1996
---- ----
(MILLIONS)
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable......................................... $170.7 $197.3
Less allowances............................................. 0.9 0.9
------ ------
$169.8 $196.4
====== ======
INVENTORIES
Finished goods.............................................. $ 35.7 $ 35.8
Work in progress............................................ 10.2 11.3
Raw materials and supplies.................................. 32.9 36.9
------ ------
$ 78.8 $ 84.0
====== ======
PROPERTY, PLANT AND EQUIPMENT
Land........................................................ $ 2.8 $ 3.0
Buildings................................................... 0.6 2.2
Equipment................................................... 101.0 117.1
Construction in progress (estimated additional cost to
complete at December 31, 1997, $17.6)..................... 18.4 12.8
------ ------
122.8 135.1
Less accumulated depreciation............................... 16.8 21.7
------ ------
$106.0 $113.4
====== ======
The estimated useful lives for purposes of computing
depreciation are:
buildings, 7-25 years; equipment, 3-10 years.
GOODWILL
Goodwill.................................................... $496.9 $411.8
Less accumulated amortization............................... 117.6 92.8
------ ------
$379.3 $319.0
====== ======
OTHER ASSETS
Prepaid pension cost........................................ $ 63.3 $ 67.5
Other....................................................... 1.6 1.5
------ ------
$ 64.9 $ 69.0
====== ======
OTHER LIABILITIES
Provisions for estimated closure costs of TEL manufacturing
facilities................................................ $ 57.2 $ 90.3
====== ======
</TABLE>
The liability for estimated closure costs of Octel's TEL manufacturing
facilities includes costs for personnel reductions, decontamination and
environmental remediation activities when demand for TEL diminishes. Estimated
closing costs are regularly evaluated. Adjustments to the liability are prorated
over the estimated remaining life of the business in proportion to the expected
rate of the TEL market decline. Closure costs as of December 31, 1997 were
estimated to be approximately $124 million.
NOTE 4 -- ACQUISITIONS
The Company's 100% ownership interest in Octel Associates and the
Associated Octel Company Limited ("AOC") was acquired in three transactions. The
Company acquired a 51.15% interest in 1989, a further 36.67% interest in 1992,
with the balance acquired in 1997. The 1989 acquisition agreement provides for
profit participation payments to be made to certain former owners through 2006.
Such profit participation payments are treated as an adjustment to the
F-9
<PAGE> 128
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
purchase price. Profit participation payments for 1997 amounted to $14 million.
In 1997 the Company completed the determination of the profit participation
payments for the years 1989 through 1995 resulting in an addition to purchase
price of approximately $30 million. Total profit participation payments amount
to approximately $230 million since inception. On November 20, 1997, the Company
completed the acquisition of the outstanding minority interest in the Company's
subsidiaries previously owned by Chevron Chemical Company for $116.8 million.
The excess of purchase price over the value of net assets acquired totaled
approximately $81 million and this amount has been added to goodwill and is to
be amortized over a ten year period with effect from January 1, 1998.
On October 31, 1997, the Company acquired certain fractional interests in
the Company's subsidiaries held by the Vendor Partners for a nominal amount.
All acquisitions have been accounted for as purchases and the results of
operations of the acquired businesses are included in the combined financial
statements from the dates of acquisition. The unaudited pro forma net income for
1997 and 1996, as if the Chevron acquisition had occurred at the beginning of
the respective year would have been $123.8 million and $137.9 million
respectively. The pro forma results do not represent the Company's actual
operating results had the acquisition been made at the beginning of the
respective years, or the results which may be expected in future.
NOTE 5 -- INCOME TAXES
The following is a summary of domestic and foreign income before income
taxes, the components of the provisions for income taxes and deferred income
taxes, a reconciliation of the U.S. statutory income tax rate to the effective
income tax rate, and the components of deferred tax assets and liabilities.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES:
Domestic......................................... $ (1.2) $ 1.7 $ (0.6)
Foreign.......................................... 175.6 190.4 217.4
------ ------ ------
$174.4 $192.1 $216.8
====== ====== ======
PROVISIONS FOR INCOME TAXES:
Current:
Federal........................................ $ 0.1 $ 0.1 $ --
Foreign........................................ 43.3 59.6 65.7
------ ------ ------
43.4 59.7 65.7
Deferred:
Domestic....................................... -- 0.4 0.3
Foreign........................................ 13.3 3.7 5.7
------ ------ ------
13.3 4.1 6.0
------ ------ ------
$ 56.7 $ 63.8 $ 71.7
====== ====== ======
PROVISIONS (CREDITS) FOR DEFERRED INCOME TAXES:
Pension costs.................................... $ (3.7) $ 1.5 $ 2.0
Amortization of goodwill......................... 0.9 0.8 1.1
Plant closure costs.............................. 12.1 1.2 3.2
Other............................................ 4.0 0.6 (0.3)
------ ------ ------
$ 13.3 $ 4.1 $ 6.0
====== ====== ======
</TABLE>
F-10
<PAGE> 129
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
EFFECTIVE INCOME TAX RATE RECONCILIATION:
U.S. statutory income tax rate................... 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
Foreign tax rate differential.................. (3.5) (2.9) (1.4)
Amortization of goodwill....................... 2.1 1.3 (0.3)
Other.......................................... (1.1) (0.2) (0.2)
------ ------ ------
Effective income tax rate........................ 32.5% 33.2% 33.1%
====== ====== ======
</TABLE>
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.
<TABLE>
<CAPTION>
1997 1996
---- ----
(MILLIONS)
<S> <C> <C>
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES:
Deferred tax assets -- closure costs........................ $17.7 $29.8
===== =====
Deferred tax liabilities:
Pension costs............................................. $18.6 $22.3
Amortization of goodwill.................................. 4.1 3.2
Other..................................................... 15.1 11.8
----- -----
Total................................................ $37.8 $37.3
===== =====
</TABLE>
Cash payments for income taxes were $62.0 million, $58.0 million and $69.0
million in 1997, 1996 and 1995, respectively.
NOTE 6 -- GREAT LAKES INVESTMENT
Changes in Great Lakes Investment during each of the years ended December
31 were as follows:
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
BALANCE AT DECEMBER 31, 1994................................ $488.4
Net income................................................ 145.1
Net amount paid to GLCC including exchange effect of
$7.9................................................... (96.7)
Net change in cumulative translation...................... (6.0)
------
BALANCE AT DECEMBER 31, 1995................................ 530.8
Net income................................................ 128.3
Net amount paid to GLCC including exchange effect of
$0.7................................................... (102.3)
Net change in cumulative translation...................... 27.8
------
BALANCE AT DECEMBER 31, 1996................................ 584.6
Net income................................................ 117.7
Net amount paid to GLCC including exchange effect of
$0.4................................................... (31.0)
Net change in cumulative translation...................... (18.5)
------
BALANCE AT DECEMBER 31, 1997................................ $652.8
======
</TABLE>
The net amount of $31.0 million paid to Great Lakes in 1997 includes the
receipt of a short term loan from Great Lakes of $116.8 million used to fund the
acquisition of the Chevron interest described in Note 4: Acquisitions.
F-11
<PAGE> 130
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
The Company's operations consist of one dominant industry segment:
petroleum additives. Net sales, income before income taxes and minority interest
and identifiable assets by geographic areas are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS (BY ORIGIN):
United States....................................... $ 32.1 $ 36.3 $ 33.9
United Kingdom...................................... 441.1 477.5 484.9
Rest of Europe...................................... 65.9 83.6 109.5
------ ------ ------
Total.......................................... $539.1 $597.4 $628.3
====== ====== ======
INTERCOMPANY SALES BETWEEN GEOGRAPHIC AREAS:
United States....................................... $ 6.9 $ 7.3 $ 7.3
United Kingdom...................................... 71.1 49.8 53.9
Rest of Europe...................................... 37.6 54.9 72.2
------ ------ ------
Total.......................................... $115.6 $112.0 $133.4
====== ====== ======
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY
INTEREST:
United States....................................... $ (1.2) $ 1.7 $ (0.6)
United Kingdom...................................... 198.1 208.3 222.7
Rest of Europe...................................... 1.8 11.7 27.0
------ ------ ------
Total.......................................... $198.7 $221.7 $249.1
====== ====== ======
IDENTIFIABLE ASSETS AT YEAR-END:
United States....................................... $ 30.8 $ 34.8 $ 31.0
United Kingdom...................................... 741.2 717.3 663.0
Rest of Europe...................................... 60.9 88.9 104.4
------ ------ ------
Total.......................................... $832.9 $841.0 $798.4
====== ====== ======
</TABLE>
The majority of the Company's operations are conducted by its U.K.
enterprises. Sales are reported in the geographic area where the transaction
originates, rather than where the final sale to customers is made. Inter-company
sales are priced to recover cost plus an appropriate mark-up for profit and are
eliminated in the combined financial statements.
NOTE 8 -- RETIREMENT PLANS
The Company maintains a contributory defined benefit pension plan (the
"Octel Pension Plan") covering substantially all U.K. employees. Benefits are
based on final salary and years of credited service, reduced by social security
benefits according to a plan formula. Normal retirement age is 65, but
provisions are made for early retirement. The Company's funding policy is to
contribute amounts to the plans to cover service costs to date as recommended by
the Company's actuary. The plan's assets are invested by two investment
management companies in funds holding U.K. and overseas equities, U.K. and
overseas fixed interest securities, index linked securities, property unit
trusts and cash or cash equivalents.
F-12
<PAGE> 131
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the components of net periodic pension cost for the U.K.
pension plan is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost.................................... $ 13.4 $ 12.0 $ 10.9
Interest cost on projected benefit obligation... 39.7 35.2 33.5
Actual return on plan assets.................... (103.4) (60.6) (66.3)
Net amortization and deferral................... 50.8 14.1 23.6
------- ------ ------
Net pension cost................................ $ 0.5 $ 0.7 $ 1.7
======= ====== ======
</TABLE>
The funded status and prepaid pension cost for the U.K. pension plan is as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
---------------------------------
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Actuarial present value of accumulated plan
benefits, all vested........................ $ 455.8 $ 446.1 $ 368.9
Additional amounts related to projected salary
increases................................... 38.8 49.5 38.6
------- ------- -------
Total projected benefit obligation............ 494.6 495.6 407.5
Plan assets at fair value..................... 708.2 644.2 525.5
------- ------- -------
Plan assets in excess of projected benefit
obligation.................................. 213.6 148.6 118.0
Unrecognized net gain......................... (151.3) (83.2) (69.1)
Unrecognized prior service cost............... 8.0 9.6 9.4
------- ------- -------
Prepaid pension cost.......................... 70.3 75.0 58.3
Estimated transfer............................ (7.0) (7.5) (5.8)
------- ------- -------
$ 63.3 $ 67.5 $ 52.5
======= ======= =======
</TABLE>
The estimated transfer represents prepaid pension cost attributable to
employees who participate in the Octel retirement plans that will remain with
Great Lakes. Final determination of the transfer is subject to, among other
things, a final actuarial evaluation and election of the employee.
Assumptions used in determining the actuarial present value of the
projected benefit obligations are set forth below. Assumptions used in 1997 are
consistent with the prior year. The weighted average discount rate, rate of
increase in compensation levels and expected long-term return on assets were
assumed to be 7.75%, 5.5% and 8.5%, respectively.
NOTE 9 -- EMPLOYEE STOCK PLANS
In October 1995, the Financial Accounting Standards Board issued
"Accounting for Stock-Based Compensation" (SFAS 123). The statement is effective
for fiscal years beginning after December 1995. Under SFAS 123, stock-based
compensation expense is measured using either the intrinsic-value method as
prescribed by Accounting Principle Board Opinion No. 25 (APB 25) or the
fair-value method described in SFAS 123. The Company intends to follow APB 25.
Prior to the Distribution, certain employees of the Company participated in
the Great Lakes 1984 Employee Stock Option Plan and the Great Lakes 1993
Employee Stock Compensation Plan which cover officers and key employees of Great
Lakes. The Company intends to grant to its employees who would otherwise have
been eligible to receive grants under such plans, restricted
F-13
<PAGE> 132
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
stock units under the Stock Plan of the Company, which is to be approved by
Great Lakes, as the sole stockholder of the Company, prior to Distribution. It
is anticipated that the Octel Corp. 1998 Stock Compensation Plan, when approved,
will provide for the grant of various types of equity-based compensation to key
employees and non-employee directors of the Company. The total number of shares
of the Company's common stock that may be issued or awarded will not exceed
1,175,000, subject to adjustment. Awards granted under the plan are expected to
be at market value at the date of grant, become exercisable over three years
from date of grant and expire ten years from date of grant.
NOTE 10 -- FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK
The carrying amounts of cash and cash equivalents reported in the balance
sheet do not materially differ from their fair value at December 31, 1997.
The Company hedges certain portions of its exposure to foreign currency
fluctuations in revenues through the use of forward exchange contracts. The
Company invoices between 50% and 60% of its sales in U.S. dollars; the balance
of the Company's billing is invoiced in pound sterling in an effort to match the
Company's pound sterling costs. Foreign exchange contracts are taken out with
both Great Lakes and, prior to November 20, 1997, Chevron Chemical Company to
hedge the dollar income and thereby hedge the quarterly dollar profit
distributions made to both parties. At December 31, 1997 and 1996, open foreign
exchange contracts totaled $53.4 million and $55.3 million, respectively. If
valued at year-end rates of exchange, the contracts would have been valued at
$53.5 million and $57.3 million respectively. Gains and losses arising from the
use of such instruments are recorded in the income statement concurrently with
gains and losses arising from the underlying hedged transactions.
In October 1997, the Company entered into interest rate swaps to fix a
portion of the interest rate relative to the Notes. The notional amount of the
debt to which the interest rate swaps apply is $125 million. The notional amount
of the agreements are used to measure interest to be paid or received and do not
represent an exposure to the Company. For interest rate instruments that
effectively hedge interest rate exposures the net cash paid or received on the
agreements are accrued and recognized as an adjustment to interest expense over
the term of the loan. If the contracts were closed at December 31, 1997, the
Company would incur a cash cost of about $2.8 million.
The Company sells a range of petroleum additives, including significant
quantities of TEL, to major oil refineries throughout the world. Significant
sales of TEL are also made to Ethyl Corporation on wholesale terms, and in 1997
these accounted for 11.4% of net revenues. At December 31, 1997 amounts owing by
Ethyl Corporation to the Company were less than 5% of accounts receivable.
Credit limits, ongoing credit evaluation and account monitoring procedures are
utilized to minimize the risk of loss. Generally, collateral is not required.
Approximately 60% of the Company's labor force are covered by a collective
bargaining agreement, which expires on January 1, 2000.
NOTE 11 -- RELATED PARTY TRANSACTIONS
The Company sells significant quantities of TEL to refineries wholly or
partially owned by BP, Texaco and Mobil (the Vendor Partners) and Chevron
Chemical Company, who ceased to be related parties on October 31, 1997 and
November 20, 1997, respectively. Such sales are made at arm's length and at
prices which vary according to individual customers and the markets in which
they operate. In the years 1997, 1996 and 1995 such sales amounted to $80.2
million, $94.7 million and $116.2 million respectively. Amounts due in respect
of these sales amounted to $26.3 million and $35.0 million at December 31, 1997
and December 31, 1996, respectively.
F-14
<PAGE> 133
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Sales of product between the Company and Great Lakes are reported in the
financial statements at estimated market value. In the years 1997, 1996 and 1995
the value of sales from the Company to Great Lakes amounted to $7.4 million,
$6.4 million and $5.8 million, respectively, and the value of purchases by the
Company from Great Lakes amounted to $18.5 million, $15.7 million and $12.1
million respectively.
Interest charges from Great Lakes in respect of funding provided for
acquisitions amounted to $2.1 million, $1.5 million and $9.9 million in the
years 1997, 1996 and 1995, respectively. At December 31, 1997, the balance owing
to Great Lakes was $141.2 million.
NOTE 12 -- FUTURE ACCOUNTING CHANGES
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
The statement must be adopted in the first quarter of 1998. Under provisions of
this statement, the Company will be required to change the financial statement
presentation of comprehensive income and its components to conform to these new
requirements. As a consequence of this change, certain reclassifications will be
necessary for previously reported amounts to achieve the required presentation
of comprehensive income.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued. Under provisions of this statement, the
Company will be required to provide financial statement disclosures for
operating segments, products and services, and geographic areas beginning in
1998.
In December 1997, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," was issued and is effective for the Company's
1998 fiscal year. The statement revises current disclosure requirements for
employers' pension and other retiree benefits.
Implementation of these disclosure standards will not affect the Company's
financial position or results of operations.
F-15
<PAGE> 134
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement,
dated April 30, 1998 (the "Purchase Agreement"), the Issuer has agreed to sell
to each of the Initial Purchasers named below, and each of the Initial
Purchasers has agreed to purchase from the Issuer, the respective aggregate
principal amount of the Notes set forth opposite its name.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
INITIAL PURCHASERS NOTES
------------------ ------------
<S> <C>
Goldman, Sachs & Co. ....................................... $ 97,500,000
Lehman Brothers Inc. ....................................... 26,250,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 26,250,000
------------
Total..................................................... $150,000,000
============
</TABLE>
Under the terms and conditions of the Purchase Agreement, the Initial
Purchasers are committed to take and pay for all of the Notes to be offered
hereby, if any are taken.
The purchase price for the Notes will be the offering price set forth on
the cover page of this Offering Circular less an underwriting discount of 3.0%
of the principal amount of the Notes purchased. The Initial Purchasers propose
to offer the Notes at the offering price set forth on the cover page hereof.
After the Notes are released for sale, such offering price and other selling
terms may from time to time be varied by the Initial Purchasers.
The Notes have not been registered under the Securities Act. Each Initial
Purchaser has agreed that it will offer or sell the Notes only (i) in the United
States to qualified institutional buyers in reliance on Rule 144A under the
Securities Act and (ii) through their affiliates, in offshore transactions in
reliance on Regulation S under the Securities Act. Terms used above have the
meanings given to them by Regulation S, Regulation D and Rule 144A under the
Securities Act.
The Issuer has agreed in the Purchase Agreement that for a period of six
months after the date of this Offering Circular that it will not offer, sell,
contract to sell or otherwise dispose of, without the prior written consent of
the Initial Purchasers, any securities of the Issuer that are substantially
similar to the Notes (other than the Exchange Notes).
With respect to the Notes initially sold pursuant to Regulation S, until
the expiration of 40 days after the commencement of the Offering, any offer or
sale of such Notes within the United States by a broker-dealer that is not
participating in the Offering may violate the registration requirements of the
Securities Act, unless such offer or sale is made pursuant to Rule 144A under
the Securities Act or another available exemption from the registration
requirements thereof.
In connection with the Offering, the Initial Purchasers may purchase and
sell Notes in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover short positions created by the
Initial Purchasers in connection with the Offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the Notes, and short positions created by the
Initial Purchasers involve the sale by the Initial Purchasers of a greater
number of Notes than they are required to purchase from the Issuer in the
Offering. The Initial Purchasers also may impose a penalty bid, whereby selling
concessions allowed to broker-dealers in respect of the securities sold in the
Offering may be reclaimed by the Initial Purchasers if such Notes are
repurchased by the Initial Purchasers in stabilizing or covering transactions.
These activities may stabilize, maintain or otherwise affect the market price of
the Notes which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
U-1
<PAGE> 135
The Notes are a new issue of securities with no established trading market.
The Issuer has been advised by the Initial Purchasers that the Initial
Purchasers intend to make a market in the Notes but are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the Notes.
The Issuer has been advised by the Initial Purchasers that the Initial
Purchasers propose to resell Notes outside the United States in offshore
transactions in reliance on Regulation S under the Securities Act and in
accordance with applicable law. In each case, the offering price and
underwriting discount are the same. Any offer or sale of Notes in reliance on
Rule 144A will be made by broker-dealers who are registered as such under the
Exchange Act. Terms used above have the meanings given to them by Regulation S
and Rule 144A under the Securities Act.
Each of the Initial Purchasers has also represented and agreed, on behalf
of itself and its affiliates, that (i) it has not offered or sold, and will not
offer or sell, any Notes to persons in the United Kingdom prior to the
expiration of the period of six months from the issue date of the Notes, except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances that have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations Act of 1995, (ii) it has complied
and will comply with all applicable provisions of the Financial Services Act of
1986 of Great Britain with respect to anything done by it in relation to the
Notes in, from or otherwise involving the United Kingdom, and (iii) it has only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issuance of the Notes to a person
who is of a kind described in Article 11(3) of the Financial Services Act of
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
the document may otherwise lawfully be issued or passed on.
Purchasers of Notes sold by the Initial Purchasers may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
hereof and accrued interest, if any.
The Notes are expected to be eligible for trading on the PORTAL system. The
Issuer intends to list the Notes on the Luxembourg Stock Exchange.
The Issuer and Parent have agreed to reimburse the Initial Purchasers for
certain expenses, and have agreed to indemnify the Initial Purchasers against
certain liabilities, including liabilities under the Securities Act.
Goldman, Sachs & Co. ("Goldman Sachs") is acting as financial advisor to
Great Lakes in connection with the Distribution and will receive customary
compensation for providing such services. Goldman Sachs Credit Partners, L.P.,
an affiliate of Goldman Sachs, is joint arranger and joint syndication agent to
the Company under the Credit Facility. In addition, the Initial Purchasers and
their affiliates from time to time have provided to Great Lakes, and in the
future may provide to Great Lakes and the Company, certain investment banking
services.
U-2
<PAGE> 136
- - ---------------------------------------------------------
- - ---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 1
Risk Factors............................. 13
Use of Proceeds.......................... 21
Capitalization........................... 22
Pro Forma Financial Data................. 23
Selected Historical Combined Financial
Data................................... 29
Management's Discussion and Analysis of
Financial Condition and Results
of Operations.......................... 31
Business................................. 39
Management............................... 47
Security Ownership of Certain Beneficial
Owners................................. 54
Beneficial Ownership of Management....... 54
Certain Relationships and Related
Transactions........................... 55
Description of Credit Facility........... 57
Description of the Exchange Notes........ 58
The Exchange Offer....................... 64
Plan of Distribution..................... 111
Description of the Note Depositary
Agreement.............................. 94
Certain U.S. Federal Income Tax
Consequences........................... 100
Certain United Kingdom Tax
Consequences........................... 103
Legal Matters............................ 112
Independent Auditors..................... 113
Special Note Regarding Forward-Looking
Statements............................. 113
Index to Combined Financial Statements... F-1
Underwriting............................. U-1
</TABLE>
- - ---------------------------------------------------------
- - ---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
$150,000,000
OCTEL DEVELOPMENTS PLC
10% SENIOR NOTES DUE 2006
UNCONDITIONALLY GUARANTEED
AS TO PAYMENT OF PRINCIPAL AND
INTEREST BY
OCTEL CORP.
------------------
[OCTEL LOGO]
------------------
OFFER TO EXCHANGE ITS 10% SENIOR NOTES DUE 2006 FOR ANY AND ALL OF ITS
OUTSTANDING 10% SENIOR NOTES DUE 2006.
PROSPECTUS
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Issuer (as defined)
The Issuer is a company formed under the laws of England and Wales. Under
the laws of the United Kingdom, members of the board of directors of a company
do not, in principle, incur personal liability for the company's acts. However,
a director owes his company duties to act in the company's best interests, and
also to exercise reasonable care and skill when acting. Should the director be
in breach of these duties, then he is liable to the company for the damage which
the company sustains as a result. Futhermore, in some circumstances, director
may incur liability to a third party. At common law a director is liable to a
third party which was a reasonably foreseeable consequence of a negligent or
fraudulent misstatement made by the director.
A director may be absolved of liability to his company (in the absence of
fraud) by a shareholders' resolution ratifying his act. Also, by section 727 of
the Companies Act 1985 the court may relieve a director of his liability to his
company for negligence, default, breach of duty or breach of trust. It will only
do so if the director has acted honestly and reasonably, and in all the
circumstances it would be fair to grant relief. Neither a shareholders'
resolution, nor the court, can relieve a director of his liability to a third
party.
Article 13 of the Articles of Association of the Issuer provides for the
indemnification of the Directors of the Issuer to the extent allowed by
applicable law.
The Companies Act 1985 allows a company to take out insurance for the
benefit of a director, protecting him against his liability to the company.
Article 13.2 of the Articles of Association of the Issuer grants the Directors
power to purchase insurance for the benefit of present or past Directors.
The Guarantor (as defined).
The Guarantor is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any persons who are, or
are threatened to be made, parties to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
or are threatened to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reason of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorney's fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the
II-1
<PAGE> 138
defense of any action referred to above, the corporation must indemnify him
against the expenses which such officer or director has actually and reasonably
incurred.
The certificates of incorporation, as amended, of the Guarantor provide
that no director of the corporation shall be liable to the corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the corporation of its stockholders. In addition, the Guarantor's certificate
of incorporation, as amended, provides for the indemnification of directors and
officers of the Guarantor to the fullest extent permitted by the General
Corporation Law of the State of Delaware.
Article V of the by-laws of the Guarantor provides that, to the fullest
extent permitted by the General Corporation Law of the State of Delaware, no
director or the Guarantor shall be liable to the Guarantor or its stockholders
for monetary damages arising from a breach of fiduciary duty owed to the
Guarantor or its stockholders. Article V of the by-laws of the Guarantor further
provides that the Guarantor shall indemnify, to the fullest extent permitted by
the General Corporation Law of the State of Delaware, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director or officer of
such corporation, or is or was serving at the request of such corporation as a
director, officer or member of another corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
and such indemnification shall continue as to an indemnitee who has ceased to a
be a director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators. Article V of the by-laws of
the Guarantor further provides that any person serving as a director, officer,
employee or agent of another corporation, partnership, joint venture or other
enterprise, at least 50% of whose equity interests are owned by the corporation,
shall be conclusively presumed to be serving in such capacity at the request of
the Guarantor and, hence, subject to indemnification by the Guarantor.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
Article V of the by-laws of the Guarantor further provides that the
corporation may purchase and maintain insurance on its own behalf and on behalf
of any person who is or was a director, officer, employee, fiduciary, or agent
of the corporation or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, whether or not the
corporation would have the power to indemnify such person against such liability
under Article V of its by-laws.
All of the directors and officers of the Guarantor are covered by insurance
policies maintained and held in effect by such corporation against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933.
II-2
<PAGE> 139
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
LOCATION OF DOCUMENT
IN SEQUENTIAL
NUMBERING SYSTEM
--------------------
<C> <S> <C>
3.1 Articles of Association of Octel Developments PLC.* ........
3.2 By-laws of Octel Developments PLC.* ........................
3.3 Amended and Restated Certificate of Incorporation of the
Guarantor*..................................................
3.4 Amended and Restated By-laws of Guarantor*..................
4.1 Indenture dated as of May 1, 1998 among the Issuer, the
Guarantor and the IBJ Schroder Bank and Trust Company, as
trustee.*...................................................
4.2 Form of 10% Senior Notes (contained in Exhibit 4.1 as
Exhibit A).*................................................
4.3 Registration Rights Agreement dated as of April 30, 1998
among the Issuer, the Guarantor, and the Initial
Purchasers.*................................................
4.4 Purchase Agreement dated as of April 30, 1998 among the
Initial Purchasers, the Issuer and the Guarantor.*..........
5.1 Opinion and consent of Kirkland & Ellis.*...................
10.1 Tax Disaffiliation Agreement between Great Lakes and the
Company.*...................................................
10.2 Corporate Services Transition Agreement between Great Lakes
and the Company.*...........................................
10.3 Supply Agreement between Great Lakes and the Company for the
supply of ethylene dibromide.*..............................
10.4 Supply Agreement between Great Lakes and the Company for the
supply of anhydrous hydrogen bromide.*......................
10.5 Supply Agreement for the supply of 10% sodium hydroxide
solution.*..................................................
10.7 Octel Corp. 1998 Stock Compensation Plan.*..................
10.8 Employment Agreement between Associated Octel Limited and
Steve W. Williams, Geoff J. Hignett, Graham M. Leathes and
Robert A. Lee.*.............................................
10.9 Employment Agreement between Associated Octel Limited and
Dennis J. Kerrison.*........................................
10.10 Agreement between Great Lakes and the Company for the Toll
Manufacture of Stadis Product.*.............................
10.11 Octel Corp. Time Restricted Share Plan.**...................
10.12 Octel Corp. Performance Related Stock Option Plan.**........
10.13 Octel Corp. Savings-Related Share Option Plan.**............
12.1 Statement Regarding Computation of Ratios of Earnings to
Fixed Charges.**............................................
21.1 Subsidiaries of the Issuer.**...............................
23.1 Consent of Ernst & Young LLP................................
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).**....
24.1 Powers of Attorney of Directors and Officers of the Company
and each Guarantor (included in pages II-6 to II-8).........
25.1 Statement of Eligibility of Trustee on Form T-1.*...........
27.1 Financial Data Schedule.*...................................
99.1 Form of Letter of Transmittal.*.............................
</TABLE>
II-3
<PAGE> 140
<TABLE>
<CAPTION>
LOCATION OF DOCUMENT
IN SEQUENTIAL
NUMBERING SYSTEM
--------------------
<S> <C> <C>
99.2 Form of Notice of Guaranteed Delivery.*.....................
99.3 Form of Tender Instructions.*...............................
</TABLE>
- - ---------------
* To be filed by amendment.
** Previously filed.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered,
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the 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 Securities Act of
1933 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 directors, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is
II-4
<PAGE> 141
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 Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) 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-5
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Octel Corp.,
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of South
Wirral, United Kingdom, on July 10, 1998.
OCTEL CORP.
By: /s/ ALAN G. JARVIS
-----------------------------------
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dennis J. Kerrison, Alan G. Jarvis, and
each of them severally, his true and lawful attorneys-in-fact with power of
substitution and resubstitution to sign in his name, place and stead, in any and
all capacities, to do any and all things and execute any and all instruments
that such attorney may deem necessary or advisable under the Securities Act of
1933 (the "Securities Act"), and any rules, regulations and requirements of the
U.S. Securities and Exchange Commission in connection with the registration
under the Securities Act of notes of the registrant, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign his name in his respective capacity as a member of the Board of Directors
or officer of the registrant, this Registration Statement and/or such other form
or forms as may be appropriate to be filed with the Commission as any of them
may deem appropriate in respect of the notes of the registrant to any and all
amendments thereto (including post-effective amendments) to this Registration
Statement, to any related Rule 462(b) Registration Statement and to any
documents filed as part of or in connection with this Registration Statement and
any and all amendments thereto, including post-effective amendments.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed on July 2, 1998 by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ DENNIS J. KERRISON President, Chief Executive Officer and
- - ----------------------------------------------------- Director (Principal Executive Officer)
Dennis J. Kerrison
/s/ ALAN G. JARVIS Chief Financial Officer, Octel Corp;
- - ----------------------------------------------------- (Principal Financial and Accounting Officer)
Alan G. Jarvis
/s/ GRAHAM M. LEATHES Company Secretary and General Counsel
- - -----------------------------------------------------
Graham M. Leathes
/s/ DR. ROBERT E. BEW Director
- - -----------------------------------------------------
Dr. Robert E. Bew
/s/ MARTIN M. HALE Director
- - -----------------------------------------------------
Martin M. Hale
</TABLE>
II-6
<PAGE> 143
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ THOMAS M. FULTON Director
- - -----------------------------------------------------
Thomas M. Fulton
/s/ JAMES PUCKRIDGE Director
- - -----------------------------------------------------
James Puckridge
/s/ DR. BENITO FIORE Director
- - -----------------------------------------------------
Dr. Benito Fiore
/s/ CHARLES M. HALE Director
- - -----------------------------------------------------
Charles M. Hale
</TABLE>
II-7
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Octel
Developments PLC, has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
South Wirral, United Kingdom, on July 2, 1998.
OCTEL DEVELOPMENTS PLC
By: /s/ ALAN G. JARVIS
------------------------------------
Finance Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dennis J. Kerrison, Alan G. Jarvis, and
each of them severally, his true and lawful attorneys-in-fact with power of
substitution and resubstitution to sign in his name, place and stead, in any and
all capacities, to do any and all things and execute any and all instruments
that such attorney may deem necessary or advisable under the Securities Act of
1933 (the "Securities Act"), and any rules, regulations and requirements of the
U.S. Securities and Exchange Commission in connection with the registration
under the Securities Act of notes of the registrant, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign his name in his respective capacity as a member of the Board of Directors
or officer of the registrant, this Registration Statement and/or such other form
or forms as may be appropriate to be filed with the Commission as any of them
may deem appropriate in respect of the notes of the registrant to any and all
amendments thereto (including post-effective amendments) to this Registration
Statement, to any related Rule 462(b) Registration Statement and to any
documents filed as part of or in connection with this Registration Statement and
any and all amendments thereto, including post-effective amendments.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed on February 10, 1998 by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ DENNIS J. KERRISON Managing Director, Director
- - ------------------------------------------------ (Principal Executive Officer)
Dennis J. Kerrison
/s/ ALAN G. JARVIS Finance Director, Director
- - ------------------------------------------------ (Principal Financial Officer)
Alan G. Jarvis
</TABLE>
II-8
<PAGE> 145
HEAD OFFICE OF THE ISSUER AND GUARANTOR
OCTEL DEVELOPMENTS PLC
P.O. Box 17, Oil Sites Road
Ellesmere Port, South Wirral
United Kingdom
LEGAL ADVISERS
<TABLE>
<CAPTION>
To the Issuer To the Issuer
as to English law as to United States law
<S> <C>
KIRKLAND & ELLIS INTERNATIONAL
LINKLATERS & PAINES International Financial Centre; Old Broad
One Silk Street Street
London ECZY 8HQ, United Kingdom London EC2N 1HQ; United Kingdom
</TABLE>
AUDITORS TO THE ISSUER AND GUARANTOR
ERNST & YOUNG LLP
1 Indiana Square
Suite 3400
Indianapolis, Indiana 46204
<TABLE>
<S> <C>
BOOK-ENTRY DEPOSITARY,
TRUSTEE AND EXCHANGE TRANSFER AGENT, LISTING AND
AGENT PAYING AGENT
IBJ SCHRODER BANK AND TRUST COMPANY INDUSTRIAL BANK OF JAPAN (LUXEMBOURG) S.A.
One State Street 8 rue Jean Monnet
New York, NY 10004 L-2180 Luxembourg
</TABLE>
II-9
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our reports (a) dated April 4, 1998, with respect to
the combined financial statements of Octel Corp., and (b) dated April 30, 1998,
with respect to the pro forma adjustments to the combined financial statements
of Octel Corp., in the Registration Statement (Form S-4 No. 333-xxxxx) and
related Prospectus of Octel Developments PLC for the registration of
$150,000,000 of 10% Senior Notes due 2006, and Guarantees of 10% Senior Notes
due 2006.
Indianapolis, Indiana
July 8, 1998
