<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1998
REGISTRATION NO. 333-49619
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
Form F-4
Registration Statement Under The Securities Act of 1933
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Texon International plc
(Exact Name of Registrant as Specified in its Charter)
England and Wales Not Applicable
(Primary Standard (I.R.S. Employer
(State or Other Industrial Classification Identification Number)
Jurisdiction of Code Number)
Incorporation or
Organization)
3021
---------------
CT Corporation System
1633 Broadway
100 Ross Walk New York, NY 10019
Leicester, U.K. (Telephone: 212-664-1666)
LE4 5BX (Name, address and
(Telephone: 44-116-261- telephone number of agent
0123) for service)
(Address ndatelephone number of Registrant's
principal executive
offices)
---------------
Copy to:
Kathleen A. Walsh, Esq.
Mayer, Brown & Platt
1675 Broadway
New York, NY 10019
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each class
of securities to be Amount to be Proposed maximum Proposed maximum aggregate Amount of
registered registered offering price per unit(1)(2) offering price(1)(2) registration fee(3)
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<S> <C> <C> <C> <C>
10% Series A Senior
Notes due 2008......... DM 245,000,000 100% DM 245,000,000 US$39,100.00(4)
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- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Estimated solely for the purpose of calculating the registration fee.
(2)Exclusive of accrued interest, if any.
(3)Calculated pursuant to Rule 457.
(4)Previously paid.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY , 1998
PROSPECTUS
Texon International plc
[LOGO]TEXON
-------------
INTERNATIONAL
Offer to Exchange its
10% Series A Senior Notes due 2008,
which have been registered under the
Securities Act for
any and all of its Outstanding
10% Senior Notes due 2008
-----------
NOTWITHSTANDING THE DESIGNATION OF THE NOTES AS SENIOR NOTES, THE COMPANY HAS
NOT ISSUED, AND DOES NOT HAVE ANY CURRENT FIRM ARRANGEMENTS TO ISSUE, ANY
SIGNIFICANT INDEBTEDNESS TO WHICH THE NOTES WOULD BE SENIOR, AND THE NOTES WILL
BE EFFECTIVELY SUBORDINATE TO ESSENTIALLY ALL OF THE OUTSTANDING INDEBTEDNESS
OF THE COMPANY AND ITS SUBSIDIARIES. THE COMPANY DOES NOT HAVE ANY CURRENT OR
PENDING ARRANGEMENTS OR AGREEMENTS TO INCUR ANY ADDITIONAL SIGNIFICANT
INDEBTEDNESS TO WHICH THE NOTES WOULD BE SUBORDINATE OR RANK PARI PASSU IN
RIGHT OF PAYMENT.
Texon International plc, a public limited company incorporated under the laws
of England and Wales (the "Company"), hereby offers, upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal ("Letter of Transmittal") (which together constitute the "Exchange
Offer"), to exchange an aggregate principal amount of up to DM 245 million of
its 10% Series A Senior Notes due 2008 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933 (the "Securities Act"), pursuant to
a Registration Statement of which this Prospectus constitutes a part, for a
like principal amount of its outstanding 10% Senior Notes due 2008 (the "Old
Notes" and, collectively with the Exchange Notes, the "Notes"), of which DM 245
million aggregate principal amount is outstanding. The terms of the Exchange
Notes are substantially identical to the terms of the Old Notes.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL REMAIN IN EFFECT FOR A MINIMUM
OF 30 DAYS AND WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED.
The Notes will be unsecured, will rank pari passu with all existing and
future senior indebtedness of the Company and will be senior in right of
payment to all existing and future Subordinated Obligations (as defined) of the
Company. The Notes will be effectively subordinated to any secured indebtedness
of the Company to the extent of the value of the assets securing such
indebtedness and to all liabilities of the Company's subsidiaries. At December
31, 1997 on a pro forma basis after giving effect to the Transactions (as
defined) and the application of the proceeds thereof, the only outstanding
indebtedness of the Company (excluding its consolidated subsidiaries) other
than the Notes would have been secured senior indebtedness of (Pounds)4.3
million borrowed under a (Pounds)15.0 million secured revolving credit facility
and the total liabilities of the subsidiaries of the Company (including trade
payables and deferred taxes and excluding the Notes and the Senior
Indebtedness) would have been (Pounds)38.7 million. The Indenture under which
the Notes will be issued permits the Company and its Restricted Subsidiaries
(as defined) to incur additional indebtedness, subject to certain limitations.
See "Description of Notes--Ranking."
Interest on the Notes will be payable semi-annually on February 1 and August
1 of each year, commencing on August 1, 1998. The Notes will mature on February
1, 2008. Except as described below, the Company may not redeem the Notes prior
to February 1, 2003. On or after such date, the
(Continued on next page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF THE OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER AND THAT PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES SHOULD CONSIDER IN
CONNECTION WITH SUCH INVESTMENT.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1998.
<PAGE>
Company may redeem the Notes, in whole or in part, at the redemption prices
set forth herein, together with accrued and unpaid interest and Additional
Amounts (as defined), if any, to the date of redemption. In addition, at any
time on or prior to February 1, 2001, the Company may, subject to certain
requirements, redeem up to 33 1/3% of the original aggregate principal amount
of the Notes with the cash proceeds of one or more Public Equity Offerings (as
defined) at a redemption price equal to 100% of the principal amount to be
redeemed, together with accrued and unpaid interest and Additional Amounts, if
any, provided that at least 66 2/3% of the original aggregate principal amount
of the Notes remains outstanding immediately after each such redemption. The
Notes may also be redeemed at the option of the Company, in whole but not in
part, at any time at 100% of the principal amount thereof plus accrued and
unpaid interest and Additional Amounts, if any, to the redemption date in the
event of certain changes affecting United Kingdom withholding taxes or, in
certain circumstances, in the event Definitive Notes (as defined) are issued.
The Notes will not be subject to any sinking fund requirement. Upon the
occurrence of a Change of Control (as defined), the Company will be required
to make an offer to repurchase the Notes at a price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest and
Additional Amounts, if any, to the date of repurchase. Due to the Company's
high degree of leverage, in the event of a Change of Control, there can be no
assurance that the Company will have, or will have access to, sufficient funds
to repurchase the Notes or to pay the Holders of the Notes. See "Risk
Factors--Change of Control Provisions; Limitations on Rights of Repayment and
"Description of Notes--Certain Covenants," "--Change of Control" and "--
Certain Definitions."
The Old Notes were issued and sold on January 30, 1998 (the "Old Note
Offering"), in a transaction not registered under the Securities Act of 1933,
as amended (the "Securities Act"), in reliance upon the exemption provided in
Section 4(2) of the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange
Notes are being offered for exchange in order to satisfy certain obligations
of the Company under an Exchange and Registration Rights Agreement (as
defined) between the Company and the Initial Purchasers (as defined). The
Exchange Notes will be obligations of the Indenture (as defined), which
governs both the Old Notes and the Exchange Notes. The form and terms
(including principal amount, interest rate, maturity and ranking) of the
Exchange Notes are the same as the form and terms of the Old Notes, except
that the Exchange Notes (i) will be registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable
to the Old Notes, (ii) will not be entitled to registration rights and (iii)
will not provide for any Liquidated Damages (as defined). See "The Exchange
Offer--Registration Rights; Liquidated Damages."
The Company is making the Exchange Offer in reliance on the position of the
staff of the Securities and Exchange Commission (the "Commission") as set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer as in such other
circumstances. Based upon these interpretations by the staff of the
Commission, the Company believes that the Exchange Notes issued pursuant to
this Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by a holder thereof (other than (i) a broker-
dealer who acquired the Old Notes as a result of market making activities or
other trading activities, (ii) an Initial Purchaser who acquired the Old Notes
directly from the Company solely in order to resell pursuant to Rule 144A of
the Securities Act or any other available exemption under the Securities Act,
or (iii) a person that is an "affiliate" (as defined in Rule 405 of the
Securities Act) of the Company) 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 is not participating, and has no arrangement or
understanding with any person to participate, in the distribution (within the
meaning of the Securities Act) of such Exchange Notes.
By tendering each holder which is not a broker-dealer will represent to the
Company that, among other things, the person receiving the Exchange Notes
whether or not such person is the holder, (i) will acquire the Exchange Notes
in the ordinary course of such person's business, (ii) has no arrangement or
understanding with any person to participate in a distribution of the Exchange
Notes and (iii) is not engaged in and does not intend to engage in a
distribution of the Exchange Notes. If
i
<PAGE>
any holder or any such other person has an arrangement or understanding with
any person to participate in a distribution of such Exchange Notes, is engaged
in or intends to engage in a distribution of such Exchange Notes, is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company,
or acquired the Old Notes as a result of market making or other trading
activities, then such holder or any such other person (i) can not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction, including the requirement that
any such secondary resale transactions be covered by an effective registration
statement containing the selling securityholder information required by Item
507 of Regulation S-K of the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the date of this Prospectus, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "The Exchange Offer" and "Plan of Distribution."
Prior to the Exchange Offer, there has been no established trading market
for the Old Notes or the Exchange Notes. The Company does not intend to apply
for listing or quotation of the Exchange Notes on any securities exchange or
stock market other than the Luxembourg Stock Exchange. Therefore, there can be
no assurance as to the liquidity of any trading market for the Exchange Notes
or that an active public market for the Exchange Notes will develop. Any Old
Notes not tendered and accepted in the Exchange Offer will remain outstanding.
To the extent that Old Notes are tendered and accepted in the Exchange Offer,
a holder's ability to sell untendered, or tendered but unaccepted, Old Notes
could be adversely affected. Following the consummation of the Exchange Offer,
the holders of Old Notes will continue to be subject to the existing
restrictions on transfer thereof and the Company will have no further
obligations to such holders to provide for the registration of the Old Notes
under the Securities Act. See "Risk Factors--Consequences of Exchange and
Failure to Exchange Old Notes" and "The Exchange Offer--Consequences of
Exchange and Failure to Exchange Old Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on
, 1998, unless the Exchange Offer is extended (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered or exchange. The
Company has agreed to pay the expenses for the Exchange Offer. There will be
no cash proceeds to the Company from the Exchange Offer. See "Use of
Proceeds."
ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S
FUTURE FINANCIAL POSITION, STRATEGY, PROJECTED COSTS AND PLANS AND OBJECTIVES
OF MANAGEMENT FOR FUTURE OPERATIONS, MAY BE DEEMED TO BE FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPLANATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION
WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS, ALL FORWARD-
LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON THEIR
BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
THE COMPANY HAS NOT AUTHORISED THE NOTES TO BE OFFERED TO THE PUBLIC IN THE
UNITED KINGDOM (WITHIN THE MEANING OF THE U.K. PUBLIC OFFERS OF SECURITIES
ii
<PAGE>
REGULATIONS 1995) AND NEITHER THIS PROSPECTUS NOR ANY OTHER DOCUMENT ISSUED IN
CONNECTION WITH THE OFFERING MAY BE PASSED ON TO ANY PERSON IN THE UNITED
KINGDOM UNLESS THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE
FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER
1996 OR IS A PERSON TO WHOM THE DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR
PASSED ON. ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERVICES ACT 1986 MUST
BE COMPLIED WITH IN RESPECT OF ANYTHING DONE IN RELATION TO THE NOTES IN, FROM
OR OTHERWISE INVOLVING THE UNITED KINGDOM.
PRESENTATION OF FINANCIAL INFORMATION AND CERTAIN DEFINITIONS
The Company's consolidated financial statements and the related notes
thereto have been prepared in accordance with U.K. generally accepted
accounting principles ("U.K. GAAP"), which differ in certain material respects
from U.S. generally accepted accounting principles ("U.S. GAAP"). For a
discussion of the significant differences between U.K. GAAP and U.S. GAAP with
respect to the Company's consolidated financial statements and notes thereto,
see Note 26 of the Notes to the Consolidated Financial Statements. Unless
otherwise indicated, all financial information stated herein is in accordance
with U.K. GAAP.
The Company prepares its consolidated financial statements in Sterling.
Solely for the convenience of the reader, this Prospectus contains
translations of certain Sterling amounts into U.S. dollars. These translations
should not be construed as representations that the converted amounts actually
represent such U.S. dollar amounts or that they have been or could be
converted into U.S. dollars at the rates indicated or at any other rate.
Unless otherwise stated, the translations of Sterling into U.S. dollars have
been made at the rate of $1.64 to (Pounds)1.00, the noon buying rate in the
City of New York for cable transfers in Sterling as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on
December 31, 1997, the date of the most recent consolidated balance sheet of
the Company included herein. See "Exchange Rate Information" for information
regarding the Noon Buying Rate for the past five years. See "Risk Factors--
Risk of Foreign Exchange Rate Fluctuations; Introduction of the Euro" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General" for a discussion of the effects of changes in exchange
rates on the Company. On March 23, 1998, the Noon Buying Rate was $1.68 to
(Pounds)1.00.
All references herein to the "United States" or the "U.S." are to the United
States of America, references to "U.S. dollars," "dollars," "cents" or "$" are
to the currency of the United States, references to the "U.K." are to the
United Kingdom and references to "Pounds Sterling," "Sterling" or "(Pounds)"
are to the currency of the U.K. References to "Deutsche Marks" or "DM" are to
the currency of Germany. References to "fiscal years" are to the Company's
fiscal years which, for each fiscal year, end on December 31 of that calendar
year.
Certain amounts and percentages set out in this Prospectus have been rounded
and accordingly may not total.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is a public limited company incorporated under the laws of
England and Wales, and all of its assets, and a significant majority of those
of its subsidiaries, are located outside of the United States. In addition,
most of the Company's directors and officers are residents of the U.K. and
their assets are located outside of the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon such persons or to realize against them upon judgments of courts of the
United States predicated upon any civil liability provisions of the U.S.
federal securities laws. The Company has been advised by its U.K. counsel,
Dickson Minto W.S., that there is also doubt as to the enforceability in
England in original actions or in actions for enforcement of judgments of U.S.
courts predicated upon any civil liability provisions of the U.S. federal
securities laws.
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and note thereto appearing
elsewhere in this Prospectus. Unless the context otherwise requires, the term
the "Company" refers to Texon International plc, the subsidiaries it acquired
pursuant to the Acquisition and/or their predecessors in business and excludes
the Machinery business (as defined below), which has been transferred to the
shareholders. See "The Transactions." For the purposes of "Summary--The
Offering," "The Transactions" and "Description of Notes," the "Company" means
Texon International plc only and does not include its subsidiaries.
THE COMPANY
The Company believes it is the world's largest, in terms of sales,
manufacturer and marketer of structural materials that are essential in the
manufacture of footwear. The Company, founded in Leicester, England in 1899,
operates a global business, which generates sales that are widely diversified
by geographic region and product line. The Company's primary products include
materials for insoles, which form the structural foundation of shoes;
stiffeners, which support and shape the toe and heel of shoes; and other
products used in the manufacture of footwear, such as linings, tacks, nails,
steel shanks and adhesives. The world's largest manufacturer of insole
materials, the Company also commands leading positions in the markets for its
other footwear products. While the products sold by the Company represent a
small percentage of the total cost of materials contained in footwear, they are
critical to the performance and manufacture of footwear and are not fashion
sensitive. In 1997, approximately 90% of sales were to the footwear
manufacturing industry. By leveraging its expertise in the manufacture of these
structural materials, the Company has developed several related niche
industrial products such as carpet gripper pins and cellulose air freshener
material. These industrial products are sold to a wide range of industries.
The Company supplies most of the major footwear manufacturers in the world
and believes that its global presence gives it a unique competitive advantage
to exploit industry trends favoring suppliers who provide footwear companies
with a "global partner." The Company supplies over 6,000 customers worldwide,
servicing global athletic footwear companies such as Nike and Adidas, designers
and producers of casual shoes including Timberland and R. Griggs & Co (Dr
Martens) and manufacturers of men's and women's formal shoes such as Church's
and Bally. The Company has seven manufacturing sites strategically located in
Europe, the United States and China and sells its products in more than 90
countries through an extensive marketing and distribution network. In 1997,
sales of insoles, stiffeners, other footwear materials and industrial products
accounted for 50%, 17%, 23% and 10% of total sales, respectively. In 1997, 48%
of the Company's sales were made to Europe, 27% to Asia and the Pacific, 18% to
the Americas and 7% to the rest of the world.
The Company believes that it benefits from certain competitive advantages
which have enabled it to increase sales and operating profitability and
maintain its leadership position in the structural footwear materials industry.
Among these advantages are (i) a leading market position driven by strong
brands and high quality products, (ii) a global presence, (iii) strong
relationships with a diverse customer base, (iv) diverse and customized
products, (v) attractive ancillary businesses, (vi) technological leadership
and (vii) an experienced and incentivized management team. See "Business--
Competitive Advantages."
The Company's strategy is to expand sales, increase profitability and
strengthen its position as the industry leader and supplier of choice through
certain key initiatives, including (i) increasing global market share, (ii)
providing preeminent customer service worldwide, (iii) developing new products,
(iv) increasing operating efficiencies, (v) reducing raw materials cost and
(vi) pursuing strategic growth opportunities. See "Business--Business
Strategy."
1
<PAGE>
THE INDUSTRY
The Shoe and Allied Trades Research Association, or SATRA, the leading trade
association in the footwear industry, projects that the industry will continue
to enjoy steady growth at a compound annual growth rate of approximately 3%
through 2000 due to favorable demographic trends, including continued
population and economic growth, which increase the demand for and consumption
of shoes. The Company believes that the growth rate for its products is higher,
as footwear manufacturers produce more footwear that utilizes structural
materials to improve the structural quality and durability of shoes. In
addition, the Company believes that manufacturers increasingly utilize
structural products such as the Company's, which allow for environmentally
conscious production processes.
As the worldwide footwear industry has grown, there has been a shift in
production capacity to Asia, primarily to capitalize on low labor costs. Asia's
share of global production increased from 61% in 1991 to 70% in 1995, the last
year for which data is available. The Company is well positioned with its
production and marketing presence in the region.
The structural footwear materials industry is highly fragmented, with very
few companies operating beyond a national or regional level. While the footwear
manufacturing industry is also fragmented, there is a growing trend towards
globalization as shoe designers and branded footwear companies, which outsource
the manufacturing of their footwear, increasingly seek a global solution to
their supply and specification requirements. The Company has been able, and
believes it is well poised to continue, to take advantage of this trend by
providing its customers with high quality, state-of-the-art products and
servicing their requirements in each significant market through its worldwide
distribution network.
OWNERSHIP AND MANAGEMENT OF THE COMPANY
Apax Partners & Co. Strategic Investors Limited and Apax Partners & Co.
Ventures Limited, Chase Capital Partners, other institutional investors and
certain members of management caused the Company to be formed for the purpose
of completing the Acquisition (as defined below).
Apax. Apax is part of an international group of investment management
companies (together, "Apax") that provides private equity funding to
entrepreneurial businesses worldwide. The group manages over (Pounds)2.0
billion of institutional money provided by pension funds, insurance companies
and foundations. Those funds are currently invested in over 150 companies
spanning all stages of development from technology start-ups to leveraged buy-
outs. The U.S. partner of Apax is Patricof & Co. Ventures Inc. Apax operates
through 13 offices around the world of which the U.K. office, with over 30
investment professionals and approximately (Pounds)800 million under
management, is the largest. See "Principal Shareholders."
Management. The management group of the Company includes Peter Selkirk, Chief
Executive, and Neil Fleming, Finance Director ("Senior Management"). Senior
Management own approximately 8.5% of the outstanding Voting Ordinary Shares (as
defined below) of the Company. See "Management" and "Principal Shareholders."
The Company is incorporated in England and Wales. Its principal executive
offices are located at 100 Ross Walk, Leicester, U.K., LE4 5BX. Its telephone
number is (44) 116 261 0123.
2
<PAGE>
THE TRANSACTIONS
In 1995, Apax led an institutional buy-out (the "1995 Acquisition") of USM
(Holdings) Limited and its subsidiaries, which at the time operated both the
footwear materials business carried on by the Company and described in more
detail under "Business" (the "Materials business") and a machinery business
which sells and services machines used to manufacture shoes (the "Machinery
business"). During 1997, the Materials business and the Machinery business were
separated into two groups and, as of December 31, 1997, were demerged (the
"Machinery Disposal"). United Texon Limited retained the Materials business,
and the Machinery business was transferred to another company principally owned
by the shareholders of United Texon Limited.
In December 1997, the Company and the shareholders of United Texon Limited
entered into an acquisition agreement (the "Acquisition Agreement") pursuant to
which the Company agreed to acquire the entire issued share capital of United
Texon Limited (the "Acquisition"). Following the Acquisition, the shareholders
in the Company were identical to the shareholders of United Texon Limited
immediately prior to the Acquisition, except for five members of management of
United Texon Limited who disposed of their shares in United Texon Limited as
part of the Acquisition. Two of those members of management, Peter Selkirk and
Neil Fleming, have subscribed for shares in the Company. Two members of the
management of United Texon Limited, Neil Coutts and Keith Pacey, were remained
with the Machinery business as part of the disposal of the Machinery business.
The remainder of the management team of United Texon Limited remained with the
Materials business following the Acquisition. The operation of the Materials
business by United Texon Limited and its subsidiaries was not affected as a
result of the Acquisition. The Company had been established in late 1997 for
the purpose of entering into the Acquisition. The Acquisition was conditioned
upon (i) consummation of the Old Note Offering and (ii) the Revolving Facility
(as defined below) being made available unconditionally. Under the terms of the
Acquisition Agreement, the Company had control of the financial and operational
management of the Materials business effective 18:00 hours December 31, 1997.
In connection with the Acquisition, the Company borrowed (Pounds)4.3 million
under a revolving credit facility of (Pounds)15.0 million (the "Revolving
Facility"). The establishment of and initial drawings under the Revolving
Facility, the Old Note Offering, the Machinery Disposal and the Acquisition
(including the use of the proceeds of such financings and the payment of
related fees and expenses) are referred to collectively as the "Transactions."
See "Use of Proceeds" and "Certain Transactions."
In order to complete the Acquisition, the Company took the following steps:
(a) issued to shareholders of United Texon Limited preference shares with a
redemption value of (Pounds)52.0 million and (Pounds)3.6 million of
ordinary shares representing 91.5% of the total outstanding Voting
Ordinary Shares in exchange for:
(i) approximately 88% of the outstanding ordinary shares and all of the
preference shares of United Texon Limited; and
(ii) a portion of the accreted value of certain discount bonds issued by
United Texon Limited to its shareholders in connection with the
1995 Acquisition (the "1995 Acquisition Debt");
(b) caused to be repaid existing indebtedness of United Texon Limited and
its subsidiaries consisting of:
(i) indebtedness to a syndicate of banks led by The Chase Manhattan
Bank, an affiliate of one of the shareholders of the Company and the
Initial Purchasers;
(ii) other indebtedness to shareholders and management of United Texon
Limited incurred in connection with the 1995 Acquisition; and
3
<PAGE>
(iii) indebtedness to unrelated third parties;
(c) purchased for (Pounds)20.6 million the remaining portion of the 1995
Acquisition Debt;
(d) purchased the remaining approximately 12% of the outstanding ordinary
shares of United Texon Limited acquired by management of United Texon
Limited pursuant to the exercise of management share options; and
(e) to the extent not already issued to Senior Management, issued 8.5% of
the outstanding Voting Ordinary Shares of the Company to Senior
Management for (Pounds)0.3 million.
Under the Company's articles of association (the "Articles"), holders of
preference shares will be entitled to receive a fixed cumulative dividend,
calculated as a percentage of the redemption value of (Pounds)52.0 million of
the preference shares, payable semi-annually at a rate which will be exclusive
of any associated tax credit. The ability of the Company to pay these dividends
in cash is subject to certain restrictions contained in the Revolving Facility
and the Indenture. See "Description of Credit Facilities" and "Description of
Notes--Limitation on Restricted Payments." The dividend shall be 15% through
September 30, 2002. However, any preference dividend payments due on or prior
to December 31, 2000, which are paid on or prior to the due date, shall be
deemed to satisfy three times the amount of the preference dividend so paid,
provided that arrears of accrued but unpaid preference dividends in respect of
previous periods have been paid. See "Principal Shareholders--Articles of
Association and Shareholders Agreement." Until December 31, 2000, in the event
that the dividend is not paid on the due date, it shall accumulate at a rate of
15%.
The following table sets forth the sources and uses of cash used to effect
the Transactions as if they had occurred on December 31, 1997:
<TABLE>
<CAPTION>
AMOUNTS
--------------------
(POUNDS IN MILLIONS)
<S> <C>
SOURCES
Revolving Facility.................................... (Pounds) 4.3
Senior Notes offered hereby........................... 82.2
Issue of ordinary shares.............................. 0.3
------------
Total............................................... (Pounds)86.8
============
USES
Repayment of existing indebtedness(a)................. (Pounds)58.9
Purchase of 1995 Acquisition Debt(b).................. 20.6
Purchase of management option shares.................. 2.8
Senior Notes issuance cost............................ 4.0
Other Transaction costs............................... 0.5
------------
Total............................................... (Pounds)86.8
============
</TABLE>
--------
(a) Includes (i) (Pounds)48.1 million of indebtedness to a syndicate of
banks led by The Chase Manhattan Bank, (ii) (Pounds)3.5 million of
indebtedness to shareholders and management of United Texon Limited and
(iii) (Pounds)7.3 million of indebtedness to unrelated third parties.
See "Use of Proceeds."
(b) The 1995 Acquisition Debt is held by shareholders of the Company. See
"Certain Transactions."
4
<PAGE>
THE EXCHANGE OFFER
Securities Offered.... DM 245 million principal amount of 10% Series A Senior
Notes due 2008. The terms of the Exchange Notes and the
Old Notes are identical in all material respects,
except for certain transfer restrictions and
registration rights relating to the Old Notes and
except for certain Liquidated Damages provisions
relating to the Old Notes described below under "--
Summary Description of the Exchange Notes."
Issuance of Old
Notes; Registration
Rights............... The Old Notes were issued on January 30, 1998 to Chase
Manhattan Bank AG, Chase Securities Inc. and Chase
Manhattan International Limited (collectively, the
"Initial Purchasers"), which placed the Old Notes with
"qualified institutional buyers" (as such term is
defined in Rule 144A promulgated under the Securities
Act). In connection therewith, the Company executed and
delivered for the benefit of the holders of Old Notes a
certain registration rights agreement (the "Exchange
and Registration Rights Agreement"), pursuant to which
the Company agreed (i) to file a registration statement
(the "Registration Statement") on or prior to 60 days
after January 30, 1998 with respect to the Exchange
Offer and (ii) to use their reasonable best efforts to
cause the Registration Statement to be declared
effective by the Commission on or prior to 120 days
after January 30, 1998. In certain circumstances, the
Company may be required to provide a shelf registration
statement (the "Shelf Registration Statement") to cover
resales of the Old Notes by the holders thereof. If the
Company does not comply with its obligations under the
Registration Rights Agreement, it will be required to
pay Liquidated Damages to holders of the Old Notes
under certain circumstances. See "The Exchange Offer--
Registration Rights; Liquidated Damages." Holders of
Old Notes do not have any appraisal rights in
connection with the Exchange Offer.
The Exchange Offer.... The Company is offering to exchange pursuant to the
Exchange Offer an aggregate principal amount of up to
DM 245 million principal amount of its Old Notes for a
like principal amount of its Exchange Notes. The
Company will issue the Exchange Notes on or promptly
after the Expiration Date. As of the date of this
Prospectus, DM 245 million aggregate principal amount
of Old Notes is outstanding. The terms of the Exchange
Notes are identical in all material respects to the
terms of the Old Notes for which they may be exchanged
pursuant to this offer, except that the Exchange Notes
have been registered under the Securities Act and are
issued free from any covenant regarding registration,
and except that if the Exchange Offer is not
consummated by June 29, 1998, the Company will be
obligated to pay each holder of the Old Notes an amount
equal to DM 0.192 per week per DM 1,000 of the Old
Notes until the Exchange Offer is consummated
("Liquidated Damages"). The Exchange Notes will
evidence the same debt as the Old Notes and will be
issued under and be entitled to the same benefits under
the Indenture as the Old Notes. The Issuance of the
Exchange Notes and the Exchange Offer
5
<PAGE>
is intended to satisfy certain obligations of the
Company under the Purchase Agreement and pursuant to
certain registration rights granted under the Exchange
and Registration Rights Agreement. See "The Exchange
Offer" and "Description of the Notes."
Interest Payments..... Interest on the Exchange Notes shall accrue from the
last Interest Payment Date (February 1 or August 1) on
which interest was paid on the Old Notes surrendered
or, if no interest has been paid on such Old Notes,
from January 30, 1998. See "The Exchange Offer--
Interest on the Exchange Notes."
Expiration Date.......
The Exchange Offer will remain in effect for a minimum
of 30 days, and will expire at 5:00 p.m., New York City
time, on , 1998, unless extended by the Company in
its sole discretion. [/R]
Exchange Date......... The date of acceptance for exchange of the Old Notes
and the consummation of the Exchange Offer will be the
first business day following the Expiration Date unless
extended. See "The Exchange Offer--Terms of the
Exchange."
Withdrawal Rights..... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date;
otherwise, all tenders will be irrevocable. See "The
Exchange Offer--Withdrawal Rights."
Exchange Offer
Procedures...........
Tendering holders of Old Notes must complete and sign
the Letter of Transmittal in accordance with the
instructions contained therein and forward the same by
mail, facsimile or hand delivery, together with any
other required documents, to the Exchange Agent, either
with the Old Notes to be tendered or in compliance with
the specified procedures for guaranteed delivery of Old
Notes. Holders of the Old Notes desiring to tender such
Old Notes in exchange for Exchange Notes should allow
sufficient time to ensure timely delivery. Certain
brokers, dealers, commercial banks, trust companies and
other nominees may also effect tenders by book-entry
transfer. Holders of Old Notes registered in the name
of a broker, dealer, commercial bank, trust company or
other nominee are urged to contact such person promptly
if they wish to tender Old Notes pursuant to the
Exchange Offer. Letters of Transmittal and certificates
representing Old Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender and
requests for information should be directed to the
Exchange Agent. 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 "The Exchange Offer--
Exchange Offer Procedures" and "Plan of Distribution."
6
<PAGE>
Federal Income Tax
Consequences.........
In the opinion of Mayer, Brown & Platt, the exchange of
Old Notes for the Exchange Notes pursuant to the (as
defined herein) Exchange Offer will not result in
recognition of any income, gain or loss to U.S. Holders
who participate in the Exchange Offer. for U.S. federal
income tax purposes. See "Tax Considerations--United
States Tax Considerations."
Resale................
The Company is making the Exchange Offer in reliance on
the position of the staff of the Commission as set
forth in certain no-action letters addressed to other
parties in other transactions. However, the Company has
not sought its own no-action letter and there can be no
assurance that the staff of the Commission would make a
similar determination with respect to the Exchange
Offer as in such other circumstances. Based on these
interpretations by the staff of the Commission, the
Company believes that the Exchange Notes issued
pursuant to this Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a
broker-dealer who acquired the Old Notes as a result of
market making activities or other trading activities,
(ii) an Initial Purchaser who acquired the Old Notes
directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any
other available exemption under the Securities Act, or
(iii) a person that is an "affiliate" (as defined in
Rule 405 of the Securities Act) of the Company) 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
is not participating, and has no arrangement or
understanding with any person to participate, in the
distribution of such Exchange Notes. By tendering each
holder which is not a broker-dealer will represent to
the Company that, among other things, the person
receiving the Exchange Notes whether or not such person
is the holder, (i) will acquire the Exchange Notes in
the ordinary course of such person's business, (ii) has
no arrangement or understanding with any person to
participate in a distribution of the Exchange Notes and
(iii) is not engaged in and does not intend to engage
in a distribution of the Exchange Notes. If any holder
or any such other person has an arrangement or
understanding with any person to participate in a
distribution of such Exchange Notes, is engaged in or
intends to engage in a distribution of such Exchange
Notes, is an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company, or acquired the Old
Notes as a result of market making or other trading
activities, then such holder or any such other person
(i) cannot rely on the applicable interpretations of
the staff of the Commission and (ii) must comply with
the registration and prospectus delivery requirements
of the Securities Act in connection with any resale
transaction, including the requirement that any such
7
<PAGE>
secondary resale transactions be covered by an
effective registration statement containing the selling
securityholder information required by Item 507 of
Regulation S-K of the Securities Act. Each broker-
dealer who receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it
acquired the Old Notes as the result of market-making
activities or other trading activities and will deliver
a prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-
making activities or other trading activities. In
addition, pursuant to Section 4(3) under the Securities
Act, until , 1998, all dealers effecting
transactions in the Exchange Notes, whether or not
participating in the Exchange Offer, may be required to
deliver a Prospectus. The Company has agreed that, for
a period of 180 days after the date of this Prospectus,
it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. See
"The Exchange Offer" and "Plan of Distribution."
Remaining Old Notes... Holders of Old Notes who do not tender their Old Notes
in the Exchange Offer or whose Old Notes are not
accepted for exchange will continue to hold such Old
Notes and will be entitled to all the rights and
preferences, and will be subject to the limitations,
applicable thereto under the Indenture. All untendered
and tendered but unaccepted Old Notes (collectively,
the "Remaining Old Notes") will continue to bear
legends restricting their transfer. In general, the Old
Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. To
the extent that the Exchange Offer is effected, the
trading market, if any, for Remaining Old Notes could
be adversely affected. See "Risk Factors--Consequences
of Exchange and Failure to Exchange Old Notes" and "The
Exchange Offer--Terms of the Exchange."
Use of Proceeds....... There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer. See "Use of
Proceeds."
Appraisal Rights...... Holders of Old Notes will not have dissenters' rights
or appraisal rights in connection with the Exchange
Offer.
Exchange Agent........ The exchange agent with respect to the Exchange Offer
is The Chase Manhattan Bank (the "Exchange Agent"). The
address and telephone number of the Exchange Agent are
set forth in "The Exchange Offer--Exchange Agent."
8
<PAGE>
CONSEQUENCES OF NOT EXCHANGING THE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Except under certain circumstances, the
Company does not currently intend to register the Old Notes under the
Securities Act. See "Risk Factors--Consequences of Exchange and Failure to
Exchange Old Notes" and "The Exchange Offer--Consequences of Exchange and
Failure to Exchange Old Notes."
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
Notwithstanding the designation of the Notes as Senior Notes, the Company has
not issued, and does not have any current firm arrangements to issue, any
significant indebtedness to which the Notes would be senior, and the Notes will
be effectively subordinate to essentially all of the outstanding indebtedness
of the Company and its subsidiaries. The Company does not have any current or
pending arrangements or agreements to incur any additional significant
indebtedness to which the Notes would be subordinate or rank pari passu in
right of payment.
The terms of the Exchange Notes and the Old Notes are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Old Notes and except that, if the Exchange Offer is not
consummated by June 29, 1998, subject to certain exceptions, the Company will
be obligated to pay Liquidated Damages to each holder of Old Notes in an amount
equal to DM 0.192 per week for each DM 1,000 principal amount of Old Notes, as
applicable, held by such holder.
The Exchange Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from January 30, 1998. Accordingly, registered holders of Exchange
Notes on the relevant record date for the first interest payment date following
the consummation of the Exchange Offer will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from January 30, 1998. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of interest on such Old Notes otherwise payable on any
interest payment date which occurs on or after the consummation of the Exchange
Offer.
9
<PAGE>
THE EXCHANGE NOTES
Company............... Texon International plc
Notes Offered......... DM 245 million aggregate principal amount of 10% Series
A Senior Notes due 2008.
Maturity Date......... February 1, 2008.
Interest Payment February 1 and August 1 of each year, commencing on
Dates................. August 1, 1998.
Sinking Fund.......... None.
Optional Redemption... Except as described below, the Company may not redeem
the Notes prior to February 1, 2003. On or after such
date, the Company may redeem the Notes, in whole or in
part, at the redemption prices set forth herein,
together with accrued and unpaid interest and
Additional Amounts (as defined below), if any, to the
date of redemption. In addition, at any time and from
time to time on or prior to February 1, 2001, the
Company may, subject to certain requirements, redeem up
to 33 1/3% of the original aggregate principal amount
of the Notes with the cash proceeds of one or more
Public Equity Offerings (as defined below) at a
redemption price equal to 110% of the principal amount
to be redeemed, together with accrued and unpaid
interest and Additional Amounts, if any, to the date of
redemption, provided that at least 66 2/3% of the
original aggregate principal amount of the Notes
remains outstanding after each such redemption. The
Notes may also be redeemed at the option of the
Company, in whole but not in part, at any time at 100%
of the principal amount thereof plus accrued but unpaid
interest, if any, to the redemption date and all
Additional Amounts then due and which will become due
as a result of the redemption or otherwise, in the
event of certain changes affecting U.K. withholding
taxes or, in certain circumstances, in the event
Definitive Notes (as defined below) are issued. See
"Description of Notes--Optional Redemption," "--
Redemption for Taxation Reasons" and "--Withholding
Taxes."
Change of Control..... Upon the occurrence of a Change of Control (as defined
below), the Company will be required to make an offer
to repurchase the Notes at a price equal to 101% of the
principal amount thereof, together with accrued and
unpaid interest and Additional Amounts, if any, to the
date of purchase. The Revolving Facility, however, will
effectively prevent the repurchase of the Notes in the
event of a Change of Control unless and until the
indebtedness under the Revolving Facility is repaid in
full. See "Description of Credit Facilities" and
"Description of Notes--Change of Control." There can be
no assurance that sufficient funds will be available if
necessary to make any such required repurchases.
Ranking............... The Notes will be unsecured, will rank pari passu with
any future Senior Indebtedness (as defined below) of
the Company and will be senior in right of payment to
all existing and future Subordinated Obligations (as
defined below) of the Company. The Notes will be
effectively subordinated to any secured Indebtedness of
the Company
10
<PAGE>
to the extent of the value of the assets securing such
Indebtedness and to all liabilities of the Company's
subsidiaries. At December 31, 1997 on a pro forma basis
after giving effect to the Transactions, the only
outstanding Indebtedness of the Company (excluding its
consolidated subsidiaries) other than the Notes would
have been secured Senior Indebtedness of (Pounds)4.3
million borrowed under the (Pounds)15.0 million
Revolving Facility and the total liabilities of the
subsidiaries of the Company (including trade payables
and deferred taxes and excluding the Notes and the
Senior Indebtedness) would have been (Pounds)38.7
million. The Indenture under which the Notes will be
issued permits the Company and its Restricted
Subsidiaries (as defined below) to incur additional
Indebtedness subject to certain limitations. See
"Description of Notes--Ranking."
Restrictive The Indenture limits (i) the incurrence of additional
Covenants............. Indebtedness by the Company and its Restricted
Subsidiaries, (ii) the creation of liens, (iii) the
payment of dividends on, and redemption of, capital
stock of the Company and its Restricted Subsidiaries
and the redemption of certain subordinated obligations
of the Company, (iv) certain other restricted payments,
including, without limitation, certain investments, (v)
sales of assets and the sale or issuance of capital
stock and preferred stock of the Company's Restricted
Subsidiaries, (vi) transactions with affiliates, (vii)
the lines of business in which the Company may operate
and (viii) consolidations, mergers and transfers of all
or substantially all the Company's assets. The
Indenture also prohibits certain restrictions on
distributions from Restricted Subsidiaries. In the
event of an Asset Disposition (as defined below), the
Company will be required to use the proceeds to repay
Indebtedness under the Revolving Facility or certain
other Indebtedness, to reinvest in the Company's
business or to offer to purchase the Notes at 100% of
the principal amount thereof, plus accrued and unpaid
interest and Additional Amounts, if any, to the date of
purchase. All of these limitations and prohibitions are
subject to a number of important qualifications and
exceptions. See "Description of Notes--Certain
Covenants."
Form of Notes......... The Exchange Notes will be issued initially in the form
of the Global Exchange Note in bearer form without
coupons and, pursuant to the Note Depositary Agreement
(as defined below), will be held by The Bank of New
York, as Book-Entry Depositary. The Book-Entry
Depositary will issue certificateless depositary
interests to DTC, which then will record the Book-Entry
Interests. Ownership of the Book-Entry Interests will
be limited to persons that have accounts with DTC
("Participants") or persons that may hold interests
through such participants ("Indirect Participants").
Book-Entry Interests will be shown on, and transfers
thereof will be effected only through, records
maintained in book-entry form by DTC and its
participants, including the Euroclear Operator and
Cedel. See "Description of Notes--General" and
"Description of the Note Depositary Agreement."
Except as set forth under "Description of the Note
Depositary Agreement," participants or indirect
participants will not be entitled to
11
<PAGE>
receive physical delivery of Exchange Notes in
definitive form or to have Exchange Notes issued and
registered in their names and will not be considered
the owners or Holders (as defined below) thereof under
the Indenture pursuant to which the Notes are issued.
Absence of a Public
Market for the
Exchange Notes........ The Exchange Notes are new securities and there is
currently no established market for the Exchange Notes.
The Exchange Notes generally will be freely
transferable (subject to the restrictions discussed
elsewhere herein) but will be new securities for which
there will not initially be a market. Accordingly,
there can be no assurance as to the development or
liquidity of any market for the Exchange Notes.
Application has been made to list the Exchange Notes on
the Luxembourg Stock Exchange. The Initial Purchasers
have advised the Company that they currently intend to
make a market in the Exchange Notes. However, they are
not obligated to do so, and any market making with
respect to the Exchange Notes may be discontinued
without notice. The Company does not intend to apply
for listing of the Exchange Notes on any U.S. national
securities exchange or for their quotation through the
National Association of Securities Dealers Automated
Quotation System. See "Risk Factors--Absence of Public
Market for the Notes; Restrictions on Transfer" and
"Plan of Distribution."
RISK FACTORS
Prospective investors should carefully consider all the information set forth
in this Prospectus and, in particular, should evaluate the specific factors set
forth under "Risk Factors" for risks involved with an investment in the
Exchange Notes. Risk factors which prospective investors should consider
include the consequences of exchanging and not exchanging Old Notes for
Exchange Notes, the Company's leverage and coverage, the ranking of the Notes
among other indebtedness of the Company, the Company's dependence on
intercompany transfers to meet its debt service and other obligations, the
restrictive covenants contained in the Indenture and the Credit Agreement, the
absence of a market for the Exchange Notes, the possible inability of the
Company to purchase the Notes upon a Change of Control and the influence of the
Company's principal stockholders. See "Risk Factors."
12
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
AND OTHER DATA
The following table presents as of the dates and for the periods indicated
(i) selected historical consolidated financial information of the Company and
(ii) unaudited pro forma consolidated financial information of the Company,
after giving effect to the Transactions. The historical consolidated financial
information of USM (Holdings) Limited for the period from January 1, 1995 to
April 24, 1995, and of United Texon Limited for the period from April 25, 1995
to December 31, 1995 and for the years ended December 31, 1996 and 1997 has
been derived from the audited consolidated financial statements of the Company
(including the Machinery business) included elsewhere herein.
The unaudited pro forma consolidated financial and other information does not
purport to represent what the Company's financial position or results of
operations would actually have been had the Transactions in fact occurred on
the assumed dates or to project the Company's financial position or results of
operations for any future date or future period. The information contained in
the following tables should also be read in conjunction with "Capitalization,"
"The Transactions," "Unaudited Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's historical Consolidated Financial Statements and
related notes included elsewhere in this Prospectus.
The summary historical consolidated statement of operations data for the four
year period ended December 31, 1997 reflects the results of operations of the
Materials business only. Historical consolidated information set forth in the
table under "Other Data" for these periods also reflects the results of the
Materials business only.
The Company prepares its Consolidated Financial Statements in accordance with
U.K. GAAP which differs in certain material respects from U.S. GAAP. These
differences have a material effect on net loss and the composition of
shareholder's deficit and are summarized in Note 26, to the Notes to the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
13
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
AND OTHER DATA
<TABLE>
<CAPTION>
TEXON INTERNATIONAL
USM (HOLDINGS) LIMITED UNITED TEXON LIMITED PLC
------------------------------ ----------------------------------------------- --------------------
HISTORICAL PRO FORMA(B)
------------------------------------------------------------------------------ --------------------
PERIOD PERIOD
YEAR FROM FROM YEAR YEAR YEAR
ENDED JANUARY 1, APRIL 25, TO ENDED ENDED ENDED
DECEMBER 31, TO APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994(C) 1995 1995 1996 1997 1997
--------------- -------------- --------------- --------------- --------------- ---------------
(POUNDS STERLING IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Amounts in accordance
with U.K. GAAP:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales turnover(a)... (Pounds)109,847 (Pounds)38,401 (Pounds)77,295 (Pounds)128,602 (Pounds)122,343 (Pounds)122,343
Gross profit........ 36,726 12,337 22,650 44,281 42,541 42,541
Operating profit
from continuing
operations......... 12,268 3,928 5,933 16,280 9,609 9,609
Exceptional
items(d)........... 463 -- 1,634 -- -- --
Interest expense,
net................ 8,307 2,972 7,106 10,044 10,199 9,634
Amortization of
deferred financing
costs.............. -- -- -- -- -- 400
Net income/(loss)--
continuing
operations......... (Pounds) 2,815 (Pounds) 657 (Pounds)(3,380) (Pounds) 3,556 (Pounds) (2,387) (Pounds) (2,222)
=============== ============== =============== =============== =============== ===============
OTHER DATA:
Amounts in accordance
with U.K. GAAP:
Depreciation and
amortization....... 1,902 805 1,424 2,161 2,355 2,355
Capital
expenditures....... 1,770 496 1,455 3,188 1,722 1,722
</TABLE>
<TABLE>
<CAPTION>
TEXON INTERNATIONAL PLC
------------------------------------------------------
HISTORICAL PRO FORMA(B)
-------------------------------- ---------------
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
--------------- --------------- ---------------
(POUNDS STERLING IN THOUSANDS)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Amounts in accordance with U.S. GAAP:
<S> <C> <C> <C> <C>
Sales turnover(a)...... (Pounds)128,602 (Pounds)122,343 (Pounds)122,343
Gross profit........... 44,281 42,541 42,541
Operating profit from
continuing
operations............ 11,963 6,358 6,358
Interest expense, net.. 10,044 10,199 9,634
Amortization of
deferred financing
costs................. -- -- 400
Net loss--continuing
operations............ (Pounds) (1,031) (Pounds) (5,654) (Pounds) (5,489)
=============== =============== ===============
OTHER DATA:
Amounts in accordance with U.S. GAAP:
Depreciation and
amortization.......... 6,647 6,412 6,412
Capital expenditures... 3,188 1,722 1,722
Ratio of earnings to
fixed charges(e)...... 1.2x 0.6x 0.6x
Shortfall of earnings
to fixed charges...... -- (3,841) (3,676)
</TABLE>
See Notes to Summary Historical and Pro Forma Consolidated Financial
Information and Other Data.
14
<PAGE>
NOTES TO SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION AND OTHER DATA
(a) Sales turnover includes amounts from transactions with the discontinued
business to reflect the total sales of the Materials business. These
amounts have been eliminated in the consolidated financial statements.
(b) The unaudited Pro Forma Consolidated Statement of Operations Data and
other Data for the year ended December 31, 1997 gives effect to the
Transactions as if they had occurred on January 1, 1997.
(c) The Consolidated Statement of Operations Data and Other Data presented for
the year ended December 31, 1994 contains unaudited information that
reflects the operating results of the Materials business only. The audited
financial statements for this period do not reflect the segregation of the
Materials business and the Machinery business.
(d) Exceptional items under U.K. GAAP for the period from April 25, 1995 to
December 31, 1995 and the year ended December 31, 1994 relate to
restructuring costs for employee severance costs of (Pounds)1,634,000 and
aborted initial public offering costs of (Pounds)463,000, respectively.
(e) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net income before provision for income taxes, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness and one-third of rental expense on operating leases,
representing that portion of rental expense deemed by the Company to be
attributable to interest.
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<PAGE>
RISK FACTORS
Prospective investors should consider carefully, in addition to other
information contained in this Prospectus, the following risk factors in
evaluating the Company and its business before purchasing the Exchange Notes
offered hereby.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. Except
under certain limited circumstances, the Company does not currently intend to
register the Old Notes under the Securities Act. In addition, upon the
consummation of the Exchange Offer, holders of Old Notes which remain
outstanding will not be entitled to any rights to have such Old Notes
registered under the Securities Act or to any rights under the Exchange and
Registration Rights Agreement. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. See "The
Exchange Offer--Consequences of Exchange and Failure to Exchange Old Notes."
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties in other transactions substantially
similar to the Exchange Offer, the Company 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 a holder thereof (other than
(i) a broker-dealer who acquired the Old Notes as a result of market making
activities or other trading activities, (ii) an Initial Purchaser who acquired
the Old Notes directly from the Company solely in order to resell pursuant to
Rule 144A of the Securities Act or any other available exemption under the
Securities Act, or (iii) a person that is an "affiliate" (as defined in Rule
405 of the Securities Act) of the Company) 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 is not participating, and has no
arrangement or understanding with any person to participate, in the
distribution of such Exchange Notes. By tendering each holder which is not a
broker-dealer will represent to the Company that, among other things, the
person receiving the Exchange Notes whether or not such person is the holder,
(i) will acquire the Exchange Notes in the ordinary course of such person's
business, (ii) has no arrangement or understanding with any person to
participate in a distribution of the Exchange Notes and (iii) is not engaged
in and does not intend to engage in a distribution of the Exchange Notes. If
any holder or any such other person has an arrangement or understanding with
any person to participate in a distribution of such Exchange Notes, is engaged
in or intends to engage in a distribution of such Exchange Notes, is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company,
or acquired the Old Notes as a result of market making or other trading
activities, then such holder or any such other person (i) cannot rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction, including the requirement that
any such secondary resale transactions be covered by an effective registration
statement containing the selling securityholder information required by Item
507 of Regulation S-K of the Securities Act. Each broker-dealer who receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes as the result of market-making
activities or other trading activities and will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for
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<PAGE>
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. In addition, pursuant
to Section 4(3) under the Securities Act, until , 1998, all dealers
effecting transactions in the Exchange Notes, whether or not participating in
the Exchange Offer, may be required to deliver a Prospectus. See "The Exchange
Offer--Purpose of the Exchange Offer," "--Consequences of Exchange and Failure
to Exchange Old Notes" and "Plan of Distribution."
SUBSTANTIAL LEVERAGE; POSSIBLE INABILITY TO SERVICE DEBT
Following the consummation of the Transactions, the Company is highly
leveraged. As of December 31, 1997, on a pro forma basis after giving effect
to the Transactions and the application of the net proceeds thereof, the
Company would have had consolidated total indebtedness of approximately
(Pounds)92,012,000 and a stockholders' deficit of (Pounds)68,322,000. In
addition, the Indenture permits the Company to incur additional indebtedness,
subject to certain limitations. See "Use of Proceeds," "Capitalization,"
"Selected Historical and unaudited Pro Forma Consolidated Financial
Information and Other Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Description of Credit Facilities" and "Description of the Notes--
Certain Covenants." The Company's high degree of leverage could have important
consequences to holders of the Notes, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired in
the future; (ii) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of interest on, and the repayment
of principal of, its indebtedness, thereby reducing the funds available to the
Company for other purposes; (iii) certain of the Company's borrowings will be
at variable rates of interest, which will expose the Company to the risk of
increased interest rates; (iv) the indebtedness outstanding under the
Revolving Facility, secured by the stock of United Texon Limited, will mature
prior to the Notes; (v) the Company may be substantially more leveraged than
certain of its competitors, which may place the Company at a competitive
disadvantage; and (vi) the Company's leveraged financial position may make it
more vulnerable in the event of a downturn in general economic conditions or
in its industry or business, reduce its ability to withstand competitive
pressures and limit its flexibility to adjust to changing market conditions.
The Company's flexibility in operating its business, including its ability to
make capital expenditures, has in the past been restricted for substantial
periods as a result of continuing breaches of covenants under credit
facilities, and there can be no assurance that similar circumstances will not
arise in the future.
The Company's ability to make scheduled payments on or refinance the Notes
and the Company's other indebtedness, or to fund planned capital expenditures
or finance acquisitions will depend on its future financial and operating
performance, which is subject to prevailing economic conditions and to
financial, business and other factors, including factors that are beyond the
control of the Company. For the year ended December 31, 1997 on a pro forma
basis, the Company's ratio of earnings under U.K. GAAP to fixed charges would
have been 1.0 to 1.0. There can be no assurance that the Company will be able
to meet its debt service obligations with cash flow. If the Company is not
able to generate sufficient cash flow to meet its obligations under the Notes
and its other indebtedness, the Company may be forced to adopt one or more
alternatives, including delaying capital expenditures, attempting to
restructure or refinance its indebtedness, sell material assets or operations
or equity. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Description of Credit Facilities" and
"Description of Notes."
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION
The Company is a holding company whose only material assets are its
investments in its subsidiaries. The Company conducts no business and is
completely dependent on distributions from its subsidiaries to service its
debt obligations, including the payment of all amounts due in respect of the
Notes. The holders of the Notes will have no direct claim against such
subsidiaries. See "U.K.
17
<PAGE>
Insolvency Law and Other Considerations." Except to the extent that the
Company may itself be a creditor with recognized claims against a subsidiary,
the rights of holders of the Notes to participate in any distribution of
assets of any subsidiary upon liquidation, bankruptcy, reorganization or
otherwise may, as is the case with other unsecured creditors of the Company,
be subject to prior claims of creditors (including trade creditors) and
preferred stockholders (if any) of that subsidiary and any other subsidiary of
the Company that is a direct or indirect parent company of that subsidiary.
The Indenture contains covenants which restrict the ability of the Company's
subsidiaries to enter into any agreement limiting transfers and distributions,
including dividends. However, the ability of the Company's subsidiaries to pay
dividends and make other payments may be restricted by, among other things,
applicable laws and regulations or by terms of agreements to which they may
become party. As the Company's subsidiaries operate in a number of different
jurisdictions, certain subsidiaries are subject to restrictions under the
applicable laws of their relevant jurisdiction on their ability to remit
dividends to their parent company and, ultimately, to the Company. The impact
of such restrictions will not be material to the Company's ability to meet the
principal and interest obligations related to the Notes as the relevant
subsidiary will structure payments to its parent company by way of
intercompany loans or transfers. See "Description of Notes."
RESTRICTIVE DEBT COVENANTS
The Revolving Facility contains a number of significant covenants that,
among other things, restrict the ability of the Company and its subsidiaries
to repay principal amounts of the Notes, dispose of assets, grant security,
make loans, acquire assets, enter into agreements of merger or consolidation,
incur additional indebtedness, incur guarantee obligations, conduct certain
investment activities, declare or pay dividends or redeem or purchase capital
stock, make capital expenditures and otherwise restrict certain corporate
activities. In addition, under the Revolving Facility, the Company is required
to comply with specified financial ratios and tests, including a minimum
interest coverage ratio, a maximum total debt to earnings before interest,
tax, depreciation and amortization ratio, a minimum fixed charge ratio and
maximum leverage ratios. See "Description of Credit Facilities."
The Company's ability to comply with the covenants and restrictions
contained in the Revolving Facility and the Indenture Provisions; Limitations
on Rights of Repayment may be affected by events beyond their control,
including prevailing economic, financial and industry conditions. The breach
of any of such covenants or restrictions could result in a default under the
Revolving Facility and/or the Indenture, which would permit the lenders under
the Revolving Facility or the holders of the Notes, as the case may be, to
declare all amounts borrowed thereunder to be due and payable, together with
accrued and unpaid interest, and the commitments of the lenders to make
further extensions of credit under the Revolving Facility could be terminated.
In recent years, the Company has been unable to comply with restrictive
covenants in previous credit facilities and has been in breach of covenants
under such facilities for substantial periods of time, and there can be no
assurance that the Issuer and its subsidiaries will be able to continue to
comply with the covenants under the Revolving Facility.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, holders of the Notes will be
entitled to require the Company to make an offer to purchase all of the
outstanding Notes at a price equal to 101% of the principal amounts thereof to
the date of repurchase plus accrued and unpaid interest and Additional
Amounts, if any, to the date of repurchase. The occurrence of certain of the
events which would constitute a Change of Control would require mandatory
prepayment under the Senior Credit Facility. In addition, the Senior Credit
Facility will effectively prevent the purchase of the Notes by the Company in
the event of a Change of Control unless and until such time as the
indebtedness under the Senior Credit Facility is repaid in full. The Company's
failure to purchase the Notes would result in a default under the Indenture
and the Revolving Facility. The inability to repay the indebtedness under the
Revolving Facility, if accelerated, would also constitute an event of default
under the Indenture, which could have adverse consequences to the Company and
the holders of the Notes. In the event of a
18
<PAGE>
Change of Control, there can be no assurance that the Company would have
sufficient assets to satisfy all of its obligations under the Revolving
Facility and the Notes. Future indebtedness of the Company may also contain
prohibitions of certain events or transactions which would constitute a Change
of Control or require such indebtedness to be repurchased upon a Change of
Control. The Change of Control purchase feature of the Notes may in certain
circumstances delay, discourage or prevent a sale or takeover of the Company.
See "Description of Credit Facilities" and "Description of Notes--Change of
Control."
HISTORIC BUSINESS LIABILITIES
Certain of the Company's subsidiaries have historically carried on a
business other than the ongoing business of the Company described in this
Prospectus. In particular, the Company may have unidentified contingent
liabilities relating to the Machinery business previously carried out by
certain of its subsidiaries. See "Certain Transactions." Accordingly,
liabilities relating to this past business activity could arise, and affect
the ability of the Company to pay interest on the Notes and to satisfy its
other debt obligations. The Company generally is not indemnified for any such
unidentified contingent liabilities, and no assurance can be given that such
liabilities are not material.
COMPETITION
The footwear manufacturing business is a fragmented and highly competitive
industry. Competition is generally based on product quality, price, customer
service and timely delivery. Certain of the Company's competitors may have
greater financial and other resources than the Company and be able to compete
more effectively in certain local markets. In addition, new global or local
competitors may enter the market. To the extent that any competitor offers
higher quality products, more attractive pricing, better service or faster
delivery, it could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Competition."
ABILITY TO MANAGE YEAR 2000 PROBLEM
The Company is in the process of formulating and implementing a program
designed to ensure that the software used in connection with the Company's
business and operations will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality
and without inaccurate results related to such dates. The Company currently
estimates that the additional costs to be incurred in connection with such a
program shall be approximately (Pounds)200,000 although there can be no
assurance that this will be the case or that the Company will not incur
additional costs in connection with such program. Furthermore, there can be no
assurance that Year 2000 projects will be successful or that the date change
from 1999 to 2000 will not materially affect an organization's operations and
financial results. Businesses, including the Company, may also be affected by
the inability of third parties to manage the Year 2000 problem.
IMPACT OF PRICE FLUCTUATIONS OF RAW MATERIALS ON RESULTS OF OPERATIONS
The Company purchases most of the raw materials for its products on the open
market, and the Company's sales may be affected by changes in the market price
of such raw materials. The Company does not generally engage in commodity
hedging transactions for raw materials. There can be no assurance that the
Company will be able to pass on increases in the price of raw materials to its
customers in the future, on a timely basis or at all. The results of
operations for the Company have in the past been affected by fluctuations in
the price of the primary raw material, wood pulp, for its cellulose insoles.
Wood pulp represented 27.6% of the Company's raw material costs in 1997 and
17.9% of the Company's total cost of sales in that year. Additionally,
significant increases in the price of the Company's products due to increases
in the cost of raw materials could have a negative effect on demand for its
products and a material adverse effect on the Company's business, financial
19
<PAGE>
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Raw Materials
and Suppliers."
COMPLIANCE COSTS ASSOCIATED WITH GOVERNMENTAL REGULATIONS; IMPORT DUTIES AND
TAXES
The majority of the Company's operations are conducted in foreign countries,
including anticipated growth in Asia, and are subject to risks that are
inherent in operating abroad, including governmental regulation, changes in
import duties, trade restrictions, work stoppages, currency restrictions and
other restraints and burdensome taxes.
Although 27% of the Company's sales are to Asia and the Pacific, these sales
are to the subcontractors of major footwear companies located in the region
who export the substantial majority of their production. As such, management
estimates that less than 5% of their sales are used in footwear which is sold
in Asia. Therefore the recent economic and banking problems experienced by
some of the Asian countries have had no material impact on the Company's
results of operations and revenues.
The recent devaluation of certain Asian currencies has benefited some of the
Company's competitors who manufacture their products in the region. However,
as labor and overhead relative to raw materials which are substantially
denominated in U.S. dollars represent a small proportion of the cost of goods
sold, management does not expect any material impact on the operations of the
Company.
The Company's operations worldwide and the products it sells are currently
subject to numerous governmental regulations and inspections. Future changes
in legislation or regulations and actions by regulators, including changes in
administration and enforcement policies, may from time to time require
operational improvements or modifications at various locations or the payment
of fines and penalties, or both.
The Company is subject to a variety of governmental regulations in certain
countries where it markets its products, including import quotas and tariffs,
and taxes.
RISK OF ENVIRONMENTAL LIABILITIES
The Company's facilities, several of which have been operated as industrial
establishments for long periods of time, are subject to comprehensive
environmental laws and requirements, including those governing discharges to
the air and water, the handling of disposal of solid and hazardous substances
and wastes and remediation of contamination associated with the release of
hazardous substances at the Company's facilities and offsite disposal
locations. The Company has made, and will continue to make, expenditures to
comply with such laws and requirements. The Company believes that it will not
require material capital expenditures to comply with applicable environmental
laws during 1998 or in the foreseeable future. However, future events, such as
changes in existing laws and regulations or the discovery of contamination at
the Company's facilities, adjacent sites or offsite waste disposal locations,
may give rise to additional compliance or remediation costs which could have a
material adverse effect on the Company's results of operations or financial
condition. Moreover, the nature of the Company's business exposes it to some
risk of claims with respect to environmental matters, and there can be no
assurance that material costs or liabilities will not be incurred in
connection with any such claims.
CONTROL OF BOARD OF DIRECTORS BY PRINCIPAL STOCKHOLDERS
75.95% of the voting ordinary shares in the capital of the Company (the
"Voting Ordinary Shares") which are outstanding are owned by funds advised by
Apax and its affiliates. As a result, subject to the Shareholders Agreement
(as defined below), Apax effectively will be able to elect the majority of the
members of the Board of Directors of the Company and therefore direct the
management and policies of the Company. The interests of Apax and its
affiliates may differ from the interests of holders
20
<PAGE>
of the Notes. Chase Equity Associates L.P., an affiliate of the Initial
Purchasers, owns 4.99% of the Voting Ordinary Shares and 100% of the non-
voting ordinary shares in the capital of the Company (the "Non Voting Ordinary
Shares" and, together with the Voting Ordinary Shares, the "Ordinary Shares").
See "The Transactions," "Principal Shareholders" and "Certain Transactions."
U.K. INSOLVENCY LAW AND FINANCIAL ASSISTANCE CONSIDERATIONS
The procedural and substantive provisions of U.K. insolvency and
administrative laws generally are more favorable to secured creditors than
comparable provisions of U.S. law. As a result, the ability of the holders of
the Notes to protect their interests may be more limited than would be the
case with a U.S. issuer. In addition, under U.K. insolvency law, the
liabilities of the Company in respect of the Notes will be paid in the event
of a bankruptcy or similar proceeding after certain debts of the Company,
which are entitled to priority under U.K. law. Such debts may include (i)
amounts owed to U.K. Inland Revenue, (ii) amounts owed to U.K. 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) amounts
owed to employees.
The net proceeds of the Old Note Offering were used in effecting the
Acquisition. 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. There can be no assurance, however, that the issuance of
the Notes will not be challenged by a liquidator or administrator or that a
court would support management's analysis.
Under the provisions of U.K. corporate and other local laws, the making of
loans from subsidiaries to the Company to discharge the Notes or to pay
interest on the Notes may constitute unlawful financial assistance in so far
as the proceeds of the Notes were applied in acquiring shares of United Texon
Limited (see "The Transactions" and "Use of Proceeds") or in repaying
indebtedness originally incurred in ongoing subsidiaries of United Texon
Limited.
RISK OF FOREIGN EXCHANGE RATE FLUCTUATIONS; INTRODUCTION OF THE EURO
The Company's operations are conducted by entities in many countries, and
accordingly, the Company's results of operations are subject to currency
translation risk and currency transaction risk. With respect to currency
translation risk, the financial condition and results of operations of each of
these entities is reported in the relevant local currency and then translated
into Sterling at the applicable currency exchange rate for inclusion in the
Company's financial statements. The appreciation of Sterling against certain
European currencies will have a negative impact on the reported sales and
operating margin. Based on average exchange rates throughout 1997, Sterling
appreciated 20.9% against the Deutsche Mark compared to 1996. For this purpose
the Deutsche Mark is taken as representative of the currencies which are
members of the European Monetary System ("EMS"). Conversely, the depreciation
of Sterling against such currencies will have a positive impact. Fluctuations
in the exchange rate between Sterling and other currencies may also affect the
book value of the Company's assets and the amount of the Company's
shareholders equity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
In addition to currency translation risk, the Company incurs currency
transaction risk because the Company's operations involve transactions in a
variety of currencies. Fluctuations in currency exchange rates may
significantly affect the Company's results of operations because many of its
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<PAGE>
subsidiaries' costs are incurred in currencies different from those that are
received from the sale of their products, and there is normally a time lag
between the incurrence of such costs and collection of the related sales
proceeds. Currency hedging is generally used by businesses to protect against
transaction risk. The Company engages in currency hedging only to a limited
extent due, in large part, to the fact that its ability to finance additional
hedging is limited by its high degree of leverage. The Company partially
hedges its transaction exposure through the use of foreign exchange forward
contracts to cover exposures arising on outstanding purchase and sales
invoices. It has not covered outstanding purchase or sales orders unless they
are firm commitments. The Company may cover such exposures in the future if it
is within its financing ability. The present hedging covers all traded
currencies to which the Company is exposed, which include the Deutsche Mark
and the U.S. dollar, as well as other major European currencies, the Hong Kong
and Taiwan dollar and the Australian and New Zealand dollar. Given the
volatility of currency exchange rates, there can be no assurance that the
Company will be able to effectively manage its currency transaction risks or
that any volatility in currency exchange rates will not have a material
adverse effect on the Company's financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--General" and "--International Operations."
A significant portion of the Company's revenues and expenses will be
denominated in currencies other than the Deutsche Mark, the currency in which
interest on and the principal of the Notes must be paid. Significant increases
in the value of the Deutsche Mark relative to other currencies in which the
Company conducts its operations could have an adverse effect on the Company's
ability to meet interest and principal obligations on foreign currency
denominated debt, including the Notes.
Under the treaty on the European Economic and Monetary Union (the "Treaty"),
to which the Federal Republic of Germany is a signatory, on or before January
1, 1999, and subject to the fulfillment of certain conditions, the "Euro" may
replace all or some of the currencies of the Member states of the European
Union (the "EU"), including the Deutsche Mark. If, pursuant to the Treaty, the
Deutsche Mark is replaced by the Euro, the payment of principal of, of
interest on, the Notes will be effected in Euro in conformity with legally
applicable measures taken pursuant to, or by virtue of, the Treaty. In
addition, the regulations of the EU relating to the Euro will apply to the
Notes and the Indenture. The circumstances and consequences described in this
paragraph do not entitle the Company or any holder of the Notes to early
redemption, rescission, notice, repudiation, adjustment or renegotiation of
the terms and conditions of the Notes or the Indenture or to raise other
defenses or to request any compensation claim, nor will they affect any of the
other obligations of the Company under the Notes or the Indenture.
ABSENCE OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON TRANSFERS
The Exchange Notes are being offered to holders of the Old Notes. The Old
Notes were issued on January 30, 1998 to a small number of institutional
investors and are eligible for trading in the Private Offering, Resale and
Trading through Automated Linkages (PORTAL) Market, the National Association
of Securities Dealers' screenbased, automated market for trading of securities
eligible for resale under Rule 144A. The Exchange Notes are new securities for
which there currently is no market. Although the Initial Purchasers have
advised the Company that they currently intend to make a market in the
Exchange Notes, they are not obligated to do so and may discontinue such
market making at any time without notice. The Company does not intend to list
the Notes on any national securities exchange other than the Luxembourg Stock
Exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. Accordingly, no
assurance can be given that an active market will develop for any of the Notes
or as to the liquidity of the trading market for any of the Notes. If a
trading market does not develop or is not maintained, holders of the Notes may
experience difficulty in reselling such Notes or may be unable to sell them at
all. If a market for the Notes develops, any such market may be discontinued
at any time. If a trading market develops for the Notes, future trading prices
of such Notes will depend on many factors,
22
<PAGE>
including, among other things, prevailing interest rates, the Company's
results of operations and the 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 Notes may trade
at a discount from their principal amount.
U.K. TAX CONSEQUENCES OF ISSUANCE OF DEFINITIVE NOTES
Upon the occurrence of certain events, holders of Book-Entry Interests will
be entitled to receive Definitive Notes. Under current U.K. tax law, upon the
issuance of such Definitive Notes, such holder may become subject to U.K.
income tax (currently 20%) to be withheld on any payments of interest on the
Notes. In certain circumstances, the Company will not be required to pay
Additional Amounts with respect to such Notes. See "Description of the Notes--
Withholding Taxes," "Description of the Note Depositary Agreement--Issuance of
Definitive Notes" and "Tax Considerations--Material U.K. Tax Consequences."
BOOK-ENTRY INTERESTS; DEPENDENCE ON INTERMEDIARIES
Until and unless Definitive Notes are issued in exchange for the Book-Entry
Interests, holders of the Book-Entry Interests will not be considered the
owners or Holders of Notes under the Indenture. After payment to the Book-
Entry Depositary, the Company will have no responsibility or liability for the
payment of interest, principal or other amounts to DTC or to holders of Book-
Entry Interests. The Book-Entry Depositary, or its nominee, will be the sole
Holder of the Notes in the form of the Global Exchange Note. Accordingly, each
person owning a Book-Entry Interest must rely on the procedures of the Book-
Entry Depositary and DTC, and, if such person is not a participant in DTC, on
the procedures of the participant through which such person owns its interest
(including, if applicable, the Euroclear Operator or Cedel), to exercise any
rights of a Holder under the Indenture.
Payments of principal and interest on, and other amounts due in respect of,
the Global Exchange Note will be made to the Book-Entry Depositary (as Holder
of the Global Exchange Note), which will in turn distribute payments to Cede &
Co. (as nominee of DTC) or as otherwise directed by DTC. DTC, upon receipt of
any payment from the Book-Entry Depositary, 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. The Company expects
that payments by participants or indirect 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. None of the
Company, the Trustee, the Book-Entry Depositary, any Paying Agent or the
Registrar will have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, the Book-Entry Interests
or for maintaining, supervising or reviewing any records relating to such
Book-Entry Interests.
Unlike Holders of the Notes themselves, holders of the Book-Entry Interests
will not have the direct right under the Indenture to act upon solicitations
by the Company of consents or requests by the Company for waivers or other
actions from Holders of the Notes. Instead, a holder of Book-Entry Interests
will be permitted to act only to the extent it has received appropriate
proxies to do so from DTC and, if applicable, DTC participants. There can be
no assurance that procedures implemented for the granting of such proxies will
be sufficient to enable holders of Book-Entry Interests to vote on any
requested actions on a timely basis. Similarly, upon the occurrence of an
Event of Default under the Notes, holders of Book-Entry Interests will be
restricted to acting through DTC and the Book-Entry Depositary if and until
such Holders request Definitive Notes to be issued. There can be no assurance
that the procedures to be implemented by DTC and the Book-Entry Depositary
under such circumstances will be adequate to ensure the timely exercise of
remedies under the Indenture. For a description of the terms of the Note
Depositary Agreement, see "Description of the Note Depositary Agreement."
23
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds in connection with the Exchange
Offer.
The net proceeds received by the Company from the Old Note Offering, after
deduction for underwriting discounts, fees and expenses were approximately DM
233.1 million ((Pounds)78.2 million). The net proceeds from the Old Note
Offering, together with proceeds from the Revolving Facility and from the
issue of shares, were used by the Company to (i) repay indebtedness of
approximately (Pounds)48.1 million under the credit agreements described
below; (ii) repay indebtedness of (Pounds)3.5 million to current and former
shareholders and management of United Texon Limited incurred in connection
with the 1995 Acquisition (the "A Notes"); (iii) repay (Pounds)7.3 million of
indebtedness to unrelated third parties; (iv) purchase for (Pounds)20.6
million the majority of the 1995 Acquisition Debt; (v) purchase stock from
current and former management of the Company for (Pounds)2.8 million; and (vi)
pay other fees and expenses relating to the Transactions. The foregoing
repayment amounts reflect the Transactions as if they had occurred on December
31, 1997. See "The Transactions".
The credit agreements repaid consisted of senior term loan and revolving
credit facilities of approximately (Pounds)48.1 million outstanding (including
accrued interest), which bore interest at LIBOR plus 2.25% per annum and had a
final repayment date of March 31, 2002. The senior term loan and revolving
credit facilities were provided by, among others, The Chase Manhattan Bank,
which is an affiliate of one of the Company's shareholders and of the Initial
Purchasers. The A Notes were due June 30, 1999 and bore interest at 5% per
annum until June 30, 1999 and at LIBOR plus 3% per annum thereafter.
(Pounds)184,240 principal amount of the A Notes were held by shareholders, and
(Pounds)15,628 by management of the Company. The (Pounds)7.3 million of
indebtedness to unrelated third parties consisted of (i) (Pounds)0.45 million
principal amount of loan notes issued in connection with the 1995 Acquisition,
which were due June 30, 1999 and were not interest-bearing and (ii) a
mezzanine term loan of (Pounds)6.9 million outstanding (including accrued
interest), which bore interest at LIBOR plus 9.5% per annum and had a final
repayment date of September 30, 2002. The 1995 Acquisition Debt consisted of
discount bonds with an issue price of (Pounds)16.0 million which were held by
shareholders of the Company. See "Certain Transactions."
EXCHANGE RATE INFORMATION
The following table sets forth, for the periods indicated, certain
information concerning the Noon Buying Rate for Sterling expressed in dollars
per Pound Sterling. Such rates are provided solely for the convenience of the
reader and should not be construed as a representation that Sterling amounts
actually represent such dollar amounts or that such Sterling amounts could
have been, or could be, converted into dollars at that rate or at any other
rate. Such rates are not used by the Company in the preparation of its
consolidated financial statements included elsewhere herein. See "Risk
Factors--Risk of Foreign Exchange Rate Fluctuations; Introduction of the Euro"
and Note 26 to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
PERIOD-
FISCAL YEAR ENDED DECEMBER 31, AVERAGE RATE(/1/) HIGH LOW END RATE
------------------------------ ----------------- ---- ---- --------
<S> <C> <C> <C> <C>
1993.................................. 1.50 1.59 1.42 1.48
1994.................................. 1.54 1.64 1.46 1.57
1995.................................. 1.58 1.64 1.53 1.55
1996.................................. 1.57 1.71 1.50 1.71
1997.................................. 1.64 1.71 1.58 1.64
</TABLE>
- --------
(/1/The)average of the Noon Buying Rates on the last business day of each
month during the relevant period. On March 23, 1998, the Noon Buying Rate
was $1.68 to (Pounds)1.00.
On March 23, 1998 The Chase Manhattan Bank's noon buying rate for Deutsche
Marks per Pound Sterling was DM 3.07 to (Pounds)1.00.
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 on a pro forma basis after giving effect to the
Transactions. Except as set forth herein, there have been no material changes
in the Company's capitalization since December 31, 1997. This table should be
read in conjunction with the "Selected Historical and unaudited Pro Forma
Consolidated Financial Information and Other Data," "Unaudited Pro Forma
Consolidated Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA AS OF
DECEMBER 31, 1997
-------------------------------
(POUNDS STERLING IN THOUSANDS)
(UNAUDITED)
U.S. GAAP U.K. GAAP
--------------- --------------
<S> <C> <C>
DEBT:
Revolving Facility(a)........................ (Pounds) 4,342 (Pounds) 4,342
Assumed Indebtedness(b)...................... 5,470 5,470
Senior Notes offered hereby.................. 82,200 82,200
--------------- --------------
Total debt................................... 92,012 92,012
Debt issuance costs netted off against debt
raised(c) .................................. -- (4,000)
--------------- --------------
92,012 88,012
SHAREHOLDERS' EQUITY:
Ordinary shares(d)........................... 3,920 3,920
Preference shares(d)......................... 52,000 52,000
--------------- --------------
55,920 55,920
Goodwill write-off reserve(e)................ -- (124,242)
Profit and loss account...................... (57,405) --
--------------- --------------
Total shareholders' deficit.................. (1,485) (68,322)
Minority interest(f)......................... 1,431 1,431
--------------- --------------
Total capitalization......................... (Pounds) 91,958 (Pounds)21,121
=============== ==============
</TABLE>
- --------
(a) The Revolving Facility provides revolving loans of up to (Pounds)15.0
million for working capital and general corporate purposes. The Company
used (Pounds)4.3 million of borrowings under the Revolving Facility to
partially fund the Acquisition. See "The Transactions" and "Description of
Credit Facilities."
(b) The Assumed Indebtedness consisted of borrowings under bilateral borrowing
arrangements by certain of the Company's subsidiaries. See "Description of
Credit Facilities--Other Credit Facilities."
(c) Under U.K. GAAP, debt issuance costs are netted from the calculation of
total debt and amortized over the life of the debt; however, gross
financial obligations should not exclude this netted amount. Under U.S.
GAAP, such costs are recorded as an asset and amortized over the life of
the debt as additional interest cost.
(d) In connection with the Acquisition, the Company issued ordinary shares and
preference shares to certain shareholders of United Texon Limited in
exchange for their shareholdings in United Texon Limited. See "The
Transactions."
(e) Under U.K. GAAP, the Acquisition Agreement constitutes an acquisition and
the resulting goodwill can be charged for this period to a goodwill write-
off reserve, a component of the other reserves account in shareholders'
deficit. Under U.S. GAAP, the Acquisition Agreement for the Company is not
considered an acquisition, therefore no goodwill is recognized. In
addition, under U.S. GAAP, the Company's pre-existing goodwill is
capitalized and amortized over its useful life (see Note 26, of the Notes
to the Consolidated Financial Statements).
(f) Minority interest relates to the 42.4% interest held by the counterparty
to the Company's joint venture operations in China.
25
<PAGE>
THE TRANSACTIONS
In 1995, Apax led the 1995 Acquisition of USM (Holdings) Limited and its
subsidiaries, which at the time operated both the Materials business and the
Machinery business. During 1997, the Materials business and the Machinery
business were separated into two groups and, as of December 31, 1997, were
demerged. United Texon Limited retained the Materials business, and the
Machinery business was transferred to another company principally owned by the
shareholders of the Company.
In December 1997, the Company and the shareholders of United Texon Limited
entered into the Acquisition Agreement pursuant to which the Company agreed to
acquire the entire issued share capital of United Texon Limited. Following the
Acquisition, the shareholders in the Company were identical to the
shareholders of United Texon Limited immediately prior to the Acquisition,
except for five members of management of United Texon Limited who disposed of
their shares in United Texon Limited as part of the Acquisition. Two of those
members of management, Peter Selkirk and Neil Fleming, have subscribed for
shares in the Company. Two members of the management of United Texon Limited,
Neil Coutts and Keith Pacey, remained with the Machinery business as part of
the disposal of the Machinery business. The remainder of the management team
of United Texon Limited remained with the Materials business following the
Acquisition. The operation of the Materials business by United Texon Limited
and its subsidiaries was not affected as a result of the Acquisition. The
Company had been established in late 1997 for the purpose of entering into the
Acquisition. The Acquisition was conditional upon (i) consummation of the Old
Note Offering and (ii) the Revolving Facility being made available
unconditionally. Under the terms of the Acquisition Agreement, the Company has
control of the financial and operational management of the Materials business
as of 18:00 hours on December 31, 1997.
In connection with the Acquisition, the Company borrowed (Pounds)4.3 million
under the Revolving Facility. See "Use of Proceeds" and "Certain
Transactions."
In order to consummate the Acquisition, the Company took the following
steps:
(a) issued to shareholders of United Texon Limited preference shares with a
redemption value of (Pounds)52.0 million and (Pounds)3.6 million of
ordinary shares representing 91.5% of the outstanding Voting Ordinary
Shares in exchange for:
(i) approximately 88% of the outstanding ordinary shares and all of the
preference shares of United Texon Limited; and
(ii) a portion of the 1995 Acquisition Debt;
(b) caused to be repaid existing indebtedness of United Texon Limited and
its subsidiaries consisting of:
(i) indebtedness to a syndicate of banks led by The Chase Manhattan
Bank, an affiliate of one of the shareholders of the Company and
the Initial Purchasers;
(ii) other indebtedness to shareholders and management of United Texon
Limited incurred in connection with the 1995 Acquisition; and
(iii) indebtedness to unrelated third parties;
(c) purchased for (Pounds)20.6 million the remaining portion of the 1995
Acquisition Debt;
(d) purchased the remaining approximately 12% of the outstanding ordinary
shares of United Texon Limited acquired by management of United Texon
Limited pursuant to the exercise of management share options; and
(e) to the extent not already issued to Senior Management, issued 8.5% of
the outstanding Voting Ordinary Shares of the Company to Senior
Management for (Pounds)0.3 million.
26
<PAGE>
Under the Articles, holders of preference shares will be entitled to receive
a fixed cumulative dividend, calculated as a percentage of the redemption
value of (Pounds)52.0 million of the preference shares, payable semi-annually
at a rate which will be exclusive of any associated tax credit. The ability of
the Company to pay these dividends in cash is subject to certain restrictions
contained in the Revolving Facility and the Indenture. See "Description of
Credit Facilities" and "Description of Notes--Limitation on Restricted
Payments." The dividend shall be 15% through September 30, 2002. However, any
preference dividend payments due on or prior to December 31, 2000, which are
paid on or prior to the due date, shall be deemed to satisfy three times the
amount of the preference dividend so paid, provided that arrears of accrued
but unpaid preference dividends in respect of previous periods have been paid.
See "Principal Shareholders--Articles of Association and Shareholders
Agreement." Until December 31, 2000, in the event that the dividend is not
paid on the due date, it shall accumulate at a rate of 15%.
The following table sets forth the sources and uses of cash used to effect
the Transactions as if they had occurred on December 31, 1997:
<TABLE>
<CAPTION>
AMOUNTS
--------------------
(POUNDS IN MILLIONS)
<S> <C>
SOURCES
Revolving Facility.................................... (Pounds) 4.3
Senior Notes offered hereby........................... 82.2
Issue of ordinary shares.............................. 0.3
------------
Total............................................... (Pounds)86.8
============
USES
Repayment of existing indebtedness(a)................. (Pounds)58.9
Purchase of 1995 Acquisition Debt(b).................. 20.6
Purchase of management option shares.................. 2.8
Senior Notes issuance cost............................ 4.0
Other Transaction costs............................... 0.5
------------
Total............................................... (Pounds)86.8
============
</TABLE>
--------
(a) Includes (i) (Pounds)48.1 million of indebtedness to a syndicate of
banks led by The Chase Manhattan Bank, (ii) (Pounds)3.5 million of
indebtedness to shareholders and management of United Texon Limited and
(iii) (Pounds)7.3 million of indebtedness to unrelated third parties.
See "Use of Proceeds."
(b) The 1995 Acquisition Debt is held by shareholders of the Company. See
"Certain Transactions."
27
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
AND OTHER DATA
The following table presents as of the dates and for the periods indicated
(i) selected historical consolidated financial information of the Company and
(ii) unaudited pro forma consolidated financial information of the Company,
after giving effect to the Transactions. The historical consolidated financial
information of USM (Holdings) Limited for the period from January 1, 1995 to
April 24, 1995, and of United Texon Limited for the period from April 25, 1995
to December 31, 1995, and for the years ended December 31, 1996 and 1997 and
of United Texon Limited as of December 31, 1996 and 1997 and of Texon
International plc as of December 31, 1997 has been derived from the audited
consolidated financial statements of the Company (including the Machinery
business) included elsewhere herein.
The unaudited pro forma consolidated financial and other information does
not purport to represent what the Company's financial position or results of
operations would actually have been had the Transactions in fact occurred on
the assumed dates or to project the Company's financial position or results of
operations for any future date or future period. The information contained in
the following tables should also be read in conjunction with "Capitalization,"
"The Transactions," "Unaudited Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's historical Consolidated Financial Statements and
related notes included elsewhere in this Prospectus.
The selected historical consolidated statement of operations data for the
five year period ended December 31, 1997 reflects the results of operations of
the Materials business only. Historical consolidated information set forth in
the table under "Other Data" for these periods also reflects the results of
the Materials business only. The Texon International plc historical
consolidated balance sheet data as of December 31, 1997 reflects the financial
position of the Materials business only. Historical consolidated balance sheet
data for all other periods reflect the financial position of both the
Materials business and the Machinery business as U.K. GAAP does not require
the restatement of prior year balance sheets for discontinued operations. The
unaudited pro forma consolidated financial information reflects the results of
operations and financial position of the Materials business only. See
"Unaudited Pro Forma Consolidated Financial Information."
The Company prepares its Consolidated Financial Statements in accordance
with U.K. GAAP which differs in certain material respects from U.S. GAAP.
These differences have a material effect on net income/(loss) and the
composition of shareholder's deficit and are summarized in Note 26 to the
Notes to the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
28
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
AND OTHER DATA
<TABLE>
<CAPTION>
USM (HOLDINGS) LIMITED UNITED TEXON LIMITED
------------------------------------------------ -------------------------------------------------
HISTORICAL
---------------------------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED YEAR ENDED JANUARY 1, APRIL 25, YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, TO APRIL 24, TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993(C) 1994(C) 1995 1995 1996 1997
--------------- --------------- -------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
(POUNDS STERLING IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Amounts in
accordance with
U.K. GAAP:
Sales
turnover(a).... (Pounds)101,808 (Pounds)109,847 (Pounds)38,401 (Pounds)77,295 (Pounds)128,602 (Pounds)122,343
Cost of goods
sold........... 66,498 73,121 26,064 54,645 84,321 79,802
--------------- --------------- -------------- --------------- --------------- ---------------
Gross profit.... 35,310 36,726 12,337 22,650 44,281 42,541
Operating
expenses(d).... 21,750 24,458 8,409 16,717 28,001 32,932
--------------- --------------- -------------- --------------- --------------- ---------------
Income from
continuing
operations..... 13,560 12,268 3,928 5,933 16,280 9,609
Exceptional
items(e)....... -- 463 -- 1,634 -- --
--------------- --------------- -------------- --------------- --------------- ---------------
Income before
taxes and
interest....... 13,560 11,805 3,928 4,299 16,280 9,609
Interest
expense, net... 9,325 8,307 2,972 7,106 10,044 10,199
Amortization of
deferred
financing
costs.......... -- -- -- -- -- --
--------------- --------------- -------------- --------------- --------------- ---------------
Income before
taxes and
minority
interests...... 4,235 3,498 956 (2,807) 6,236 (590)
Income tax
expense........ 670 921 367 682 2,387 1,492
--------------- --------------- -------------- --------------- --------------- ---------------
Income before
minority
interests...... 3,565 2,577 589 (3,489) 3,849 (2,082)
Minority
interests in
(earnings)
losses......... 8 238 68 (109) (293) (305)
--------------- --------------- -------------- --------------- --------------- ---------------
Net
income/(loss)
continuing
operations..... 3,573 2,815 657 (3,380) 3,556 (2,387)
Net
income/(loss)
discontinued
operations..... (12) 450 307 (11,672) (4,285) (1,931)
--------------- --------------- -------------- --------------- --------------- ---------------
Net
income/(loss).. (Pounds) 3,561 (Pounds) 3,265 (Pounds) 964 (Pounds)(15,052) (Pounds) (729) (Pounds) (4,318)
=============== =============== ============== =============== =============== ===============
OTHER DATA:
Amounts in
accordance with
U.K. GAAP:
Depreciation and
amortization... (Pounds) 1,745 (Pounds) 1,902 (Pounds) 805 (Pounds) 1,424 (Pounds) 2,161 (Pounds) 2,355
Capital
expenditures... 6,510 1,770 496 1,455 3,188 1,722
Ratio of
earnings to
fixed
charges(g)..... 1.4x 1.4x 1.3x 0.6x 1.6x 0.9x
Shortfall of
earnings to
fixed charges.. -- -- -- (2,807) -- (590)
<CAPTION>
TEXON
INTERNATIONAL
PLC
----------------
PRO FORMA(B)
----------------
YEAR ENDED
DECEMBER 31,
1997
----------------
(UNAUDITED)
<S> <C>
STATEMENT OF
OPERATIONS DATA:
Amounts in
accordance with
U.K. GAAP:
Sales
turnover(a).... (Pounds)122,343
Cost of goods
sold........... 79,802
----------------
Gross profit.... 42,541
Operating
expenses(d).... 32,932
----------------
Income from
continuing
operations..... 9,609
Exceptional
items(e)....... --
----------------
Income before
taxes and
interest....... 9,609
Interest
expense, net... 9,634
Amortization of
deferred
financing
costs.......... 400
----------------
Income before
taxes and
minority
interests...... (425)
Income tax
expense........ 1,492
----------------
Income before
minority
interests...... (1,917)
Minority
interests in
(earnings)
losses......... (305)
----------------
Net
income/(loss)
continuing
operations..... (Pounds) (2,222)
================
Net
income/(loss)
discontinued
operations.....
Net
income/(loss)..
OTHER DATA:
Amounts in
accordance with
U.K. GAAP:
Depreciation and
amortization... (Pounds) 2,355
Capital
expenditures... 1,722
Ratio of
earnings to
fixed
charges(g)..... 1.0x
Shortfall of
earnings to
fixed charges.. --
</TABLE>
See Notes to Selected Historical and Unaudited Pro Forma Consolidated
Financial Information and Other Data.
29
<PAGE>
<TABLE>
<CAPTION>
TEXON INTERNATIONAL PLC
-------------------------------------------------
HISTORICAL PRO FORMA(B)
-------------------------------- ---------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
--------------- --------------- ---------------
(UNAUDITED)
(POUNDS STERLING IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Amounts in
accordance with
U.S. GAAP:
Sales
turnover(a)...... (Pounds)128,602 (Pounds)122,343 (Pounds)122,343
Cost of goods
sold............. 84,321 79,802 79,802
--------------- --------------- ---------------
Gross profit...... 44,281 42,541 42,541
Operating expenses
(including
amortization of
goodwill)(d ).... 32,318 36,183 36,183
--------------- --------------- ---------------
Income from
continuing
operations(f).... 11,963 6,358 6,358
Interest expense,
net.............. 10,044 10,199 9,634
Amortization of
deferred
financing costs.. -- -- 400
--------------- --------------- ---------------
Income before
taxes and
minority
interests........ 1,919 (3,841) (3,676)
Income tax
expense.......... 2,657 1,508 1,508
--------------- --------------- ---------------
Income before
taxes,
extraordinary
items and
minority
interests........ (738) (5,349) (5,184)
Minority interests
in (earnings)
losses........... (293) (305) (305)
--------------- --------------- ---------------
Net loss from
continuing
operations....... (Pounds) (1,031) (Pounds) (5,654) (Pounds) (5,489)
=============== =============== ===============
OTHER DATA:
Amounts in
accordance with
U.S. GAAP:
Depreciation and
amortization..... (Pounds) 6,647 (Pounds) 6,412 (Pounds) 6,412
Capital
expenditures..... 3,188 1,722 1,722
Ratio of earnings
to fixed
charges(g)....... 1.2x 0.6x 0.6x
Shortfall of
earnings to fixed
charges.......... -- (3,841) (3,676)
</TABLE>
See Notes to Selected Historical and Pro Forma Consolidated Financial
Information and Other Data.
30
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIALINFORMATION
AND OTHER DATA
<TABLE>
<CAPTION>
USM (HOLDINGS) LIMITED UNITED TEXON LIMITED
------------------------------------------------- -------------------------------
HISTORICAL
-----------------------------------------------------------------------------------
AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, AS OF APRIL 24, DECEMBER 31, DECEMBER 31,
1993(c) 1994(c) 1995 1995 1996
--------------- --------------- --------------- --------------- --------------
(UNAUDITED) (UNAUDITED) (POUNDS STERING IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Amounts in ac-
cordance with
U.K. GAAP:
Total assets.... (Pounds)115,410 (Pounds)118,447 (Pounds)121,770 (Pounds)114,628 (Pounds)99,386
Total debt(h)... 99,960 98,812 92,967 104,059 87,221
Obligations under
finance lease.. 138 616 581 509 1,092
Total shareholders'
deficit........ (56,488) (51,724) (51,613) (70,588) (66,066)
<CAPTION>
TEXON INTERNATIONAL PLC
-------------------------------
PRO FORMA(b)
---------------
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1997 1997
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Amounts in ac-
cordance with
U.K. GAAP:
Total assets.... (Pounds)54,315 (Pounds)54,315
Total debt(h)... 87,660 92,012
Obligations under
finance lease.. 922 922
Total shareholders'
deficit........ (68,629) (68,322)
</TABLE>
<TABLE>
<CAPTION>
TEXON INTERNATIONAL PLC
-------------------------------------------------
HISTORICAL PRO FORMA(b)
-------------------------------- ---------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
--------------- --------------- ---------------
(UNAUDITED)
(POUNDS STERLING IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Amounts in accordance with
U.S. GAAP:
Total assets............... (Pounds)128,600 (Pounds)121,346 (Pounds)125,346
Total debt(h).............. 87,221 87,660 92,012
Total shareholders' (defi-
cit)...................... (26,244) (1,792) (1,485)
</TABLE>
See Notes to Selected Historical and Pro Forma Consolidated Financial
Information and Other Data.
31
<PAGE>
NOTES TO SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION AND OTHER DATA
(a) Sales turnover includes amounts from transactions with the discontinued
business to reflect the total sales of the Materials business. These
amounts have been eliminated in the consolidated financial statements.
(b) The unaudited Pro Forma Consolidated Statement of Operations Data and
Other Data for the year ended December 31, 1997 give effect to the
Transactions as if they had occurred on January 1, 1997. The unaudited
Pro Forma Consolidated Balance Sheet Data as of December 31, 1997 gives
effect to the Transactions as if they had occurred on such date.
(c) The Consolidated Statement of Operations Data and Other Data presented
for the years ended December 31, 1994 and 1993 contain unaudited
information that reflects the operating results of the Materials business
only. The audited financial statements for these periods do not reflect
the segregation of the Materials business and the Machinery business.
(d) Operating expenses for the year ended December 31, 1997 include certain
non-recurring expenses totalling (Pounds)5.6 million. These expenses
include (Pounds)1.7 million relating to fees incurred in connection with a
contemplated sale of the Materials business, which sale was abandoned by
the shareholders in October 1997, (Pounds)1.1 million in refinancing costs
and (Pounds)2.8 million as the cost of the exercise of management share
options on completion of the Offering.
(e) Exceptional items under U.K. GAAP for the period from April 25, 1995 to
December 31, 1995 and the year ended December 31, 1994 relate to
restructuring costs for employee severance costs of (Pounds)1,634,000 and
aborted initial public offering costs of (Pounds)463,000, respectively.
(f) Income from continuing operations under U.S. GAAP is arrived at after
taking into account the differences relating to the amortization of
goodwill, the treatment of pensions and other post-retirement benefits,
the United Texon Limited acquisition costs and the extraordinary debt
extinguishment costs as set out in Note 26 to the Consolidated Financial
Statements included elsewhere herein. The continuing operations portion of
the goodwill amortization differences for the years ended December 31,
1997 and 1996 amounts to (Pounds)4,057,000 and (Pounds)4,486,000
respectively. The continuing operations portion of the difference relating
to pensions and post-retirement benefits for the years ended December 31,
1997 and 1996 amounts to (Pounds)162,000 and (Pounds)169,000 respectively.
The continuing operations portion of the difference relating to United
Texon Limited acquisition costs for the year ended December 31, 1997
amounts to (Pounds)500,000. The continuing operations portion of the
difference relating to extraordinary debt extinguishment costs for the
year ended December 31, 1997 amounts to (Pounds)1,144,000.
(g) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net income before provision for income taxes,
plus fixed charges. Fixed charges consist of interest expense on all
indebtedness and one-third of rental expense on operating leases,
representing that portion of rental expense deemed by the Company to be
attributable to interest.
(h) Under U.K. GAAP, costs associated with the issuance of debt are deducted
from the amounts raised for the purposes of balance sheet presentation and
amortized over the life of the debt. Pro forma debt as of December 31,
1997 is shown before deduction of debt issuance costs.
32
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet of the Company
as of December 31, 1997 gives effect to the Transactions as if they had
occurred on such date. The unaudited pro forma consolidated statement of
operations for the year ended December 31, 1997 gives effect to the
Transactions as if they had occurred on January 1, 1997. See "The
Transactions."
The unaudited pro forma consolidated balance sheet and statement of
operations are based on the historical consolidated financial statements for
the Company and the assumptions and adjustments described in the accompanying
notes. The unaudited pro forma consolidated statements of operations do not
purport to represent what the Company's results of operations actually would
have been if the Transactions described above had occurred as of the date
indicated or what the results will be for any future periods. The unaudited
pro forma consolidated financial information is based upon assumptions that
the Company believes are reasonable and should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus.
33
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------------------------------
PRO FORMA
TEXON ADJUSTMENTS FOR TEXON
INTERNATIONAL THE INTERNATIONAL
PLC TRANSACTIONS PLC PRO FORMA
-------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
(POUNDS STERLING IN THOUSANDS)
ASSETS:(A)
Cash at bank and in hand.............................. (Pounds) 1,156 (Pounds)-- (Pounds) 1,156
Debtors............................................... 19,345 -- 19,345
Stocks................................................ 16,716 -- 16,716
-------------- ---------- --------------
Total currents assets............................... 37,217 -- 37,217
Tangible assets....................................... 17,098 -- 17,098
-------------- ---------- --------------
Total assets........................................ 54,315 -- 54,315
============== ========== ==============
LIABILITIES:(A)
Creditors (amounts falling due within one year)
Short-term debt..................................... 64,396 (58,926)(b) 5,470
Short-term obligations.............................. 49,997 (23,923)(c) 26,074
Creditors (amounts falling due after more than one
year)
Long-term debt...................................... -- 82,542(b) 82,542
Long-term obligations............................... 698 -- 698
Provisions for liabilities and charges................ 6,422 -- 6,422
-------------- ---------- --------------
Total liabilities................................... 121,513 (307) 121,206
SHAREHOLDERS' EQUITY:(A)
Ordinary shares and share premium..................... 13 3,907(d) 3,920
Preference shares..................................... -- 52,000(d) 52,000
Shares to be issued................................... 55,600 (55,600)(d) --
Goodwill write-off reserve............................ (124,242) -- (124,242)
Profit and loss account............................... -- -- --
-------------- ---------- --------------
Total shareholders' deficit......................... (68,629) (307) (68,322)
Total liabilities and shareholders' equity.......... 52,884 -- 52,884
Minority Interest................................... 1,431 -- 1,431
-------------- ---------- --------------
(Pounds)54,315 (Pounds)-- (Pounds)54,315
============== ========== ==============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(POUNDS STERLING IN THOUSANDS)
(a) Presentation of consolidated balance sheet items differs between U.K.
GAAP and U.S. GAAP. Certain U.K. GAAP consolidated balance sheet asset
accounts correspond to U.S. GAAP accounts as follows: "cash at bank and
in hand" to "cash and cash equivalents"; "debtors" to "accounts
receivable"; "stocks" to "inventory"; and "tangible assets" to "fixed
assets." Certain U.K. GAAP consolidated balance sheet liabilities
accounts correspond to U.S. GAAP accounts as follows: "creditors
(amounts falling due within one year)" to "short-term liabilities,"
which includes short-term debt and other short-term obligations;
"creditors (amounts falling due after more than one year)" to "long-
term liabilities," which includes long-term debt and other long-term
liabilities; and "provisions for liabilities and charges" to "other
liabilities and accruals."
Certain U.K. GAAP equity accounts correspond to U.S. GAAP accounts as
follows: "ordinary shares" to "par value of common stock"; "share
premium" to "additional paid-in capital"; "preference shares" to
"preferred stock"; and, "profit and loss account" to "retained
earnings". Under U.K. GAAP, the Acquisition qualifies for this period as
an acquisition and the resulting goodwill may be charged for this period
to a goodwill write-off reserve, a component of the other reserves
account in shareholders' equity. According to U.S. GAAP, the Acquisition
is not considered an acquisition, therefore no goodwill is recognized.
In addition, under U.S. GAAP, the Company's pre-existing goodwill is
capitalized and amortized over its useful life.
(b) Represents indebtedness incurred and existing indebtedness repaid in
connection with the Transaction, as follows:
<TABLE>
<S> <C>
(Pounds)000
---------------
Short-term debt
Repayment of existing indebtedness...................... (Pounds)(58,926)
Long-term debt
Incurred
Revolving Facility.................................... 4,342
Senior Notes.......................................... 82,200
---------------
86,542
===============
Net long-term debt incurred............................. 86,542
Less: Senior Notes issuance costs netted off against
debt raised.......................................... (4,000)
---------------
Net increase in long-term debt....................... (Pounds) 82,542
===============
Total short- and long-term debt repaid in cash.......... (Pounds) 58,926
===============
</TABLE>
(c) Represents settlement of short-term obligations in connection with the
Transactions.
<TABLE>
<S> <C>
(Pounds)000
-----------
Payments in cash................................................ 23,923
-----------
23,923
===========
</TABLE>
35
<PAGE>
(d) Represents new share capital issued by the Company in connection with
the Transactions as follows:
<TABLE>
<CAPTION>
(Pounds)000
-----------
<S> <C>
Preference shares............................................... 52,000
Ordinary shares................................................. 3,907
</TABLE>
Less shares to be issued already included in shareholders equity:
<TABLE>
<S> <C>
Preference shares................................................. (52,000)
Ordinary shares................................................... (3,600)
-------
Additional ordinary shares issued for cash........................ 307
=======
</TABLE>
(e) U.K. GAAP differs in certain significant respects from U.S. GAAP. A
summary of the significant differences as they affect the Company are
set forth in Note 26 to the historical consolidated financial
statements of the Company included elsewhere in the Prospectus.
Calculation of unaudited pro forma consolidated shareholders' equity
under U.S. GAAP follows:
<TABLE>
<CAPTION>
(Pounds)000
<S> <C>
Shareholders' deficit in
accordance with U.K. GAAP
......................... (68,322)
Adjustments to conform to
U.S. GAAP:
Goodwill................ 68,288
United Texon Limited ac-
quisition.............. (1,257)
Pensions and other post-
retirement employee
benefits............... 22
Taxation................ (216)
-------
Pro forma shareholders'
equity in accordance
with U.S. GAAP......... (1,485)
=======
</TABLE>
36
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------
TEXON
PRO FORMA INTERNATIONAL
ADJUSTMENTS FOR PLC
UNITED THE ---------------
TEXON LIMITED TRANSACTIONS PRO FORMA
--------------- --------------- ---------------
(POUNDS STERLING IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
AMOUNTS IN ACCORDANCE
WITH U.K. GAAP:
Sales.................. (Pounds)122,343 (Pounds) -- (Pounds)122,343
Cost of goods sold..... 79,802 -- 79,802
--------------- ------------ ---------------
Gross profit........... 42,541 -- 42,541
Income from
operations............ 9,609 -- 9,609
--------------- ------------ ---------------
Income before taxes and
interest.............. 9,609 -- 9,609
Interest expense, net.. 10,199 (565)(a) 9,634
Amortization of
deferred financing
costs................. -- 400(b) 400
--------------- ------------ ---------------
Income before taxes.... (590) (165) (425)
Income tax expense..... (1,492) -- (1,492)
--------------- ------------ ---------------
Income before minority
interests............. (2,082) (165) (1,917)
Minority interests in
(earnings) losses..... (305) -- (305)
--------------- ------------ ---------------
Net income/(loss)
continuing
operations............ (Pounds) (2,387) (Pounds)(165) (Pounds) (2,222)
=============== ============ ===============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations.
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(POUNDS STERLING IN THOUSANDS)
(a) Represents the necessary adjustment to reflect interest expense on
Assumed Indebtedness and indebtedness incurred in connection with the
Transactions less interest income as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
(Pounds)000
<S> <C> <C>
Historical interest expense net.................................... 10,199
======
Revolving Facility ((Pounds)4.3 million at 9.5%)................... 408
Senior Notes ((Pounds)82.2 million at 10.0%)....................... 8,220
Discounting of receivables......................................... 284
Assumed Indebtedness ((Pounds)6.4 million at various interest
rates)............................................................ 937
Interest income.................................................... (215)
------
Pro forma interest expense, net.................................... 9,634
======
Adjustment needed.................................................. (565)
======
Assumed Indebtedness consists of certain bilateral credit facilities
and indebtedness including those in connection with the Company's
Foshan, China facility. See "Description of Credit Facilities--Other
Credit Facilities."
No tax benefit has been provided on the additional interest costs due
to tax losses for the period.
(b) Represents amortization of deferred financing costs incurred in
connection with the Senior Notes.
(c) U.K. GAAP differs in certain significant respects from U.S. GAAP. A
summary of the significant differences as they affect the Company are
set forth in Note 26 to the historical Consolidated Financial
Statements of the Company included elsewhere herein.
Calculation of unaudited pro forma consolidated net loss under U.S.
GAAP for the periods indicated below is as follows:
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
(Pounds)000
<S> <C> <C>
Pro forma net (loss) continuing operations in accordance with U.K.
GAAP.............................................................. (2,222)
Adjustments to conform to U.S. GAAP:
Goodwill amortization............................................ (4,057)
Pensions and other post retirement employee benefit.............. 162
Taxation......................................................... (16)
United Texon Limited acquisition costs........................... (500)
Extraordinary items.............................................. 1,144
------
Pro forma
net loss from continuing operations in accordance with U.S. GAAP.. (5,489)
======
</TABLE>
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. All statements, trend analysis and other
information contained in this Prospectus relative to markets for the Company's
services and trends in the Company's operations or financial results, as well
as other statements including words such as "anticipate," "believe," "plan,"
"estimate," "expect," and "intend" and other similar expressions, constitute
forward-looking statements as defined in Section 21E(i)(1) of the Exchange Act
and are subject to business and economic risks, including but not limited to
those discussed in "Risk Factors," and actual results may differ materially
from those contemplated by the forward-looking statements.
The Company's Consolidated Financial Statements have been prepared in
accordance with U.K. GAAP, which differs in certain material respects from
U.S. GAAP and are summarized in Note 26 to the Notes to the Consolidated
Financial Statements of the Company included elsewhere herein. Except as noted
below, all information and discussion of the Company's financial condition and
results of operation have been prepared in accordance with U.K. GAAP. Under
U.K. GAAP, all of the goodwill associated with the Acquisition was written off
upon completion. Under U.S. GAAP, the goodwill would be amortized over the
ensuing life of the asset.
Until June 1997, the Materials business and the Machinery business were
owned and operated by United Texon Limited and its subsidiaries as two
businesses within a single legal group of companies. The Materials business
consisted of the manufacture and marketing of structural materials which are
used in the manufacture of footwear. The Machinery business comprised the
business of selling shoe manufacturing machinery and supplying the on-going
servicing requirements of that shoe manufacturing equipment.
At the end of 1996 the decision to legally demerge the divisions into two
independent groups of companies, was taken following a review of the short
term plans for each of the businesses. These plans confirmed management's view
that there was very little synergy between the two divisions, the customer
bases were different and the fundamental drivers and objectives for each
business were dissimilar. Therefore United Texon Limited underwent an internal
reorganization which was completed on December 31, 1997, whereby the Machinery
business formed USM Group Limited which was sold by United Texon Limited to a
new company principally owned by the shareholders of the Company. This
resulted in the separation of the ownership of the Machinery business from
United Texon Limited. The Materials business was retained by United Texon
Limited, the entire issued share capital of which was acquired by the Company.
The operation of the Materials business is undertaken by the Company and its
subsidiaries, accordingly the discussions that follow focus on the continuing
operations that comprise the materials business.
The ongoing agreements between the Company and the Machinery group consist
of (i) distribution/agency agreements for several markets where one of the two
businesses does not have a significant presence, (ii) agreements for the
sharing of certain premises or services and (iii) group relief agreements for
the surrender of tax losses for which payments will be made to the
surrendering company at a discount to the relevant rate of corporation tax.
Pursuant to distribution/agency agreements, a Machinery group company is
appointed as a distributor or agent for the sale of certain of the Company's
products from Austria, Brazil, Canada, France, Germany, Japan, Korea, Spain,
Taiwan, and Thailand. Members of the Machinery group have appointed the
Company as distributor/agent for certain shoe machinery products in Australia,
Mexico and New Zealand. These agreements are generally for a initial term
(typically one year) and are then automatically continued subject to six
months' termination notice. Agreements between the Company and Machinery group
companies are in place for the sharing of premises or services in Austria,
China, France, Germany,
39
<PAGE>
Indonesia, Spain, the UK and the United States. These agreements provide for
payments to be made on what the Company believes is a reasonable, commercial
basis. These agreements are generally for a short term although the Company
has entered into a sub-lease from a Machinery group company of office premises
at Wilmington, Massachusetts which will expire when the primary lease expires
on December 31, 2001.
GENERAL
The Company is the world's largest manufacturer and marketer of structural
materials essential for the manufacture of footwear. The Company operates a
global business, with sales that are widely diversified by geographic region
and product line. Approximately 90% of 1997 sales were to the footwear
manufacturing industry with the balance sold to customers in the apparel,
medical, construction and other industries. In 1997, sales of insoles,
stiffeners, other footwear materials and industrial products accounted for
50%, 17%, 23%, and 10% of total sales, respectively. In the same period,
through the Company's extensive marketing and distribution network, 48% of
sales were made to Europe, 27% to Asia and the Pacific, 18% to the Americas
and 7% to the rest of the world.
The majority of the Company's operations are conducted in countries other
than the U.K. In addition to sales revenues in Pounds Sterling, the Company's
reporting currency, the Company's sales are primarily denominated in U.S.
dollars and European currencies which are members of the EMS. In 1997, 22% of
the Company's revenues were in Sterling, 29% in U.S. dollars, 43% in EMS
currencies and 6% in other currencies. By contrast, in 1997, 34% of its cost
of goods sold and operating expenses were denominated in Sterling, 35% in U.S.
dollars, 29% in EMS currencies and 2% in other currencies. As a result,
appreciation of Sterling versus the U.S. dollar and the EMS currencies may
have a negative impact on the Company's trading results, and depreciation of
Sterling against the U.S. dollar and EMS currencies may have a positive
impact. During 1997, Sterling has appreciated 5.1% against the U.S. dollar and
20.9% against the EMS currencies (based on average exchange rates for dollars
and Deutsche Marks, respectively, for 1997 versus 1996). The Sterling value of
sales, gross profit and operating profit in other currencies can vary
significantly with changes in exchange rates between these other currencies
and Sterling. The Company believes that the issuance of the Notes denominated
in Deutsche Marks serves as a natural hedge as, in 1997, 43% of the Company's
revenues, and only 29% of the Company's expenses were denominated in EMS
currencies. If the U.S. dollar and EMS exchange rates in effect during 1996
had remained in effect during 1997, the Company's revenues would have been
(Pounds)6.7 million higher than reported.
The Company operates seven major manufacturing facilities in the U.K., the
United States, Germany, Italy, Spain and China. The Company produces non-woven
products at Skelton in northern England, and further processes those products
and manufactures tacks, nails and other footwear products at a site adjacent
to its corporate headquarters in Leicester, England. In 1996, the Company
acquired a Spanish non-woven production facility that has approximately one-
quarter the rated capacity of its Skelton plant. Of the Company's total rated
cellulose production capacity of 44,800 metric tonnes per annum, approximately
35% is produced at Mockmuhl, Germany, 34% in the United States at Russell,
Massachusetts, 18% at Foshan, China, and 13% at Ripatransone Italy.
The Company's costs and expenses include manufacturing (approximately 65.2%
of 1997 sales), selling and marketing expenses (approximately 15.9% of 1997
sales), general and administrative expenses (approximately 9.9% of 1997 sales)
and research and development costs (approximately 1.1% of 1997 sales).
During 1996, the Company appointed a new Chief Executive Officer and a Group
Finance Director. This new management team's primary focus during the year was
the increased sale of high margin products, and a recovery of the Company's
gross margins after their deterioration during 1995 as a result of high global
pulp prices. To reduce its dependence on primary pulp, the Company
40
<PAGE>
continued the implementation of a process to utilize lower cost secondary pulp
fibers from recycled paper products at its Russell, Massachusetts facility,
which it has started to introduce at its cellulose facilities worldwide. The
Company is monitoring the development of three new futures markets for pulp
which have been established in the U.K. and Finland in 1997 to determine if
they could be used to reduce potential exposure to raw materials price
volatility.
During 1997, the Company's primary focus has been to increase the sales of
its higher margin non-woven products, especially to Asian manufacturers who
operate as subcontractors to major footwear companies in the United States and
Europe. These manufacturers select the Company on the basis of its quality
non-woven insoles and stiffeners particularly designed for athletic shoes.
These sales have increased over the period 1995 to 1997. To reduce its
transportation costs to ship these materials from the U.K. to Asia, the
Company plans to build a non-woven facility in China in the near future. The
Company believes it has developed significant experience in operating in China
since it opened its cellulose facility in association with a joint-venture
partner there in 1994.
On July 21, 1997 the Company completed the sale of its South African
subsidiary, BU Shoe Machinery (Pty) Limited, to two former directors of that
company. The decision to sell this business arose as a result of net losses
being generated by the subsidiary in 1996 and the difficulty in transferring
funds out of South Africa due to exchange control regulations. The total
consideration paid for the business was (Pounds)466,000 resulting in a loss to
the Company of (Pounds)223,000 which was included in the 1997 loss of the
discontinued operations.
On January 30, 1998 Peter Selkirk, Neil Fleming and David Gamble, together
with two directors of the discontinued business, exercised options over shares
in United Texon Limited. The shares were immediately sold to the Company in
connection with the Acquisition for (Pounds)2.81 million. See "Use of
Proceeds."
On April 30, 1998 the Company acquired a further 30% of the shares in Foshan
Texon Cellulose Board Manufacturing Co. Limited, its joint venture in China.
The consideration was $2.6 million payable in three annual installments. The
Company now owns 87.6% of the joint venture.
41
<PAGE>
RESULTS OF CONTINUING OPERATIONS
The following table sets forth certain data from the Company's Consolidated
Financial Statements prepared under U.K. GAAP expressed as a percentage of
sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
---------------------------------
HISTORICAL ADJUSTED
---------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales:
Insoles.................................... 47.8% 47.5% 48.6% 50.6% 50.3%
Stiffeners................................. 14.3 14.7 14.4 15.4 16.8
Other footwear materials................... 27.5 27.5 25.5 24.3 22.8
Industrial products........................ 10.4 10.3 11.5 9.7 10.1
----- ----- ----- ----- -----
Total sales.............................. 100.0 100.0 100.0 100.0 100.0
Cost of goods sold........................... 65.3 66.6 69.8 65.6 65.2
----- ----- ----- ----- -----
Gross profit................................. 34.7 33.4 30.2 34.4 34.8
Marketing and administrative expenses........ 21.4 22.3 21.7 21.7 26.9
----- ----- ----- ----- -----
Operating income............................. 13.3 11.1 8.5 12.7 7.9
===== ===== ===== ===== =====
Net income (loss)............................ 3.5 2.6 (2.9) 2.8 (2.0)
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Sales turnover. Sales decreased (Pounds)6.3 million, or 4.9%, to
(Pounds)122.3 million in 1997 from (Pounds)128.6 million in 1996. On a
constant currency basis, however, sales increased by 4.5% during 1997 from the
comparable period in 1996. Sales of insoles decreased (Pounds)3.6 million, or
5.5%, to (Pounds)61.5 million in 1997 from (Pounds)65.1 million in 1996. On a
constant currency basis, however, insole sales increased 5.4% due to an
increase in the volume of cellulose insoles sold in the Middle East and an
increase in sales of non-woven insoles in Asia. Sales of stiffeners increased
(Pounds)0.7 million, or 3.7%, to (Pounds)20.5 million in 1997 from
(Pounds)19.8 million in 1996. On a constant currency basis, however, sales of
stiffeners increased 10.5%, mainly as a result of additional sales volume in
Asia following the Company's marketing initiative to replace solvent
stiffeners with the thermoplastic stiffeners in which the Company specializes.
Sales of other footwear materials decreased (Pounds)3.3 million, or 10.6%, to
(Pounds)27.9 million in 1997 from (Pounds)31.2 million in 1996. On a constant
currency basis, sales volume of other footwear materials decreased by 2.0%
primarily as a result of a decline in sales of tacks. Sales of industrial
products remained constant at (Pounds)12.4 million in both periods.
Gross Profit. Gross profit decreased to (Pounds)42.5 million during 1997
compared with (Pounds)44.3 million in 1996. Gross profit increased to 34.8% of
sales for 1997 from 34.4% for 1996. The increase was primarily due to the
result of increased manufacturing efficiency in the production of cellulose
products and increased sales volumes of higher-margin, non-woven materials to
Asia for resale into western markets.
Marketing and administrative expenses. Marketing and administrative expenses
increased by (Pounds)4.9 million or 17.6% to (Pounds)32.9 million during 1997,
from (Pounds)28.0 million in 1996. However, marketing and administrative
expenses include exceptional expenses relating to fees of (Pounds)1.7 million
incurred in connection with a contemplated sale of the Materials business,
which sale was abandoned by the Company's shareholders in October 1997, and
(Pounds)1.1 million in refinancing costs. In addition, (Pounds)2.8 million,
representing the cost of the exercise of the management share options on
completion of the Offering is also included in marketing and administrative
expenses. Excluding these exceptional items marketing and administrative
expenses would have been (Pounds)27.3 million or 22.3% of sales. The increase
in marketing and administrative expenses in 1997 was primarily due to higher
costs associated with selling and marketing expenses for the distribution of
non-woven products in the Asian market.
Operating Profit. Operating profit before exceptional items decreased
(Pounds)6.7 million to (Pounds)9.6 million for the year ended December 31,
1997 compared to 1996. Excluding the exceptional expenses noted
42
<PAGE>
above, operating profit would have been (Pounds)15.2 million or 12.4% of sales
as compared to (Pounds)16.3 million or 12.7% of sales in 1996. The variance
was primarily the result of the factors discussed above as well as the
negative impact on operating margins from the strength of Sterling against the
major European currencies.
Interest. Interest expense increased by (Pounds)0.2 million or 2.0% to
(Pounds)10.2 million for the year ended December 31, 1997 compared to 1996,
reflecting a similar amount of debt in each period.
Taxation. The tax charge decreased by (Pounds)0.9 million to (Pounds)1.5
million for the year ended December 31, 1997. The decrease is in part due to
lower overseas tax charges.
Net income/(loss). There was a net loss in the year to December 31, 1997 of
(Pounds)0.8 million as compared to net income in 1996 of (Pounds)3.6 million.
The variance was primarily the result of the factors discussed above.
Discontinued operations. Sales decreased (Pounds)11.2 million to
(Pounds)67.0 million for the year ended December 31, 1997 as compared to the
same period in 1996. The primary reasons for this fall in revenue was the sale
of the South African operation in June 1997, (which resulted in a loss on
sales of (Pounds)223,000), the run-down and factory closure in Taiwan, and the
continuing strength of Sterling.
Gross profit decreased from (Pounds)24.6 million in 1996 to (Pounds)21.9
million in 1997, mainly as a result of lower sales volume. When expressed as a
percentage of sales gross profit increased from 32% to 33%.
Marketing and administrative expenses in 1997 were (Pounds)24.6 million, a
decrease of (Pounds)3.8 million from the (Pounds)28.4 million in 1996. The
reduction is the result of the restructuring program implemented in 1995 to
reduce the number of employees and cut costs.
Net loss in 1997 was (Pounds)1.9 million as against (Pounds)4.3 million in
1996. The improvement principally is due to the above decrease in operating
expenses and the inclusion of the net profit on disposal of the Machinery
business of (Pounds)1.6 million.
Marketing and administrative expenses when expressed as a percentage of
sales for the Materials business are significantly lower than for the
Machinery business (Discontinued operations). The two principal reasons are
that the Machinery business incurs both the employment costs of servicemen and
the cost of spare parts used by the servicemen, reflecting the capital goods
nature of its business, and its main operating facilities are located in high
cost countries such as Germany and the UK.
During 1997, as part of the demerger process, the Company entered into the
Credit Agreement with Chase Manhattan Bank, an affiliate of one of the
Company's stockholders. Chase Manhattan Bank received fees for banking and
strategic advice totaling (Pounds)0.8 million. Additionally, (Pounds)0.5
million is payable to Apax Partners & Co., a stockholder of the Company, as an
advisory fee.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
For the purposes of discussing the 1995 results the financial information
for the year ended December 31, 1995 represents the aggregation of the results
of USM (Holdings) Limited for the period from January 1, 1995 to April 24,
1995 and for United Texon Limited for the period from January 1, 1995 to
December 31, 1995, as though the 1995 Acquisition had occurred on January 1,
1995. See "The Transactions." On a pro forma basis, net interest expense would
have been increased by (Pounds)0.6 million, representing the additional
interest expense associated with the 1995 Acquisition.
Sales turnover. Sales increased (Pounds)12.9 million, or 11.1%, to
(Pounds)128.6 million in 1996 from (Pounds)115.7 million in 1995. On a
constant currency basis, sales increased by 10.5%, or essentially by the same
amount as on a nominal basis, reflecting the lack of overall foreign exchange
distortions during the
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period. Sales of insoles increased (Pounds)8.9 million, or 15.8%, to
(Pounds)65.1 million in 1996 from (Pounds)56.2 million in 1995. The insole
product line benefited from the acceptance and increased usage in the Asian
market of a new line of non-woven insoles especially designed for athletic
shoes. Sales of stiffeners increased (Pounds)3.1 million, or 18.6%, to
(Pounds)19.8 million in 1996 from (Pounds)16.7 million in 1995, primarily as a
result of the acquisition of a new extrusion line which increased capacity
significantly, and the acquisition of a new non-woven fabric plant in Spain.
Sales of other footwear materials increased (Pounds)1.7 million, or 5.8%, to
(Pounds)31.2 million in 1996 from (Pounds)29.5 million in 1995, primarily due
to an increase in sales of shoe liners. Sales of industrial products decreased
(Pounds)0.8 million, or 6.0%, to (Pounds)12.5 million in 1996 from
(Pounds)13.3 million in 1995.
Gross Profit. Gross profit increased (Pounds)9.3 million, or 26.6%, to
(Pounds)44.3 million in 1996 from (Pounds)35.0 million in 1995. Gross profit
margin increased to 34.4% in 1996 from 30.2% in 1995. The increase resulted
from the stabilization in global prices of pulp used in the cellulose
manufacturing process, the increased price of which in 1995 negatively
impacted gross margins for that year. In addition, the Chinese cellulose plant
concentrated on margin improvement after the success of its initial market
penetration in 1995.
Marketing and administrative expenses. Marketing and administrative expenses
increased (Pounds)2.9 million, or 11.6%, to (Pounds)28.0 million in 1996, from
(Pounds)25.1 million in 1995. Marketing and administrative expenses remained
constant at 21.7% of sales over the two periods. The increase in marketing and
administrative expenses was due to increased expenses of the Chinese plant and
higher distribution costs as a result of increased sales volume. In addition,
1995 expenses were reduced as a result of the refund to the Company of a U.K.
property tax payment.
Operating Profit. Operating profit increased (Pounds)6.4 million, or 64.6%,
to (Pounds)16.3 million in 1996, from (Pounds)9.9 million in 1995. Operating
profit increased to 12.7% of sales in 1996 from 8.5% in 1995, primarily for
the reasons discussed above.
Interest. Interest expense decreased by (Pounds)0.7 million or 6.5% to
(Pounds)10.0 million in 1996 from (Pounds)10.7 million in 1995. The decrease
in interest expense was mainly due to the decrease in debt during the period.
Taxation. The tax charge increased by (Pounds)1.4 million to (Pounds)2.4
million in 1996. The increase was due to higher taxable profits in overseas
subsidiaries.
Net income/(loss). There was net income in 1996 of (Pounds)3.6 million
compared to a net loss in 1995 of (Pounds)3.3 million. The increase was due to
a combination of increased sales with higher margins and the exceptional items
in 1995.
Discontinued operations. Sales decreased (Pounds)4.3 million from
(Pounds)82.6 million in 1995 to (Pounds)78.2 million in 1996 this reduction
was principally due to the continued weakness of demand in European and North
American markets where the business has a high market share.
Gross profit in 1996 was (Pounds)24.6 million, similar to that achieved in
1995, however, cost of goods sold in 1995 included exceptional expenses of
(Pounds)4.3 million relating to the restructuring program announced at the end
of 1995. Excluding these exceptional expenses gross profit fell from 35% of
sales in 1995 to 32% in 1996 mainly due to underutilization of the production
facilities as a result of lower sales volumes.
Marketing and administrative expenses decreased by (Pounds)6.1 million to
(Pounds)28.4 million in 1996, however, 1995 included exceptional expenses of
(Pounds)4.2 million. Therefore, the net reduction was (Pounds)1.9 million,
principally in administrative and research and development expenses as the
restructuring program reduced employees and costs.
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Net loss for 1996 was (Pounds)4.3 million as compared to (Pounds)11.4
million in 1995. Excluding the exceptional charge taken for restructuring the
business in 1995 the net loss was (Pounds)2.9 million. The deterioration in
profitability during 1996 was principally due to the reduction in turnover
offset by reduced expense levels
and the underutilization of the production facilities.
During 1995, in connection with the acquisition of United Texon Limited by
Apax Partners & Co., the Company paid acquisition fees and expenses to Apax
Partners & Co. of (Pounds)0.9 million and strategic advice fees to Bankers
Trust Co., a former shareholder of the Company, of (Pounds)1.5 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs will arise primarily from debt service
obligations on the indebtedness incurred in connection with the Transactions,
working capital needs and the funding of capital expenditures. At December 31,
1997, on a pro forma basis after giving effect to the Transactions, the
Company's consolidated indebtedness would have been approximately (Pounds)92.0
million, consisting of (Pounds)4.3 million in borrowings under the Revolving
Facility, (Pounds)82.2 million under the Notes, and (Pounds)5.5 million
borrowings under certain bilateral facilities. The total liabilities at
December 31, 1997 on a pro forma basis are (Pounds)121.2 million including
consolidated indebtedness of (Pounds)92.0 million which compares to total
assets of (Pounds)54.3 million. The excess of liabilities over assets of
(Pounds)66.9 million is principally owing to the high level of debt. The
degree to which the Company is leveraged could have a significant effect on
its results of operations.
The shareholders deficit as at December 31, 1997 on a pro forma basis of
(Pounds)68.3 million results from the goodwill on acquisition of United Texon
Limited being written off immediately and as such does not impact the
Company's ability to service debt.
Principal and interest payments under the Revolving Facility and the Notes
will represent significant liquidity requirements for the Company. Loans under
the Revolving Facility will bear interest at floating rates. For a description
of the Revolving Facility, see "Description of Credit Facilities."
In addition to its debt service obligations, the Company's remaining
liquidity requirements relate to capital expenditures and working capital
needs. The Company incurred capital expenditures of (Pounds)1.7 million,
(Pounds)3.2 million, (Pounds)2.0 million and (Pounds)1.8 million in the years
ended December 31, 1997, 1996, 1995 and 1994, respectively. The Company
anticipates that maintenance capital expenditures over the years 1998 through
2000 will total approximately (Pounds)1.0 million per annum. In addition, over
the next three years, expenditures for manufacturing capacity expansion and
replacing and updating certain of its information technology systems in order
to improve operating efficiency are anticipated to total approximately
(Pounds)8.5 million.
The Company's primary sources of liquidity will be cash flows from
operations and borrowings under the Company's (Pounds)15.0 million Revolving
Facility which has a term of three years and is subject to a mandatory
commitment reduction at the end of each year by an amount based on excess cash
as set forth therein. The components of net cash flow from operating
activities are detailed in the Consolidated Financial Statements and the
related notes thereto included elsewhere in this Prospectus and include
operating profit/(loss) adjusted for (i) depreciation; (ii) changes in working
capital; (iii) the effect of other deferrals and accruals on operating
activity cash flow; (iv) profit on sale of tangible fixed assets; and (v) any
exceptional items. Net cash flow from operating activities for the year ended
December 31, 1997 was (Pounds)4.9 million, a decrease of (Pounds)22.4 million
from the comparable period of 1996. The principal reason for the decrease is a
working capital adjustment of (Pounds)11.8 million associated with the
disposal of the Machinery business.
The Company is a holding company whose only material assets are its
investments in its subsidiaries. The Company conducts no business and is
completely dependent on distributions from
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its subsidiaries to service its debt obligations, including the payment of all
amounts due in respect of the Notes. See "Risk Factors--Holding Company
Structure; Structural Subordination."
The Company believes that cash flow generated from operations, together with
the amounts available under the Revolving Facility, should be more than
sufficient to fund its debt service requirements, working capital needs and
anticipated capital expenditures for the foreseeable future. See "Risk
Factors--Substantial Leverage; Possible Inability to Service Debt."
INTERNATIONAL OPERATIONS
The Company conducts operations in countries around the world including
through manufacturing facilities in the U.K., the United States, Germany,
Italy, Spain and China. The Company's global operations may be subject to some
volatility because of currency fluctuations, inflation and changes in
political and economic conditions in these countries.
The financial position and results of operations of the Company's businesses
outside the U.K. are measured using the local currency as the functional
currency. Most of the revenues and expenses of the Company's operations are
denominated in local currencies whereas the majority of raw material purchases
are denominated in U.S. dollars. Assets and liabilities of the Company's
subsidiaries outside the U.K. are translated at the balance sheet exchange
rate and statement of operations accounts are translated at the average rate
prevailing during the relevant period.
Although 27% of the Company's sales are to Asia and the Pacific, these sales
are to major footwear companies' subcontractors located in the region who
export the substantial majority of their production. As such management
estimates that less than 5% of their sales are used in footwear which is sold
in Asia. Therefore the Company believes that the recent economic and banking
problems experienced by some of the Asian countries should not have material
impact on the Company's results of operations and revenues.
The recent devaluation of certain Asian currencies has benefited some of the
Company's competitors who manufacture their products in the region. However,
as labor and overhead relative to raw materials which are substantially
denominated in US dollars represent a small proportion of the cost of goods
sold, management does not expect a material impact on the operations of the
Company.
The Company's financial performance in future periods may be adversely
impacted as a result of changes in the above factors which are largely beyond
the control of the Company. See "Risk Factors--Compliance Costs Associated
with Governmental Regulation; Import Duties and Taxes" and "--Risk of Foreign
Exchange Rate Fluctuations; Introduction of the Euro."
INFLATION
The Company does not believe that inflation has had a material impact on its
financial position or results of operations during the periods covered by the
Consolidated Financial Statements and the related notes thereto included
elsewhere herein.
YEAR 2000 COMPLIANCE
The Company is in the process of formulating and implementing a program
designed to ensure that the software used in connection with the Company's
business and operations will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data
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abnormality and without inaccurate results related to such dates. The Company
currently estimates that the additional costs to be incurred in connection
with such a program shall be approximately (Pounds)200,000 although there can
be no assurance that this will be the case or that the Company will not incur
additional costs in connection with such program.
The general expectation by those who have studied best practice in managing
the Year 2000 problem is that even the best run projects will face some Year
2000 compliance failures. There can be no assurance that Year 2000 projects
will be successful or that the date change from 1999 to 2000 will not
materially affect an organization's operations and financial results.
Businesses, including the Company, may also be affected by the inability of
third parties to manage the Year 2000 problem.
RECENT ACCOUNTING CHANGES
New U.K. accounting standards. In December 1997, the Accounting Standards
Board issued Financial Reporting Standard (FRS) 10. FRS 10 is effective for
all accounting periods ending on or after December 23, 1998 with earlier
adoption permitted. The new requirements must be applied prospectively from
the period of adoption but can be applied retrospectively. This FRS provides
accounting and reporting standards for goodwill and intangible assets and
requires that goodwill and intangible assets be capitalised and amortized over
their expected useful lives up to a maximum of 20 years, subject to the
following exception: for assets which are expected to last longer, including
those with indefinite lives, the asset is amortized over that longer period,
or not at all as the case may be, and is evaluated for impairment at least
annually. The Company has decided to apply the provisions of FRS 10
prospectively in 1998. FRS 10 could have a material effect on the Company's
financial position and results of operations as it pertains to any future
acquisitions.
New U.S. accounting standards. SFAS No. 130, "Reporting Comprehensive
Income," was issued in June 1997 and is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. It requires that all
items that are required to be recognised under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. It also
requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. The Company is currently reviewing the likely impact on the
classification of items included in shareholders' equity.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," was issued in June 1997 and is effective for fiscal years
beginning after December 15, 1997. In the initial year of application
comparative information for earlier years is to be restated. It requires that
companies disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports
revenues, and its major customers. The Company is currently reviewing the
likely impact on the level of disclosure currently provided in its financial
statements.
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BUSINESS
OVERVIEW
The Company believes it is the world's largest, in terms of sales,
manufacturer and marketer of structural materials that are essential in the
manufacture of footwear. The Company, founded in Leicester, England in 1899,
operates a global business, which generates sales that are widely diversified
by geographic region and product line. The Company's primary products include
materials for insoles, which form the structural foundation of shoes;
stiffeners, which support and shape the toe and heel of shoes; and other
products used in the manufacture of footwear, such as linings, tacks, nails,
steel shanks and adhesives. The world's largest manufacturer of insole
materials, the Company also commands leading positions in the markets for its
other footwear products. While the products sold by the Company represent a
small percentage of the total cost of materials contained in footwear, they
are critical to the performance and manufacture of footwear and are not
fashion sensitive. In 1996, approximately 90% of sales were to the footwear
manufacturing industry. By leveraging its expertise in the manufacture of
these structural materials, the Company has developed several related niche
industrial products such as carpet gripper pins and cellulose air freshener
material. These industrial products are sold to a wide range of industries.
The Company supplies most of the major footwear manufacturers in the world
and believes that its global presence gives it a unique competitive advantage
to exploit industry trends favoring suppliers who provide footwear companies
with a "global partner". The Company supplies over 6,000 customers worldwide,
servicing global athletic footwear companies such as Nike and Adidas,
designers and producers of casual shoes including Timberland and R. Griggs &
Co (Dr Martens) and manufacturers of men's and women's formal shoes such as
Church's and Bally. The Company has seven manufacturing sites strategically
located in Europe, the United States and China and sells its products in more
than 90 countries through an extensive marketing and distribution network. In
1997, sales of insoles, stiffeners, other footwear materials and industrial
products accounted for 50%, 17%, 23% and 10% of total sales, respectively. In
1997, 48% of the Company's sales were made to Europe, 27% to Asia and the
Pacific, 18% to the Americas and 7% to the rest of the world.
COMPETITIVE ADVANTAGES
The Company believes that it benefits from the following competitive
advantages which have enabled it to increase sales and operating profitability
and maintain its leadership position in the structural footwear materials
industry.
Leading Market Position Driven by Strong Brands and High Quality
Products. The Company is recognized in the footwear industry for high
standards of quality across its full range of products and for providing
innovative technical solutions and support to its customers worldwide. The
Company believes it is the world's largest producer of insole material,
stiffeners and tacks and nails for footwear. The Company's products are
marketed under brand names which enjoy extremely wide recognition within the
footwear industry, such as "Texon," "Tufflex," "Formo," and "Unifast." The
Company believes that its leading market position is due to successful
branding of its products, reliability and high performance. As a U.K. based
global enterprise, the Company also benefits from the reputation of the U.K.
footwear industry for quality production and technological leadership.
Global Presence. The Company supplies most of the world's footwear
manufacturing industry across Europe, the Americas and Asia through its direct
presence in each of those markets. The Company has seven manufacturing plants
in six countries and 27 strategically located field warehouses. An extensive
marketing and distribution network enhances the Company's ability to provide
high quality, local service to its customers and to global branded footwear
companies' worldwide sourcing networks. The Company recently established a
bonded warehouse in India to
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service the needs of local manufacturers supplying primarily North American
and European footwear companies. The Company believes that it is uniquely
positioned to benefit from the continuing globalization within the footwear
industry.
Strong Relationships with a Diverse Customer Base. The Company benefits from
long-established relationships with many of the most important footwear
companies in the world. The Company has been supplying products for Nike since
its entry into the footwear market and for R. Griggs & Co (Dr Martens) and
Church's for nearly a century. The Company believes that its customer
relationships are strengthened by its high quality products, brand names,
leading market position, and the high level of technical support it provides
to its clients. The Company's customer base is geographically diverse and
covers a wide spectrum of footwear (athletic, traditional and safety; men's,
women's and children's), minimizing the Company's exposure to individual
markets. In 1997, no single customer accounted for more than 3% of sales, and
the top ten customers totaled less than 14% of sales.
Diverse and Customized Products. The Company offers a broad range of
products, many of which are customized to meet the needs of individual
footwear manufacturers. By satisfying its customers' preference for a "one-
stop shop", the Company's broad and comprehensive product range contributes to
its leading market position. The Company continually develops and evolves its
product lines to meet the precise and changing requirements of footwear
manufacturers. The Company believes that no competitor produces or provides as
broad a range of products.
Attractive Ancillary Businesses. The Company leverages its global
distribution channels to distribute products it does not produce itself and
utilizes its manufacturing capacity to manufacture related industrial
products. The Company manufactures and distributes products not related to the
footwear industry but which employ the Company's core manufacturing
techniques, such as air filters, materials for air fresheners and machine-
applied nails. The Company believes it is the market leader in materials for
automotive air fresheners in the United States and carpet gripper pins in
Europe.
Technological Leadership. The Company believes it was the first to develop
cellulose insole material and non-woven insole material. These are now the two
most commonly used types of insole material in the world. The Company seeks to
be at the forefront of product development and to maintain a technological
advantage over its competitors through continued improvements in product
performance, manufacturing techniques and efficiency. For example, the Company
employs specialized technology to assist anti-counterfeiting programs that are
especially important to branded athletic shoe manufacturers.
Experienced and Incentivized Management Team. Many of the Company's senior
managers have more than a decade of experience with the Company. Individually,
the Company's managers have established track records in delivering revenue
and profit growth, developing new products, penetrating new markets, improving
production efficiency and streamlining supply chains. Senior management has a
significant equity stake in the Company.
BUSINESS STRATEGY
The Company's strategy is to expand sales, increase profitability and
strengthen its position as the industry leader and supplier of choice through
the following key initiatives:
Increase Global Market Share. Management plans to leverage its strong
customer relationships to expand the Company's market share. The Company's
customers and markets served have grown rapidly in recent years, contributing
to increased sales and improved operating results. Recognizing the movement of
manufacturing capacity to Asia, the Company established a facility in China in
1994 which manufactures and supplies cellulose insole material to local
footwear manufacturers producing
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principally for the export market. The Company intends to establish a non-
woven manufacturing facility in China to further enhance its market position.
Provide Preeminent Customer Service Worldwide. The Company intends to
improve further its responsiveness to the needs of its customers. To enhance
access to its products and address specific customers' needs, the Company
recently established a centralized customer care center and a comprehensive
catalog for part of its branded product line. The Company plans to build a new
production facility in China, which will produce new generation non-woven
products for global athletic footwear companies manufacturing there for the
world market. The new facility will shorten the supply chain between the
Company and manufacturers based in China thereby reducing delivery times and
increasing responsiveness.
Develop New Products. The Company has successfully developed many new
products for the footwear industry and intends to accelerate its new product
launch rate. The Company recently developed an innovative non-woven insole
material particularly suited to the process used in the manufacture of
athletic shoes. The Company will continue to adapt technologies developed for
the footwear industry for use in other applications such as "no-dig"
installed-pipe repair liners and high-temperature air filters.
Increase Operating Efficiencies. Management continuously reviews the
Company's operations for opportunities to further reduce costs and increase
manufacturing efficiencies through implementing world-class manufacturing
techniques, procurement and supply chain processes. The Company also plans to
replace and upgrade certain of its information technology systems. The
majority of the Company's manufacturing facilities have been certified as
being in compliance with the specifications promulgated by the International
Standards Organization.
Reduce Raw Materials Cost. The Company continues to improve its operating
results by reducing raw material costs and dependence on certain raw
materials. At its Russell, Massachusetts facility, the Company implemented a
process to use less expensive secondary fibers from recycled pulp products to
complement primary wood pulp, a basic component of cellulose production. The
Company plans to extend the use of this process to its other cellulose
manufacturing plants. The Company is also working with its suppliers to
develop ways of using less expensive raw materials in various production
processes while maintaining the quality and specifications of the finished
product.
Pursue Strategic Growth Opportunities. The Company believes that the
fragmented nature of the footwear materials industry provides opportunities
for organic growth and through potential joint ventures and strategic
acquisitions. The Company intends to pursue selective acquisitions that
complement its existing product offering and enable it to expand in selected
geographic areas. Attractive acquisition targets would have relatively small
sales compared to the Company, a fixed cost base that is easily eliminated,
and a complementary market position. The Company also will consider joint
ventures which would give it access to new products, markets or technologies.
THE INDUSTRY
The Shoe and Allied Trades Research Association, or SATRA, the leading trade
association in the footwear industry, projects that the industry will continue
to enjoy steady growth at a compound annual growth rate of approximately 3%
through 2000 due to favorable demographic trends, including continued
population and economic growth, which increase the demand for and consumption
of shoes. The Company believes that the growth rate for its products is
higher, as footwear manufacturers produce more footwear that utilizes
structural materials to improve the structural quality and durability of
shoes. In addition, the Company believes that manufacturers increasingly
utilize structural products such as the Company's, which allow for
environmentally conscious production processes.
As the worldwide footwear industry has grown, there has been a shift in
production capacity to Asia, primarily to capitalize on low labor costs.
Asia's share of global production increased from 61% in 1991 to 70% in 1995,
the last year for which data is available. The Company is well positioned with
its production and marketing presence in the region.
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The structural footwear materials industry is highly fragmented, with very
few companies operating beyond a national or regional level. While the
footwear manufacturing industry is also fragmented, there is a growing trend
towards globalization as shoe designers and branded footwear companies, which
outsource the manufacturing of their footwear, increasingly seek a global
solution to their supply and specification requirements. The Company has been
able, and believes it is well poised to continue, to take advantage of this
trend by providing its customers with high quality, state-of-the-art products
and servicing their requirements in each significant market through its
worldwide distribution network.
PRODUCTS AND MARKETS
The Company's products are designed to meet its customers' needs for
structural footwear material. The Company offers technical support, materials
design and customized production spanning the complete process from
specification of materials to the production of high volume products.
The Company's principal products are materials for the production of insoles
and stiffeners. The Company also produces or distributes linings, steel
shanks, tacks, nails, adhesives and other small footwear components, together
with certain niche industrial products unrelated to the footwear manufacturing
industry.
Insoles. Insoles are manufactured either from wood pulp ("cellulose
insoles") or synthetic fibers ("non-woven insoles") both of which are combined
with latex in a saturation process. The "Strobel" method is particularly
suited to the manufacture of athletic shoes where the sole itself provides
structural support and allows minimal wastage of costly upper material. As a
result, sales of non-woven insoles, which are particularly suited to the
Strobel method have grown significantly over the last few years and, are
expected to continue to increase at a higher rate than the cellulose insole
market. Nevertheless, sales of everyday footwear, which typically use
cellulose insoles, remain close to 60% of the overall market, driving demand
for one of the Company's core products. In 1997, total sales of insoles were
(Pounds)61.5 million, representing 50% of sales, with the substantial majority
of such sales representing cellulose insoles.
Stiffeners. Toe and heel stiffeners are designed to provide a range of
different stiffness, shape, support and feel characteristics for the toe and
heel area of a shoe, known as "toe puffs" or "box toes" and "counters".
Stiffeners are among the most technically complex components of a shoe, with
the products being made from a wide range of raw material and process
combinations, utilizing most of the Company's core manufacturing technologies.
The Company's more environmentally sound thermoplastic stiffeners are more
attractive to manufacturers than a chemical solvent based alternative. The
Company's stiffeners are also ideal for more complex athletic shoes, which
require sophisticated stiffeners given certain sports' needs for rigid
footwear. In 1997, total sales of stiffeners were (Pounds)20.5 million,
representing 17% of sales.
Other Footwear Materials. The Company also produces or distributes a wide
range of other shoe construction materials. These include shoe lining material
sold under the "Aquiline" brand name and products produced by the Unifast
division which sells steel shanks, tacks, nails, shoe consumables and
accessories, such as buckles and eyelets, and adhesives. The Company's recent
acquisition of the manufacturing equipment of a German competitor is expected
to increase the operating efficiency of the division. In 1997, total sales of
these footwear materials products were (Pounds)24.2 million, representing 20%
of sales.
Industrial Products. The Company manufactures products for applications
which are not associated with the footwear industry but which require similar
manufacturing processes to the Company's core technologies. These niche
products span the cellulose, non-woven and Unifast production areas.
Industrial products produced using cellulose technology include materials for
automotive air fresheners and stiffeners for baseball caps. The non-woven
production process has
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been adapted for use in high performance air filtration applications, in
specialty medical dressings and "no-dig" installed-pipe repair liners, which
permit the repair of installed pipes without excavation. The Unifast division
utilizes its tack and nail manufacturing capacity to produce machine-applied
carpet gripper pins and ballistic nails for industrial use. In 1997, total
sales of industrial products were (Pounds)12.4 million, representing 10% of
sales.
Shoe Machinery Products. In Australia, Mexico and New Zealand the Company
distributes shoe manufacturing machinery and associated products produced
primarily by the Company's former shoe Machinery business. See "The
Transactions". In 1997, this activity contributed sales of (Pounds)3.7
million, representing 3% of sales.
CUSTOMERS AND MARKETS SERVED
The Company has three primary customer types: branded footwear companies,
major manufacturers producing footwear under contract for other firms, and
smaller, independent producers. The Company also sells its products to
distributors and converters (companies that convert the Company's products to
the actual product specification and layout required by the end shoe
manufacturer) as well as customers for the Company's niche market industrial
products.
The materials manufactured by the Company can be found in footwear produced
by the world's leading branded footwear companies. Branded footwear companies
generally produce a detailed specification for their shoes including a list of
approved materials suppliers. Large footwear manufacturers, manufacturing
under contract for these branded footwear companies, select their preferred
footwear materials supplier from the specified list. As a global partner to
many branded footwear companies, the Company supplies its products as the
preferred supplier for that customer. In other cases, the Company's products
are supplied to subcontractors in circumstances where the branded shoe company
is unaware of the origin of the materials being used. When footwear is not
required to be produced according to a prescribed specification, manufacturers
will source independently from materials suppliers. The Company seeks to
develop close relationships with its customers and, in particular, to become
involved in assisting customers in the design of new end-products where this
is a feature of the customer's business.
The Company believes that it is included on its customers' specification
lists due to its reputation for a consistently high quality product. The
Company's local presence and support is essential to its developing strong
relationships with both major and smaller manufacturers, and to ensuring that
local factory manufacturers follow the specifications of their customers. The
Company believes that the strength of its customer relationships is a key
competitive advantage at all levels. The ability to push demand for its
products from branded shoe companies, while also pulling demand from
individual shoe factories, is another competitive advantage which the Company
believes would require considerable investment on the part of competitors to
replicate.
SALES AND DISTRIBUTION
The Company believes that it is uniquely placed in the highly fragmented
footwear materials industry in having a truly global presence with both
branded shoe companies and direct users of its products. The Company employs
over 340 marketing, distribution and technical support personnel and uses over
115 agents and over 50 distributors. This extensive distribution network
allows the Company to sell its products effectively throughout more than 90
countries, and to cover all of the world's major footwear manufacturing
regions. The Company supports its strong distribution capability through its
network of 27 field warehouses. Distributors and agents are supported by
regionally-based sales and technical specialists allowing the Company to
deliver high levels of customer service locally in its significant markets.
The Company's global presence enables it to provide price, quality and
delivery on a world-wide basis.
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MANUFACTURING
The Company has an expertise in tailoring a variety of distinct
manufacturing processes to produce innovative technical products for the
footwear industry. The Company's primary manufacturing process is the
treatment of cellulose and synthetic fibers with latex to produce insoles. The
Company further processes the synthetic products to produce stiffeners. The
Company also processes metal strip and wire to produce shanks, tacks and
nails.
The large majority of the Company's insole and stiffener material is
produced in sheet or roll form to facilitate transport and shipment. This
material then requires further conversion before use in footwear manufacture.
Such conversion consists of cutting or molding the product to specification.
The labor-intensive conversion process is typically carried out by third party
converters. The Company converts a small proportion of its material itself as
a service to its customers.
Cellulose Manufacturing Process. The cellulose manufacturing process is used
primarily for the production of insole material. In a process similar to the
manufacture of paper, pulp is combined with synthetic latex into a saturated
board which is then dried and cured so that the latex acts as a binder for the
board. Trace additives and coatings are used to develop the required
properties for different grades of product. Cellulose insole material may
require further treatment with coatings of polymeric film or laminating with
layers of foam to enhance waterproofing, comfort and other characteristics.
The Company does not perform these processes in-house, but rather outsources
them or sells its cellulose products on for further processing.
Synthetic Non-Woven Manufacturing Process. Stiffeners and a portion of the
Company's insoles and other products are produced using synthetic, non-woven
materials. The primary production begins with the processing of polyester and
other synthetic fibers to produce felt of various grades and thickness. As a
non-woven process, the synthetic fibers are intertwined rather than woven. In
some cases, this is followed by heat treatment. Further stages involve
impregnation with synthetic rubbers and may include coloring and finishing,
which includes printing, splitting and sueding. The reels of felt are
impregnated and rolled to the correct gauge and an adhesive coating is added
to one or both sides. The material is then cut into sheets or rolls.
Specific, non-woven processes are occasionally outsourced to supplement in-
house production, particularly in the area of fabric manufacturing. All
outsourcing takes place with established supplier links and is usually for
short periods only.
Manufacturing of Tacks, Nails and Shanks. The Unifast division manufactures
tacks, nails and steel shanks. Tacks and nails are made from rolls of wire
which are punched by a die and then cut to form the tacks and nails. A
sophisticated manufacturing process is required to make the tacks and nails
suitable for usage in high speed machines. Further processing may include
threading, heat treating or plating. Shanks are stamped and formed from rolls
of sheet steel in thousands of different shapes, heat treated, washed and
packed.
Manufacturing of Other Industrial Products. The Company has developed
expertise within its core technologies which has enabled it to make a number
of unique products for industrial applications outside of footwear
manufacturing. These products utilize the Company's manufacturing skills and
technical expertise to engineer innovative solutions for other industries.
Products include materials for vehicle air fresheners, imitation leather
goods, specialty medical dressings, filtration products and pipelining
systems.
FACILITIES
In addition to its executive offices in Leicester, U.K., the Company
operates seven major facilities in six countries with a total area of
approximately 84,694 square meters, of which the Company
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currently owns approximately 62,742 square meters and leases 21,952 square
meters. These facilities are as follows:
<TABLE>
<CAPTION>
SIZE DESCRIPTION OF
LOCATION (APPROX. SQ.MTRS) OWNED/LEASED PRODUCTS MANUFACTURED
- ------------------------ ----------------- ------------ ------------------------------------
<S> <C> <C> <C>
EUROPE
Leicester, U.K(/1/)..... 16,000 Owned/ to be Tack and nails; steel shanks;
Leased conversion of stiffeners; industrial
product components
Skelton, U.K............ 18,652 Leased Non-woven materials
Mockmuhl, Germany....... 19,150 Owned Cellulose products
Ripatransone, Italy..... 5,630 Owned Cellulose products
Ontinyente, Spain....... 3,300 Leased Non-woven materials
UNITED STATES
Russell, Massachusetts.. 14,220 Owned Cellulose products
ASIA
Foshan, China........... 7,742 Owned Cellulose products
</TABLE>
- --------
(/1/The)Leicester property is currently owned by the Company. The area shown
in the above table excludes part of the site which is occupied by the
Machinery business. The Company intends to sell the property to a third
party and to lease back the part it occupies.
The Company's manufacturing facilities currently are operating at close to
full capacity. The Company plans to expand its manufacturing capacity over the
next few years, principally in Asia.
The Company also has marketing and distribution operations across Europe (12
locations), the Americas (8 locations), and Asia and the Pacific (12
locations).
JOINT VENTURE
The Company has a 57.6% interest in a joint venture in Foshan, China (the
"Foshan Joint Venture") for the operation of a cellulose manufacturing
facility. Its partner is Foshan Arts and Crafts Industry Corporation, which is
controlled by the municipal government of the City of Foshan. The Company
established the Foshan Joint Venture in 1994, contributing the plant and
equipment, with its joint venture partner responsible for the improvements to
the infrastructure of the facility. In March 1998, the Company's board of
directors approved the acquisition of a further 30% of the Foshan Joint
Venture for an aggregate purchase price of $2,625,000, payable over a three
year period.
RAW MATERIALS AND SUPPLIERS
The principal raw materials used by the Company in the manufacture of its
products include wood pulp (which accounted for 27.6% of the Company's total
raw materials costs in 1997 and 17.9% of the Company's total cost of sales in
that year), polyester fiber, synthetic rubber and polymers. These raw
materials are purchased both domestically and internationally. The Company
believes that its supply sources are both well-established and reliable. The
Company has no long-term supply contracts and has experienced no significant
problems in supplying its operations. Although the Company has ongoing
relationships with certain suppliers of raw materials, the Company believes
that there are a number of reliable vendors available and it is able to obtain
competitive pricing for raw materials. Raw material prices fluctuate over time
depending on supply, demand and other factors and increases in raw material
prices may have an impact on the Company's financial performance (see "Risk
Factors--Price Fluctuations of Raw Materials"). The Company is seeking to
reduce certain raw materials costs by the substitution of lower cost
replacements.
COMPETITION
The footwear manufacturing business is a fragmented and highly competitive
industry. Competition is generally based on product quality, price, customer
service and timely delivery. The Company's main competitors vary by region and
by product. Cellulose insoles are the only product for which the
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<PAGE>
Company has a global competitor, Bontex, a U.S. based producer of cellulose
insole materials with plants in the U.S. and Belgium. Nantex Industries Co. of
Taiwan is also a competitor for cellulose insole material. Competition in the
non-woven insoles market is mainly from national or regional suppliers such as
Industria Biagioli and Didi & Gori in Italy and Tronjen Industries in Taiwan.
Competition for sales of stiffeners is also fragmented with a limited number
of international competitors such as Rhenoflex, Foss Manufacturing Co and
Stanbee Co. The key competitors for the tacks and nails produced by the
Company's Unifast division are Metallurgica Lombarda and Mondial Punte in
Italy and Kongo Special Nail Company in Japan.
LEGAL PROCEEDINGS
From time to time, the Company is involved in routine litigation incidental
to its business. The Company is not a party to any pending or threatened legal
proceeding which the Company believes would have a material adverse effect on
the Company's results of operations or financial condition.
INTELLECTUAL PROPERTY
The Company utilizes trademarks on nearly all of its products, and believes
having such distinctive trademarks is an important factor in creating and
maintaining the strong market position for its goods and services. This
further serves to identify the Company and distinguish its goods from those of
its competitors. The Company considers the "Texon," "Aquiline," "Tufflex,"
"Formo," "IVI," "Unifast" and "Implus" trademarks to be among its most
valuable assets, and has registered trademarks in over 80 countries. The
Company's policy is to protect vigorously its trademarks against infringement.
The Company does not believe it is dependent to any significant extent upon
any single or related group of patents, licenses or concessions.
YEAR 2000 COMPLIANCE
The Company is in the process of formulating and implementing a program
designed to ensure that the software used in connection with the Company's
business and operations will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality
and without inaccurate results related to such dates. The Company currently
estimates that the additional costs to be incurred in connection with such a
program shall be approximately (Pounds)200,000 although there can be no
assurance that this will be the case or that the Company will not incur
additional costs in connection with such program. Furthermore, there can be no
assurance that Year 2000 projects will be successful or that the date change
from 1999 to 2000 will not materially affect an organization's operations and
financial results. Businesses, including the Company, may also be affected by
the inability of third parties to manage the Year 2000 problem.
ENVIRONMENTAL MATTERS
The Company's facilities, several of which have been operated as industrial
establishments for long periods of time, are subject to comprehensive
environmental laws and requirements, including those governing discharges to
the air and water, the handling of disposal of solid and hazardous substances
and wastes and remediation of contamination associated with the release of
hazardous substances at the Company's facilities and offsite disposal
locations. The Company has made, and will continue to make, expenditures to
comply with such laws and requirements. The Company believes, based upon
information currently available to management, that it is currently in
substantial compliance with all applicable environmental laws and requirements
and that the Company will not require material capital expenditures to
maintain such compliance during 1998 or in the foreseeable future. However,
future events, such as changes in existing laws and regulations or the
discovery of contamination at
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<PAGE>
the Company's facilities, adjacent sites or offsite waste disposal locations,
may give rise to additional compliance or remediation costs which could have a
material adverse effect on the Company's results of operations or financial
condition. Moreover, the nature of the Company's business exposes it to some
risk of claims with respect to environmental matters, and there can be no
assurance that material costs or liabilities will not be incurred in
connection with any such claims.
Texon USA, Inc., the Company's U.S. subsidiary (the "U.S. Subsidiary"), was
organized as a new corporation in 1997 to acquire the assets of Texon
Footwear, Inc., including the manufacturing facility located in Russell,
Massachusetts. As part of the reorganization, the U.S. Subsidiary expressly
assumed all liabilities of Texon Footwear, Inc. that related to the acquired
assets, including liabilities under federal, state and local environmental
laws. The Company believes, however, that it is indemnified, by the entity
from which the assets were purchased in 1990, for all currently known
environmental claims. To date, the indemnifying entity has been addressing all
such claims. Thus, although the U.S. Subsidiary has assumed certain
obligations of Texon Footwear, Inc., which may include certain environmental
liabilities, the Company does not believe that the U.S. Subsidiary ultimately
will be required to satisfy claims that might be made against it, either
because other parties will satisfy those claims or because Texon Footwear,
Inc. otherwise will be found not to be responsible for them. The nature of
past operations, however, exposes the U.S. Subsidiary to a risk of new claims,
or the discovery of new information relating to existing claims, with respect
to environmental matters. There can be no assurance that material costs or
liabilities will not be incurred in connection with any such claims.
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,071 employees (49%
in the United Kingdom, 22% in the rest of Europe, 13% in North America and 16%
in Asia and the Pacific). Approximately 460 employees, or about 43%, are
represented by various unions pursuant to collective bargaining agreements.
The Company has not experienced any labor problems resulting in a work
stoppage, and believes it maintains good relations with its employees.
BACKLOG
As of December 31, 1997, on a constant currency basis, the Company had a
backlog of approximately (Pounds)8.3 million, compared with (Pounds)10.4
million as of December 31, 1996. Most of this backlog was shipped during
January 1998 and the Company believes that substantially all of the remainder
will be shipped during the first quarter of 1998. Management believes that its
backlog order level reduced approximately 20% over the 12 month period as a
result of a reduction of non-woven backlog levels due to the reduction of
order lead times. The backlog in 1996 was extraordinarily high due to a
special order in the Middle East.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive directors and other executive officers hold office
on such terms as are approved by the remuneration committee of the Board of
Directors or by the Board of Directors. The Company's non-executive directors
hold office in accordance with the Shareholders Agreement entered into among
the Company's shareholders and the Company. See "Principal Shareholders--
Shareholders Agreement and Articles of Association."
The following sets forth the names and ages of each of the Company's
directors and executive officers and the positions they hold as of the date of
this Prospectus:
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter Selkirk.................. 42 Chief Executive and Director
Neil Fleming................... 42 Finance Director and Director
Kevin Cochrane................. 53 Director of Sales
Neil Eastwood.................. 61 Director of Cellulose Operations
Tony Freeman................... 49 Director of Marketing
Terry Pee...................... 54 Director of Non-Woven and Unifast Operations
David Gamble................... 51 Company Secretary
Timothy Wright................. 34 Non-executive Director
Shahan Soghikian............... 39 Non-executive Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer:
Mr. Selkirk joined the Company as Managing Director in January 1996 after a
career in technical materials based companies in the packaging, automotive and
electronics sectors including Raychem Corporation and Courtaulds. He was
previously employed by Raychem Corporation as manager of one of its European
divisions, having been appointed in January 1993. Mr. Selkirk has an
international background, having worked in the United States and throughout
Europe. Mr Selkirk has managed operations in the United States and Europe and
has experience in sales, marketing, logistics and manufacturing. He has a
Masters degree in Natural Sciences from Cambridge University and an MBA from
the London Business School.
Mr. Fleming joined the Company as Finance Director in June 1996 after
holding various financial and general management positions at companies in the
capital goods, engineering and general industrial sectors, including APV plc
and the Norton Company. Between February 1991 and February 1994, Mr. Fleming
was group financial controller of APV plc and from February 1994 to June 1996,
he was managing director and then president of one of APV's divisions. He has
an international background, having worked in the United States, Germany,
France, Denmark, and Luxembourg. Mr. Fleming has a Bachelor of Science Degree
in Physics from Edinburgh University and is a Chartered Accountant with the
Institute of Chartered Accountants of Scotland.
Mr. Cochrane joined the Company in 1967 and has worked in various sales and
marketing and managerial positions before being appointed as Director of Sales
in January 1998. Mr. Cochrane has a Bachelors degree in Economics from Holy
Cross College, Massachusetts and an MBA from the Wharton Business School.
Mr. Eastwood joined the Company in 1980 and is responsible for the Company's
cellulose operations as General Manager. He was appointed Director of
Cellulose Operations in February 1997. He has previously been employed in
operational and production control capacities in the textile industry. Mr.
Eastwood has a Bachelor of Sciences degree in Textile Technology from
Manchester University.
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<PAGE>
Mr. Freeman has had 30 years of experience in the Company's business, having
been employed by a predecessor of the Company in 1968. Mr. Freeman has in that
time held various positions including General Manager of the Unifast division
and of non-woven products and is now the Company's Director of Marketing
having been appointed in January 1998. Mr. Freeman has a Technical Diploma in
Mechanical Engineering from the City & Guilds of London Institute, a diploma
from the Institute of Industrial Management at Leicester Polytechnic and a
diploma in International Marketing from IMD in Lausanne.
Mr. Pee joined the Company in September 1997, when he was appointed
operations director of the Unifast division and of non-woven products. Prior
to joining the Company, Mr. Pee held positions both within the U.K. and
abroad, with various manufacturing and engineering companies, including GEC.
From 1988 to 1995, he was managing director of one of the product groups of
APV plc involved in global manufacturing and, until September 1996, served as
business development director for the Asia Pacific region. From September 1996
to September 1997, he held the position of managing director of GEA in South
Africa.
Mr. Gamble has been with the group since 1972. From 1976 to 1987, he was the
European Tax Manager and Director of International Taxes for Emhart
Corporation, the then U.S. parent of the Company. Since 1987 he has been
Deputy Finance Director, and, since 1989, Company Secretary of the group,
managing all tax, treasury and corporate finance matters of the group. Mr.
Gamble is a Chartered Accountant.
Mr. Wright has been a non-executive director of the Company since 1995. He
is a director of both Apax Partners & Co. Strategic Investors Limited and Apax
Partners & Co. Ventures Limited where he has been employed in private equity
investing for the last eight years since 1990. Mr. Wright is a non-executive
director of a number of private companies associated with certain funds
advised by Apax.
Mr. Soghikian is the general partner of Chase Capital Partners responsible
for Europe and is based in London. He has been with Chase Capital Partners
since 1990 and has been a non-executive director of the Company since 1995.
Prior to joining Chase Capital Partners, Mr. Soghikian was a member of the
mergers and acquisitions groups of Bankers Trust and Prudential Securities,
Inc. Mr. Soghikian is a non-executive director of a number of private
companies associated with Chase Capital Partners, including Drilltec Patents &
Technologies Company, Inc. and American Floral Services. Mr. Soghikian is also
a member of the Advisory Board of Baring Communications Equity Ltd.
COMPENSATION OF DIRECTORS AND OFFICERS
For the year ended December 31, 1997, the aggregate compensation, including
bonuses, of all directors and executive officers of the Company named above
was (Pounds)824,465. For the year ended December 31, 1997, the aggregate
amount set aside by the Company to provide pension, retirement or similar
benefits to those directors and executive officers was approximately
(Pounds)119,005.
SENIOR MANAGEMENT OPTIONS
Following completion of the Transactions, Senior Management holds
approximately 8.5% of the outstanding Voting Ordinary Shares of the Company.
Senior Management have been granted options to acquire a further 4.3% of the
outstanding Voting Ordinary Shares from the Company's institutional investors.
The options have been granted in respect of 160,000 A Shares of (Pounds)1 at
an exercise price of (Pounds)8.75 per A Share. The options will lapse on
December 21, 2004 if not exercised prior to that date. All of the options have
been granted to Senior Management. Furthermore, certain employees of the
Company, including Senior Management, may be allotted (i) options to acquire
up to 240,000 A Shares from institutional investors and (ii) 80,000 Voting
Ordinary Shares that are authorized but are not currently outstanding.
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<PAGE>
EMPLOYMENT AGREEMENTS
Messrs. Selkirk, Fleming, Cochrane, Eastwood and Pee are engaged under
employment agreements with the Company which are subject to twelve months'
termination notice from the Company or the executive. These agreements provide
for remuneration packages including base salary, bonus, insurance, and pension
benefits and also include non-competition and non-solicitation provisions.
LIABILITY LIMITATION
Each director of the Company is indemnified out of the assets of the Company
against costs and liabilities incurred in the proper execution of his duties
or in the proper exercise of his powers, including liabilities incurred in
defending legal proceedings in which judgment is given in his favor, no
finding of material breach of duty is made or where relief from liability is
otherwise granted by the court. The Articles also permit the Company to
arrange directors' and officers' liability insurance for the benefit of
directors and the Company intends to obtain such insurance coverage.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table furnishes information, after giving effect to the
Transactions, as to the beneficial ownership of the outstanding Voting
Ordinary Shares by (i) each person known by the Company to beneficially own
more than 5% of the outstanding Voting Ordinary Shares and (ii) all directors
and officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
OWNERSHIP(/1/)
-------------------------
NUMBER OF PERCENTAGE
SHARES OWNED
--------- ----------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS
Apax(/2/)........................................... 2,852,776 75.95
Phildrew Ventures Third Fund........................ 288,001 7.67
Timothy Wright(/3/)................................. 2,852,776(/2/) 75.95
All directors and officers as a group(/3/) (3
persons)........................................... 3,172,776(/2/) 84.47
</TABLE>
- --------
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and
percentage owned by such person, but not deemed outstanding for the
purpose of calculating the percentage owned by each other person
listed. As of January 27, 1998, there were 320,000 Voting Ordinary
Shares and no Non Voting Ordinary Shares issued and outstanding.
(2) In relation to the holdings of interest in the Company, "Apax" includes
funds managed by Apax and, in respect of 70,224 Voting Ordinary Shares,
funds managed by Apax Partners & Cie Ventures S.A.
(3) Includes 2,852,776 Voting Ordinary Shares owned by funds advised by
Apax. Mr. Wright is a director of Apax Partners & Co. Strategic
Investors Limited and Apax Partners & Co. Ventures Limited. Mr. Wright
disclaims beneficial ownership of the shares held by funds advised by
Apax.
(4) This table does not reflect the Non Voting Ordinary Shares, all of
which are beneficially owned by Chase Equity Associates LP, an
affiliate of the Initial Purchasers, and The Chase Manhattan Bank.
Chase Equity Associates LP also beneficially owns 4.99% of the Voting
Ordinary Shares. The Voting Ordinary Shares and Non Voting Ordinary
Shares rank pari passu. The Non Voting Ordinary Shares comprise 4.18%
of the outstanding Ordinary Shares.
ARTICLES OF ASSOCIATION AND SHAREHOLDERS AGREEMENT
The Company's shareholders and the Company have entered into a shareholders
agreement dated December 23, 1997 (the "Shareholders Agreement"), regulating
certain aspects of the operation and management of the Company and the
shareholders' relationship inter se and with the Company. In addition, as a
matter of U.K. law, the Articles are binding on the Company's shareholders.
The following is a summary description of the principal terms of the Articles
and the Shareholders Agreement and is subject to and qualified in its entirety
by the Articles.
Articles of Association
Equity Structure. Following the Transactions, the Company's outstanding
equity structure consists of 3,436,277 Voting Ordinary A Shares (the "Voting A
Shares"), 163,723 Non Voting Ordinary A Shares (together with the Voting A
Shares, the "A Shares"), 320,000 Voting Ordinary B Shares (the "B Shares") and
52,000,000 preference shares. The holders of Non Voting Ordinary A Shares may
convert any or all of their Non Voting Ordinary A Shares into Voting A Shares
at any time by serving notice on the Company upon the occurrence of certain
events, including (i) a Listing, (ii) a Sale or (iii) the disposal of
substantially the whole business and assets of the Company. The Voting A
Shares and the B Shares comprise the Voting Ordinary Shares.
Preferred Shares. Under the Articles, the preference shares are redeemable
at the option of the Company. Holders of preference shares will be entitled to
receive a fixed cumulative dividend,
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calculated as a percentage of the redemption value of (Pounds)52.0 million of
the preference shares, payable semi-annually at a rate which will be exclusive
of any associated tax credit. The ability of the Company to pay these
dividends in cash and to redeem the preference shares is subject to certain
restrictions contained in the Revolving Facility and the Indenture. See
"Description of Credit Facilities" and "Description of Notes--Limitation on
Restricted Payments". The dividend shall be 15% through September 30, 2002.
However, any preference dividend payments due on or prior to December 31,
2000, which are paid on or prior to the due date, shall be deemed to satisfy
three times the amount of the preference dividend so paid, provided that
arrears of accrued but unpaid preference dividends in respect of previous
periods have been paid.
The holders of the Company's preference shares will become eligible to vote
at the general meetings of the Company upon, among other things, non-payment
of the preferred dividend in full on the due date. In the Articles, Listing
means a listing of the Company's shares on a recognized stock exchange and
Sale means a transfer of Ordinary Shares which results in any person holding
at least 90% of the outstanding Ordinary Shares.
Board Representation. For so long as funds advised by Apax hold in aggregate
more than 50% of the Ordinary Shares, Apax is entitled to appoint and remove
up to two directors (the "Apax Directors") to the Board of Directors of the
Company. The holders of more than 50% of the A Shares are entitled to appoint
and remove one further non-executive director of the Company (the "Non-
Executive Director"). Additionally, pursuant to the Shareholders Agreement,
the holders of more than 50% of the A Shares are entitled to appoint a
director to act as Chairman of the Board of Directors. With the exception of
any Apax Director and the Non-Executive Director, directors may be appointed
and removed by the holders of either not less than 50% of the Voting Ordinary
Shares or not less than 55.6% of the A Shares. Enhanced voting rights are
provided to inhibit the removal of an Apax Director or the Non-Executive
Director by statutory shareholders' resolutions. The minimum number of
directors is one and there is no maximum number.
Transfer Restrictions/Provisions. Transfers of ordinary shares may not be
registered (i) other than in compliance with the Articles and (ii) unless the
transferee has agreed to be bound by the Shareholders Agreement. The Articles
also provide for "drag-along" rights, pre-emptive offerings, permitted
transfers and compulsory transfers for departing management shareholders in
certain circumstances.
Indemnity. Each director of the Company is indemnified out of the assets of
the Company against costs, charges, losses and liabilities incurred in the
proper execution of his duties or in the proper exercise of his powers,
including liabilities incurred in defending legal proceedings in which
judgment is given in his favor or in which he is acquitted or which are
otherwise disposed of without a finding or admission of material breach of
duty or where relief from liability is otherwise granted by the court. The
Articles also permit the Company to arrange directors' and officers' liability
insurance for the benefit of the directors and the Company intends to obtain
such insurance coverage.
Shareholders Agreement
Financial Information. The Company will supply to each institutional
investor certain financial information, including audited, consolidated annual
results, annual budgets (to have been approved by the Apax Directors) and
monthly management accounts. Apax and the other institutional investors are
entitled to disseminate this information among themselves and to their clients
and professional advisers, subject to certain restrictions.
The Apax Directors and the Non-Executive Director are entitled to pass
information received by them from the Company to Apax, the other institutional
investors and certain of their affiliates.
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Matters Requiring Consent. Certain actions or transactions of the Company
require either the consent of an Apax Director, the consent of the holders of
more than 50% of the A Shares, or both. These matters include variations to
the Company's capital; alteration of constitutional documents; winding up or
dissolution of the Company; disposal of certain assets, undertakings or
subsidiaries; material changes to the business; entry into contracts with
investors and their affiliates; delegation of directors' powers; borrowing
money or incurring indebtedness other than as permitted by the Senior Credit
Agreement; entry into contracts or arrangements outside the ordinary course of
business; and the appointment and removal of executive directors.
Sale or Listing. The Company and the investors have declared in the
Shareholders Agreement their intention that a Sale or flotation of the
Company's shares be achieved within 3 years of the date of the Shareholders
Agreement. The minority institutional investors are entitled to sell their
holding to the majority institutional investors if, after 3 years, there has
been no Sale or flotation, provided that a valuation is obtained from an
investment bank and the majority institutional investors do not wish to
proceed with a realization at the value specified by the investment bank.
Duration/New Shareholders. The Shareholders Agreement ceases to have effect
on a Sale or a flotation. Individual investors cease to be parties to the
Shareholders Agreement upon ceasing to hold shares in the capital of the
Company (or, in the case of shareholders who are also employees, on the later
of their ceasing to hold shares or the cessation of their employment with the
Company). Shares may not be transferred or issued to persons who are not
parties to the Shareholders Agreement or agree to be bound by its terms.
Institutional Directors' Remuneration. If two Apax Directors are appointed,
each shall be entitled to an annual fee of (Pounds)15,000 plus VAT and if only
one director is appointed, he shall be entitled to an annual fee of
(Pounds)20,000 plus VAT. The Non-Executive Director is entitled to an annual
fee of (Pounds)20,000 plus VAT.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, the Company entered into the
Exchange and Registration Rights Agreement with the Initial Purchasers,
pursuant to which the Company agreed to use its best efforts to file with the
Commission a registration statement with respect to the exchange of the Old
Notes for a series of registered debt securities with terms identical in all
material respects to the terms of the Old Notes, except that the Exchange
Notes are issued free from any covenant regarding transfer restrictions, and
except that if the Exchange Offer is not consummated by June 29, 1998, the
Company will be obligated to pay each holder of Old Notes an amount equal to
DM 0.192 per week per DM 1,000 of the Old Notes until the Exchange Offer is
consummated.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain no-action letters addressed to
other parties in other transactions. However, the Company has not sought its
own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Based upon these interpretations by the
staff of the Commission, the Company believes that the Exchange Notes issued
pursuant to this Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who acquired the Old Notes as a result of market making
activities or other trading activities, (ii) an Initial Purchaser who acquired
the Old Notes directly from the Company solely in order to resell pursuant to
Rule 144A of the Securities Act or any other available exemption under the
Securities Act, or (iii) a person that is an "affiliate" (as defined in Rule
405 of the Securities Act) of the Company) 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 is not participating, and has no
arrangement or understanding with any person to participate, in the
distribution of such Exchange Notes.
By tendering each holder which is not a broker-dealer will represent to the
Company that, among other things, the person receiving the Exchange Notes
whether or not such person is the holder, (i) will acquire the Exchange Notes
in the ordinary course of such person's business, (ii) has no arrangement or
understanding with any person to participate in a distribution of the Exchange
Notes and (iii) is not engaged in and does not intend to engage in a
distribution of the Exchange Notes. If any holder or any such other person has
an arrangement or understanding with any person to participate in a
distribution of such Exchange Notes, is engaged in or intends to engage in a
distribution of such Exchange Notes, is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company, or acquired the Old Notes as a
result of market making or other trading activities, then such holder or any
such other person (i) cannot rely on the applicable interpretations of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, including the requirement that any such secondary resale
transactions be covered by an effective registration statement containing the
selling securityholder information required by Item 507 of Regulation S-K of
the Securities Act.
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." This Prospectus, as
it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Letter of
Transmittal states that by acknowledging and delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. The Company has agreed that for a period of
180 days after the Expiration Date, it will make this Prospectus available to
broker-dealers for use in connection with any such resale. See "Plan of
Distribution."
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Except as aforesaid, this Prospectus may not be used for an offer to resell,
resale or other retransfer of Exchange Notes.
The Exchange Offer is not being made to, nor will the Company accept tenders
for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Holders of Old Notes not tendered will not have any further registration
rights and the Old Notes not exchanged will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the markets for the
Old Notes could be adversely affected.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION, HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Holders of Exchange Notes are not entitled to any registration rights with
respect to the Exchange Notes. Pursuant to the Exchange and Registration
Rights Agreement, holders of Old Notes are entitled to certain registration
rights. Under the Exchange and Registration Rights Agreement, the Company has
agreed, for the benefit of the Holders of the Old Notes, that it will, at its
cost, (i) within 60 days after the date of the original issue of the Old
Notes, file the Registration Statement with the Commission and (ii) within 120
days after the date of original issuance of the Old Notes, use its reasonable
best efforts to cause such Registration Statement to be declared effective
under the Securities Act. The Registration Statement of which this Prospectus
is a part constitutes the Registration Statement.
The Exchange and Registration Rights Agreement also provides that, if (i)
because of any change in law or applicable interpretations thereof by the
Commission's staff the Company is not permitted to effect the Exchange Offer,
or (ii) any Notes validly tendered pursuant to the Exchange Offer are not
exchanged for Exchange Notes within 150 days after the Issue Date, or (iii)
any Initial Purchaser so requests with respect to Notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer and held by it following
the consummation of the Exchange Offer, or (iv) any applicable law or
interpretations do not permit any holder to participate in the Exchange Offer,
or (v) any holder that participates in the Exchange Offer does not receive
freely transferable Exchange Notes in exchange for tendered Notes or (vi) the
Company so elects, then the following provisions shall apply: The Company
shall use its reasonable best efforts to as promptly as practicable file with
the Commission and thereafter shall use its reasonable best efforts to cause
to be declared effective a shelf registration statement on an appropriate form
under the Securities Act relating to the offer and sale of the Transfer
Restricted Securities (as defined below) by the holders from time to time in
accordance with the methods of distribution set forth in such registration
statement (hereafter, a "Shelf Registration Statement"); provided, however,
that no holder of Old Notes or Exchange Notes shall be entitled to have Old
Notes or Exchange Notes held by it covered by such Shelf Registration
Statement unless such holder agrees in writing to be bound by all the
provisions of the Exchange and Registration Rights Agreement applicable to
such holder. The Company shall use its reasonable best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by holders for a period of two
years from January 30, 1998, or such shorter period that will terminate when
all the Old Notes and Exchange Notes covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement and the
date on which the
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Notes become eligible for resale without volume restrictions pursuant to Rule
144 under the Securities Act (in any such case, such period being called the
"Shelf Registration Period"). The Company shall be deemed not to have used its
best efforts to keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would result in
holders of Old Notes or Exchange Notes covered thereby not being able to offer
and sell such Old Notes or Exchange Notes during that period, unless such
action is required by applicable law. Notwithstanding any other provisions
hereof, the Company will ensure that (i) any Shelf Registration Statement and
any amendment thereto and any prospectus forming part thereof and any
supplement thereto complies in all material respects with the Securities Act
and the rules and regulations thereunder, (ii) any Shelf
Registration Statement and any amendment thereto (in either case, other than
with respect to information included therein in reliance upon or in conformity
with written information furnished to the Company by or on behalf of any
holder specifically for use therein (the "Holders' Information")) does not,
when it become effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) any prospectus forming
part of any Shelf Registration Statement, and any supplement to such
prospectus (in either case, other than with respect to Holders' Information),
does not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
The Exchange and Registration Rights Agreement also provides that if (i) the
applicable Registration Statement is not filed with the Commission on or prior
to 60 days after the issue date of the Old Notes (the "Issue Date"), (ii) the
Registration Statement or the Shelf Registration Statement, as the case may
be, is not declared effective within 120 days after the Issue Date (or in the
case of a Shelf Registration Statement required to be filed in response to a
change in law or the applicable interpretations of Commission's staff, if
later, within 45 days after publication of the change in law or
interpretation), (iii) the Exchange Offer is not consummated on or prior to
150 days after the Issue Date, or (iv) the Shelf Registration Statement is
filed and declared effective within 120 days after the Issue Date (or in the
case of a Shelf Registration Statement required to be filed in response to a
change in law or the applicable interpretations of Commission's staff, if
later, within 45 days after publication of the change in law or
interpretation) but shall thereafter cease to be effective (at any time that
the Company is obligated to maintain the effectiveness thereof) without being
succeeded within 30 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default," the Company will be obligated to pay Liquidated
Damages to each Holder of Transfer Restricted Securities, during the period of
one or more such Registration Defaults, in an amount equal to DM 0.192 per
week per DM 1,000 principal amount of Transfer Restricted Securities held by
such Holder until (i) the applicable Registration Statement is filed, (ii) the
Registration Statement is declared effective and the Exchange Offer is
consummated, (iii) the Shelf Registration Statement is declared effective or
(iv) the Shelf Registration Statement again becomes effective or an additional
Shelf Registration is filed and becomes effective, as the case may be.
Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease. As used herein, the term "Transfer Restricted Securities"
means (i) each Note until the date on which such Note has been exchanged for a
freely transferable Exchange Note in the Exchange Offer, (ii) each Note or
Private Exchange Security until the date on which it has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (iii) each Note or Private Exchange Security
until the date on which it is distributed to the public pursuant to Rule 144
under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act. As used herein, the term "Private Exchange Security" means
debt securities of the Company that are identical in all material respects to
the Exchange Notes, except for the transfer restrictions equivalent to those
of the Old Notes.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will, unless such Old Notes are withdrawn in accordance with the
withdrawal rights specified in "--Withdrawal of
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Tenders" below, accept any and all Old Notes validly tendered prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue, on
or promptly after the Expiration Date, an aggregate principal amount of up to
DM 245 million of Exchange Notes in exchange for a like principal amount of
outstanding Old Notes tendered and accepted in connection with the Exchange
Offer. The Exchange Notes issued in connection with the Exchange Offer will be
delivered on the earliest practicable date on or following the Expiration
Date. Holders may tender some or all of their Old Notes in connection with the
Exchange Offer.
The terms of the Exchange Notes are identical in all material respects to
the terms of the Old Notes, except that the Exchange Notes have been
registered under the Securities Act and are issued free from any covenant
regarding transfer restrictions, and except that if the Exchange Offer is not
consummated by June 29, 1998, the Company will be obligated to pay Liquidated
Damages to each holder of Old Notes. The Exchange Notes will evidence the same
debt as the Old Notes and will be issued under and be entitled to the same
benefits under the Indenture as the Old Notes. As of the date of this
Prospectus, DM 245 million aggregate principal amount of the Old Notes is
outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for
exchange or are tendered but not accepted in connection with the Exchange
Offer will remain outstanding and be entitled to the benefits of the
Indenture, but will not be entitled to any registration rights under the
Exchange and Registration Rights Agreement.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purposes of receiving the Exchange Notes from the Company.
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, 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 connection with 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 in connection with the Exchange Offer. The Company will
pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless extended by the Company in its sole discretion,
in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended. The Exchange Offer will remain in
effect from the effective date of the Registration Statement through the
Expiration Date for a minimum period of 30 days, unless extended.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at the rate of 10% per annum. Interest
on the Exchange Notes shall accrue from the last Interest Payment Date on
which interest was paid on the Old Notes surrendered or, if no interest has
been paid on the Old Notes, from January 30, 1998.
Interest on the Exchange Notes will be payable semiannually on February 1 or
August 1 of each year, commencing on the first Interest Payment Date following
the issuance thereof.
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Holders of Old Notes whose Old Notes are accepted for exchange will not
receive interest on such Old Notes for any period subsequent to the last
interest payment date to occur prior to the issue date of the Exchange Notes,
and will be deemed to have waived the right to receive any interest payment on
the Old Notes accrued from and after such interest payment date.
EXCHANGE OFFER PROCEDURES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to
tender Old Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to the Exchange Agent
at one of the addresses set forth below under "Exchange Agent" prior to 5:00
p.m. New York City time on the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at DTC pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange
Agent prior to 5:00 p.m. New York City time on the Expiration Date, or (iii)
the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than the signer of a Letter of Transmittal, the Old Notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder with
the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any holder who seeks to tender Old
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer as to any particular Old Notes either before or after
the Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, all defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of
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time as the Company shall determine. Neither the Company, the Exchange Agent
nor any other person shall be under any duty to give notification of any
defect or irregularity with respect to any tender of Old Notes for exchange,
nor shall any of them incur any liability for failure to give such
notification. The Exchange Agent intends to use reasonable efforts to give
notification of such defects or irregularities. Old Notes that are tendered
but not accepted by the Company for exchange, will, following consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof under the Securities Act and, upon consummation of the
Exchange Offer, certain registration rights under the Exchange and
Registration Rights Agreement will terminate.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name of names of the registered holder or holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering each holder which is not a broker-dealer will represent to the
Company that, among other things, the person receiving the Exchange Notes
whether or not such person is the holder, (i) will acquire the Exchange Notes
in the ordinary course of such person's business, (ii) has no arrangement or
understanding with any person to participate in a distribution of the Exchange
Notes and (iii) is not engaged in and does not intend to engage in a
distribution of the Exchange Notes. If any holder or any such other person has
an arrangement or understanding with any person to participate in a
distribution of such Exchange Notes, is engaged in or intends to engage in a
distribution of such Exchange Notes, is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company, or acquired the Old Notes as a
result of market making or other trading activities, then such holder or any
such other person (i) cannot rely on the applicable interpretations of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, including the requirement that any such secondary resale
transactions be covered by an effective registration statement containing the
selling securityholder information required by Item 507 of Regulation S-K of
the Securities Act. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired 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." The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF EXCHANGE SECURITIES
The Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance
of the Old Notes. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted properly tendered Old Notes for exchange when, as and
if the Company has given oral or written notice thereof to the Exchange Agent,
with written confirmation of any oral notice to be given promptly thereafter.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely
confirmation of such Old Notes into the Exchange Agent's account at DTC, (ii)
a properly completed and duly executed Letter of Transmittal and (iii) all
other required documents. If any tendered Old Notes are not accepted for any
reason set forth in the terms and
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conditions of the Exchange Offer, or if Old Notes are submitted for a greater
amount than the holder desires to exchange, such unaccepted or unexchanged Old
Notes will be returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at DTC pursuant to the book-entry procedures described below,
such nonexchanged Old Notes will be credited to an account maintained with
DTC) designated by the tendering holder as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at DTC for purposes of the Exchange Offer within two business
days after the date of this Prospectus, and any financial institution that is
a participant in the DTC systems may make book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account at
DTC in accordance with such DTC's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at DTC, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at one of the addresses set forth below
under "--Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent has received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form of the corresponding
exhibit to the Registration Statement of which this Prospectus constitutes a
part (by telegram, telex, facsimile transmission, mail or hand delivery),
setting forth the name and address of the holder of Old Notes and the amount
of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of
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withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Old Notes have been tendered pursuant to
the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account with DTC specified by the 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 under "--Exchange Offer Procedures" above at
any time on or prior to the Expiration Date.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent in connection
with the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent, at its offices at 450 West 33rd Street, 15th
Floor, New York, New York 10001. The Exchange Agent's telephone number is
(212) 946-3014 and facsimile number is (212) 946-8177.
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The Company will pay certain other expenses to be incurred in connection
with the Exchange Offer, including the fees and expenses of the Trustee,
accounting and certain legal fees.
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith. If, however, Exchange Notes are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if tendered Old Notes are
registered in the name of any person other than the person signing the Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes in connection with the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendered holder.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register Exchange Notes in the name of, or request that Old
Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
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APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the consummation of the Exchange Offer. Any
expenses of the Exchange Offer that are paid by the Company will be amortized
by the Company over the term of the Exchange Notes under both U.K. and U.S.
generally accepted accounting principles.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. Except
under certain limited circumstances, the Company does not currently intend to
register the Old Notes under the Securities Act. In addition, upon the
consummation of the Exchange Offer, holders of Old Notes which remain
outstanding will not be entitled to any rights to have such Old Notes
registered under the Securities Act or to any rights under the Exchange and
Registration Rights Agreement. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. See "The
Exchange Offer--Consequences of Not Exchanging Old Notes."
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties in other transactions substantially
similar to the Exchange Offer, the Company 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 a holder thereof (other than
(i) a broker-dealer who acquired the Old Notes as a result of market making
activities or other trading activities, (ii) an Initial Purchaser who acquired
the Old Notes directly from the Company solely in order to resell pursuant to
Rule 144A of the Securities Act or any other available exemption under the
Securities Act, or (iii) a person that is an "affiliate" (as defined in Rule
405 of the Securities Act) of the Company 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 is not participating, and has no
arrangement or understanding with any person to participate, in the
distribution of such Exchange Notes. Holders of Old Notes accepting the
Exchange Offer will represent to the Company in the Letter of Transmittal that
such conditions have been met. By tendering each holder which is not a broker-
dealer will represent to the Company that, among other things, the person
receiving the Exchange Notes whether or not such person is the holder, (i)
will acquire the Exchange Notes in the ordinary course of such person's
business, (ii) has no arrangement or understanding with any person to
participate in a distribution of the Exchange Notes and (iii) is not engaged
in and does not intend to engage in a distribution of the Exchange Notes. If
any holder or any such other person has an arrangement or understanding with
any person to participate in a distribution of such Exchange Notes, is engaged
in or intends to engage in a distribution of such Exchange Notes, is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company,
or acquired the Old Notes as a result of market making or other trading
activities, then such holder or any such other person (i) cannot rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction, including the requirement that
any such secondary resale
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transactions be covered by an effective registration statement containing the
selling securityholder information required by Item 507 of Regulation S-K of
the Securities Act. Each broker-dealer who receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it acquired the
Old Notes as the result of market-making activities or other trading
activities and will deliver a prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Old Notes where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities. In
addition, pursuant to Section 4(3) under the Securities Act, until ,
1998, all dealers effecting transactions in the Exchange Notes, whether or not
participating in the Exchange Offer, may be required to deliver a Prospectus.
See "The Exchange Offer--Purpose of the Exchange Offer" and "Plan of
Distribution."
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CERTAIN TRANSACTIONS
GROUP REORGANIZATION/MACHINERY BUSINESS DISPOSAL
During 1997, the group of companies owned by United Texon Limited underwent
a significant internal reorganization to facilitate the Machinery Disposal.
During the first phase, the group implemented a legal reorganization which
created a discrete sub-group (the "Machinery group") of companies held by USM
Group Limited, a wholly-owned subsidiary of United Texon Limited, carrying on
the Machinery business. This process was substantially completed on July 29,
1997. In the second phase, the shares in USM Group Limited were transferred as
of December 31, 1997, to a new company principally owned by shareholders of
the Company, thereby completing the Machinery Disposal.
As a result of the Machinery Disposal and the Acquisition, there exist two
separate groups of companies ultimately owned by groups of shareholders who
are identical, other than in relation to management shareholdings and stock
options. Described below are (i) the agreements governing the first phase of
the Machinery Disposal, (ii) the agreements governing the second phase of the
Machinery Disposal and (iii) agreements between the Company and the Machinery
group relating to their ongoing relationships.
Share and Asset Transfer Agreements. The shares of companies operating the
Machinery business incorporated in Australia, Brazil, Canada, France, Germany,
Hong Kong, South Korea, the U.K. and the United States (including, indirectly,
shares in companies incorporated in Puerto Rico and Thailand) were transferred
into the Machinery group. The share transfer agreements contain minimal
warranties of the sellers. Additionally, asset purchase agreements were
entered into to transfer the Machinery business into the Machinery group in
Austria, France, Germany, Spain, the U.K. and the United States and to
transfer assets of the Materials business out of the Machinery group in
Germany, Hong Kong, Taiwan and the United States. The asset purchase
agreements sought to allocate certain identified liabilities between the
parties but did not contain extensive representations and warranties nor, in
general, indemnification provisions for unknown liabilities related to the
assets being transferred. The asset purchase agreements also contained
undertakings not to compete with the transferred business (and in some cases
agreements by the purchaser not to compete with the seller's retained
business). The Company may have unidentified contingent liabilities relating
to the Machinery business previously carried out by it. Accordingly,
liabilities relating to the past business activity could arise and affect the
ability of the Company to pay interest on the Notes and to satisfy its other
debt obligations.
Agreement for the Sale of USM Group Limited. Effective as of December 31,
1997, the entire issued share capital of USM Group Limited was sold by United
Texon Limited for a nominal consideration to a new company owned principally
by United Texon Limited's shareholders. The sale agreement contains warranties
by United Texon Limited regarding the shares being sold and provisions
regulating aspects of the ongoing relationship between the Company and the
Machinery group. These include (i) indemnification of the Machinery group from
any actual or contingent liabilities in respect of any indebtedness or other
obligations of the companies conducting the Materials business, (ii)
provisions dealing with the sharing of historic insurance coverage, (iii)
mutual undertakings not to compete for three years or solicit certain
employees for 12 months from 1997 and (iv) an undertaking by the parties to
determine an appropriate mechanism for either winding up or splitting the U.K.
pension scheme.
Ongoing Agreements with the Machinery group. The ongoing agreements between
the Company and the Machinery group consist of (i) distribution/agency
agreements, (ii) agreements for the sharing of premises or services and (iii)
group relief agreements for the surrender of tax losses for which payments
will be made to the surrendering company at a discount to the relevant rate of
corporation tax. Pursuant to distribution/agency agreements, a Machinery group
company is appointed as a
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distributor or agent for the sale of certain of the Company's products from
Austria, Brazil, Canada, France, Germany, Japan, Korea, Spain, Taiwan, and
Thailand. Members of the Machinery group have appointed the Company as
distributor/agent for certain shoe machinery products in Australia, Mexico and
New Zealand. These agreements are generally for an initial term (typically one
year) and are then automatically continued subject to six months' termination
notice. Agreements between the Company and Machinery group companies are in
place for the sharing of premises or services in Austria, China, France,
Germany, Indonesia, Spain, the U.K. and the United States. These agreements
provide for payments to be made on what the Company believes is a reasonable,
commercial basis. These agreements are generally for a short term although the
Company has entered into a sub-lease from a Machinery group company of office
premises at Wilmington, Massachusetts which will expire when the primary lease
expires on December 31, 2001.
CREDIT ARRANGEMENTS
In January 1998, Texon International plc entered into a credit agreement
(the "Credit Agreement") providing for the Revolving Facility with The Chase
Manhattan Bank, Chase Manhattan plc and Chase Manhattan International Limited,
which are affiliates of one of the Company's shareholders. Under the terms of
the Credit Agreement, an arrangement fee of 1.75% of the Revolving Facility
((Pounds)15.0 million) is payable to Chase Manhattan plc, and an annual agency
fee (initially (Pounds)50,000 per annum) is payable to Chase Manhattan
International Limited. See "Description of Credit Facilities."
Under the credit facilities that were repaid in part from the net proceeds
of the Old Note Offering, an arrangement fee of (Pounds)700,354 was paid in
July 1997 to Chase Manhattan International Limited, Lloyds Bank plc and BHF
Bank AG and an annual agency fee of (Pounds)50,000 is payable to Chase
Manhattan International Limited.
1995 ACQUISITION DEBT AND A NOTES
The 1995 Acquisition Debt was held by certain shareholders of the Company.
(Pounds)184,240 in principal amount of the A Notes were held by shareholders
in the Company and (Pounds)15,628 in principal amount were held by David
Gamble, a member of management. A portion of the net proceeds of the Old Note
Offering were used to repay the indebtedness represented by the 1995
Acquisition Debt and A Notes. See "The Transactions" and "Use of Proceeds."
ARTICLES OF ASSOCIATION AND SHAREHOLDERS AGREEMENT
The shareholders of the Company have entered into the Shareholders Agreement
and are subject to the provisions of the Articles. The Shareholders Agreement
provides, among other things, for certain board representation, provision of
financial information and consent for certain actions. The Articles contain,
among other things, certain provisions regarding transfer restrictions, the
appointment of directors and indemnification. See "Principal Shareholders--
Articles of Association and Shareholders Agreement."
SALE OF SOUTH AFRICAN SUBSIDIARY
On July 21, 1997 the Company completed the sale of its South African
subsidiary, BU Shoe Machinery (Pty) Limited, to two former directors of that
company. The decision to sell this business arose as a result of net losses
being generated by the subsidiary in 1996 and the difficulty in transferring
funds out of South Africa due to exchange control regulations.
The total consideration paid for the business was (Pounds)466,000 resulting
in a loss to the Company of (Pounds)223,000 which was included in the 1997
loss of the discontinued operations. The initial consideration paid was
(Pounds)128,500 with the remainder being paid on a deferred basis in quarterly
installments of (Pounds)33,750. The first of these payments was made on
September 26, 1997 and the last deferred payment is due on December 31, 1999.
BU Shoe Machinery (Pty) Limited carries on activities which, prior to its
disposal, would have fallen within those of the Machinery business.
Accordingly the net assets disposed of with the sale have been excluded from
the operations of the discontinued business as at
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December 31, 1997. Similarly any further deferred sums to be paid on or after
December 31, 1997, will be paid to USM Group Limited. Neither of the former
directors who acquired BU Shoe Machinery (Pty) Limited are shareholders of the
Company.
MANAGEMENT OPTIONS
Peter Selkirk, Neil Fleming, David Gamble, Neil Coutts and Keith Pacey held
options to subscribe for shares in United Texon Limited. Messrs. Selkirk,
Fleming and Gamble are executive officers of the Materials business. See
"Management--Directors and Executive Officers." Messrs. Coutts and Pacey are
executives of the Machinery business who have not continued with the Company.
The precise number of shares for which they were entitled to subscribe was
determined by reference to a formula and varied according to the amount of the
consideration payable in connection with the Acquisition. These options were
exercised on January 30, 1998, and the shares issued as a result were sold to
the Company in connection with the Acquisition for an aggregate consideration
of approximately (Pounds)2.81 million. See "Use of Proceeds."
Following completion of the Transactions, Senior Management holds
approximately 8.5% of the outstanding Voting Ordinary Shares of the Company.
Senior Management have been granted options to acquire a further 4.3% of the
outstanding Voting Ordinary Shares from the Company's institutional investors.
Furthermore, certain employees of the Company, including Senior Management,
may be allotted (i) options to acquire up to 240,000 A Shares from
institutional investors and (ii) 80,000 Voting Ordinary Shares that are
authorized but are not currently outstanding.
DIRECTORS' FEES
Certain directors' fees are payable to the Apax Directors and the Non-
Executive Director. See "Principal Shareholders--Shareholders Agreement."
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DESCRIPTION OF CREDIT FACILITIES
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms of the Revolving Facility, which will be available upon
request from the Company.
REVOLVING FACILITY
In January 1998, Texon International plc entered into the Credit Agreement
with Chase Manhattan plc as arranger, The Chase Manhattan Bank as issuing
bank, The Chase Manhattan Bank and other institutions as original lending
banks and Chase Manhattan International Limited as agent and security agent.
The Credit Agreement provides a multi-currency revolving facility in a maximum
amount not exceeding (Pounds)15.0 million. Letters of credit and bank
guarantees may be issued as part of the Revolving Facility. The Revolving
Facility will be used to refinance a portion of the senior bank facilities and
provide for the working capital and general corporate purposes of the Company.
The availability of the Revolving Facility will be subject to various
conditions precedent customary for facilities of this nature.
The Revolving Facility bears interest at a rate of 2% per annum plus LIBOR,
subject to certain reductions based on financial performance. The Revolving
Facility is a three year facility. A commitment fee of 0.75% per annum will be
paid by Texon International plc on the undrawn portion of the Revolving
Facility. Each lender which issues a letter of credit or bank guarantee under
the Revolving Facility will receive an issuing bank fee of 0.125% per annum in
respect of its contingent liability for such letter of credit or bank
guarantee. Each lender will receive a letter of credit fee calculated on a day
to day basis in respect of issued letters of credit or bank guarantees at a
rate equal to the margin payable in respect of the facilities and based on
each lender's contingent liability in respect of such letters of credit or
bank guarantees.
Texon International plc will be required to make mandatory prepayments of
all outstanding loans under the Revolving Facility upon the occurrence of a
flotation, debt refinancing or change of control of the Company.
The Credit Agreement contains customary covenants including restrictions on
disposal of assets, incurring additional indebtedness or contingent
liabilities, making acquisitions or investments, engaging in mergers or
consolidations, or amending other debt instruments.
In addition, the Company is required to comply with specified financial
ratios, including a total net interest cover ratio, a fixed charge ratio and a
total debt to EBITDA ratio, calculated on a rolling 12 month basis. The Credit
Agreement also contains customary events of default including payment default,
covenant default, cross-default and certain events of insolvency.
OTHER CREDIT FACILITIES
Two of the Company's German subsidiaries have working capital facilities,
both available in Deutsche Marks: (Pounds)250,000 is available pursuant to a
demand facility at an interest rate of 7.75% and (Pounds)340,000 is available
pursuant to a demand facility at an interest rate of 7.75%. The Company's
Italian subsidiary has four working capital facilities available in Italian
Lire: (Pounds)1.4 million is available pursuant to a demand facility at an
interest rate of 6.2%, (Pounds)1.0 million is available pursuant to a demand
facility at an interest rate of 6.6%, (Pounds)1.0 million is available
pursuant to a demand facility at an interest rate of 6.25% and a (Pounds)0.35
million facility with an interest rate of 7% repayable on March 1998. One of
the Company's U.K. subsidiaries has two finance lease facilities totaling
(Pounds)1.0 million, one with an interest rate of 8.57% repayable quarterly
until September 23, 2001 and one with an interest rate of 7.7% and repayable
quarterly until September 10, 2000. The Company's New Zealand subsidiary has a
working capital facility of (Pounds)74,000 available in New Zealand dollars at
an interest rate of 10% and repayable on July 31, 1998. In China, the Company
has three working capital facilities for an aggregate amount of (Pounds)2.7
million with interest rates varying from 8.8% to 15%, two of which are
repayable on demand and the remainder expiring at various times up until March
15, 1998. The Notes will be effectively subordinated to indebtedness under
these facilities. See "Description of Notes--Ranking."
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DESCRIPTION OF NOTES
For purposes of this section, the "Company" means Texon International plc
only, and does not include its subsidiaries.
GENERAL
The Old Notes were issued and the Exchange Notes are to be issued under an
Indenture, dated as of January 30, 1998 (the "Indenture"), between the Company
and The Bank of New York, as Trustee (the "Trustee"), a copy of which will be
available upon request to the Company. The terms of the Exchange Notes are
substantially identical to the terms of the Old Notes.
The following summary of certain provisions of the Indenture and the Notes
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 TIA and the Notes. Capitalized terms used herein and not otherwise defined
have the meanings set forth in the section "Certain Definitions". References
herein to specific amounts in one currency mean such amounts or their
equivalent in other currencies on the date of determination.
The Exchange Notes will be represented initially by a global note in bearer
form without coupons (the "Global Exchange Note") which will be issued in a
denomination equal to the outstanding principal amount of the Notes
represented thereby and held by The Bank of New York, as the book-entry
depositary (the "Book-Entry Depositary"). The Global Exchange 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 certificateless depositary interest
to DTC, which will then record beneficial interests in the Global Exchange
Note. Beneficial interests in the Exchange Notes will be shown on, and
transfers thereof will be effected only through, records maintained in book-
entry form by DTC (with respect to participant's interest) 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."
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.
Application has been made to list the Exchange Notes on the Luxembourg Stock
Exchange.
The Exchange Notes will be payable as to principal, interest and Additional
Amounts, if any, either (i) to the Book-Entry Depositary (as Holder of the
Global Exchange Note) against presentation and surrender (or, in the case of
partial payment, endorsement) of the Global Exchange Note at the office of any
agent of the Company (the "Paying Agent") maintained for such purpose outside
the U.K. 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 (which
will include an office 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 DM 1 million
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
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such single account as such Holder or Holders may in writing to the Paying
Agent direct. The Paying Agent may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
with any payment transfer instructions received by the Paying Agent. 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 Company may change the Paying Agent without prior notice to
holders of Exchange Notes provided that the Company promptly notifies the
Trustee following any such change. The Exchange Notes will be issued in
minimum denominations of DM 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 U.K., (ii) if and so long as the Exchange
Notes are listed on the Luxembourg Stock Exchange, at least one Paying Agent
is located in Luxembourg, as the rules of the Luxembourg Stock Exchange
require, or such other place as the Luxembourg Stock Exchange may approve and
(iii) if and so long as the Exchange Notes are listed on any other securities
exchange, any requirement of such securities exchange as to Paying Agents are
satisfied.
SUBSTITUTION OF CURRENCY
Under the Treaty on the European Economic and Monetary Union (the "Treaty"),
to which the Federal Republic of Germany is a signatory, on or before January
1, 1999, and subject to the fulfillment of certain conditions, the "Euro" may
replace all or some of the currencies of the member states of the European
Union, including the Deutsche Mark. If, pursuant to the Treaty, the Deutsche
Mark is replaced by the Euro, the payment of principal of, or interest on, the
Notes will be effected in Euro in conformity with legally applicable measures
taken pursuant to, or by virtue of, the Treaty. In addition, the regulations
of the European Commission relating to the Euro will then apply to the Notes
and the Indenture. The circumstances and consequences described in this
paragraph entitle neither the Company nor any holder of Notes to early
redemption, rescission, notice, repudiation, adjustment or renegotiation of
the terms and conditions of Notes or the Indenture or to raise other defenses
or to request any compensation claim, nor will they affect any of the other
obligations of the Company under the Notes and the Indenture.
TERMS OF THE NOTES
The Notes are and the Exchange Notes will be unsecured senior obligations of
the Company denominated in Deutsche Marks. The Notes will be limited to DM 245
million aggregate principal amount, and will mature on February 1, 2008. Each
Note will bear interest at a rate per annum shown on the front cover of this
Prospectus from January 30, 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 January 15 or July 15 immediately preceding
the interest payment date on February 1 and August 1 of each year, commencing
August 1, 1998. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time on or after February 1, 2003, and prior to maturity, upon not less
than 30 nor more than 60 days' prior notice published in a leading newspaper
having a general circulation in New York (which is expected to be the Wall
Street Journal) (and if and so long as the Notes are listed on the Luxembourg
Stock Exchange and the rules of such Stock Exchange shall so require, a
newspaper having a general circulation in Luxembourg (which is expected to be
the Luxemburger Wort)) or, in the case of Definitive Notes, mailed by first-
class mail to each Holder's registered address (and if and 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)), at
the following redemption prices (expressed as a percentage of principal
amount), plus accrued interest and Additional Amounts, if any, to the
redemption date (and in the case
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of Definitive Notes, subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date and
Additional Amounts, if any, in respect thereof), if redeemed during the 12-
month period commencing on February 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2003................................................................. 105.000%
2004................................................................. 103.333%
2005................................................................. 101.667%
2006 and thereafter.................................................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 1, 2001,
the Company may redeem in the aggregate up to 33 1/3% of the original
aggregate principal amount of the Notes with the proceeds of one or more
Public Equity Offerings by the Company following which there is a Public
Market, at a redemption price (expressed as a percentage of principal amount
thereof) of 110% plus accrued interest and Additional Amounts, if any, to the
redemption date (and in the case of Definitive Notes, subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date and Additional Amounts, if any, in respect
thereof); provided, however, that at least 66 2/3% of the original aggregate
principal amount of the Notes must remain outstanding after each such
redemption; and provided, further, that such redemption shall occur within 90
days of the date of the closing of any such Equity Offering.
SELECTION
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
principal securities exchange, if any, on which 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 DM 1,000 in original principal
amount. 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. The Global Exchange Note redeemed in part will be surrendered
to the Trustee who will make a notation thereon to reduce the principal amount
of such Global Exchange 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 cancellation of the original Note.
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 U.K. (or any political
subdivision or taxing authority of the U.K.) 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 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
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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 will
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 were 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 a tax counsel reasonably
satisfactory to the Trustee to the effect that the circumstances referred to
above exist. The Trustee shall accept such 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.
RANKING
The Indebtedness evidenced by, and all obligations in respect of, the Notes
will be unsecured Senior Indebtedness of the Company, will rank pari passu in
right of payment with all existing and future Senior Indebtedness of the
Company and will be senior in right of payment to all existing and future
Subordinated Obligations of the Company. The Notes will be effectively
subordinated to any Secured Indebtedness of the Company to the extent of the
value of the assets securing such Indebtedness and to all liabilities of its
Subsidiaries.
The Company has agreed that, if the terms of any Subordinated Obligations of
the Company entered into after the Issue Date permit the holders of any Senior
Indebtedness of the Company to block payments to the holders of such
Subordinated Obligations in certain circumstances, then such Subordinated
Obligations must also permit the holders of the Notes to block such payments
in the same circumstances and to the same extent.
All of the operations of the Company are conducted through its Subsidiaries.
Claims of creditors of Subsidiaries of the Company including trade creditors,
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, including holders of
the Notes. The Notes, therefore, will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders (if any) of such
Subsidiaries.
In the event of a proposed highly leveraged transaction, Holders of Notes
will be protected to the extent that the covenants contained in the Indenture
and the Credit Agreement do not permit the consummation of such a transaction.
In particular, the Indenture and the Credit Agreement limit the amount of
additional indebtedness that may be incurred by the Company and restrict the
ability of the Company to grant liens on its assets, to enter into guarantees
or to enter into sale and leaseback transactions. See "--Certain Covenants"
and "Description of Credit Facilities." Subject to certain limitations, in the
event a highly leveraged transaction results in a Change of Control, Holders
of Notes will have the right to require the Company to repurchase such
Holder's Notes. See "--Change of Control."
At December 31, 1997, on a pro forma basis after giving effect to the
Transactions (including the Incurrence of the principal amount anticipated to
be outstanding under the Revolving Facility on the Issue Date) and the
application of the net proceeds therefrom as described herein under "Use of
Proceeds", the only outstanding Indebtedness of the Company other than the
Notes (excluding its consolidated subsidiaries) would have been secured Senior
Indebtedness of (Pounds)4.3 million arising under the Revolving Facility, and
the total liabilities of the Subsidiaries of the Company (including trade
payables and deferred taxes) would have been (Pounds)38.7 million. Although
the Indenture contains limitations on the amount of additional Indebtedness
which the Company may Incur and limits the incurrence of Indebtedness and the
issuance of Preferred Stock by the Company's Restricted Subsidiaries, such
limitations are subject to a number of significant qualifications. Under
certain
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circumstances the amount of such additional Indebtedness could be substantial.
See "--Certain Covenants--Limitation on Indebtedness" below.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to
repurchase all of such Holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued and unpaid interest and
Additional Amounts, if any, to the date of repurchase (and in the case of
Definitive Notes, subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date and
Additional Amounts, if any, in respect thereof):
(i) prior to the first public offering of Voting Stock of the Company, the
Permitted Holders cease to be the "beneficial owner" (as defined in Rules 13d-
3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority in
the aggregate of the total voting power of the Voting Stock of the Company,
whether as a result of issuance of securities of the Company, any merger,
consolidation, liquidation or dissolution of the Company, any direct or
indirect transfer of securities by any Permitted Holder or otherwise (for
purposes of this clause (i), the Permitted Holders shall be deemed to own
beneficially any Voting Stock of an entity (the "specified entity") held by
any other entity (the "parent entity") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of the parent entity);
(ii) (A) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above) of more than 35% of the
total voting power of the Voting Stock of the Company and (B) the Permitted
Holders do not "beneficially own" (as defined in clause (i) above), directly
or indirectly, in the aggregate a greater percentage of the total voting power
of the Voting Stock of the Company than such other person and do not have the
right or ability by voting power, contract or otherwise to elect or designate
for election a majority of the Board of Directors (for the purposes of this
clause (ii), such other person shall be deemed to own beneficially any Voting
Stock of a specified corporation held by a parent corporation, if such other
person "beneficially owns" (as defined in this clause (ii)), directly or
indirectly, more than 35% of the voting power of the Voting Stock of such
parent corporation and the Permitted Holders do not "beneficially own" (as
defined in clause (i) above), directly or indirectly, in the aggregate a
greater percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of such parent corporation);
(iii) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of all
or substantially all the assets of the Company to another Person (in each
case, other than a Person that is controlled by the Permitted Holders), and,
in the case of any such merger or consolidation, the securities of the Company
that are outstanding immediately prior to such transaction and that represent
100% of the aggregate voting power of the Voting Stock of the Company 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; or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of a majority of the directors of the Company then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office.
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In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to
this covenant, then prior to the publishing or mailing of the notice to
Holders provided for in the immediately following paragraph but in any event
within 30 days following any Change of Control, the Company shall (i) repay in
full all Bank Indebtedness or offer to repay in full all Bank Indebtedness and
repay the Bank Indebtedness of each lender who has accepted such offer or (ii)
obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the Notes as provided for in the
immediately following paragraph.
Within 30 days following any Change of Control, the Company shall deliver
written notice to the Trustee and publish a notice in a leading newspaper
having a general circulation in New York (which is expected to be the Wall
Street Journal) (and, if and so long as Notes are listed on the Luxembourg
Stock Exchange and the rules of such Stock Exchange shall so require, a
newspaper having a general circulation in Luxembourg (which is expected to be
the Luxemburger Wort)) or, in the case of Definitive Notes, mail a notice to
each Holder (and if and 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)) in each case, with a copy to the Trustee
stating: (1) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Additional Amounts, if any, to the date of repurchase (and
in the case of Definitive Notes, subject to the right of Holders of record on
a record date to receive interest on the relevant interest payment date and
Additional Amounts, if any, in respect thereof); (2) the circumstances and
relevant facts and financial information regarding 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 first published or, where relevant, mailed,
except as may otherwise be required by applicable law); and (4) the
instructions determined by the Company, consistent with this covenant, that a
Holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or
regulations, including any securities laws of the U.K. and Luxembourg and the
requirements of the Luxembourg Stock Exchange or any other securities exchange
on which the Notes are listed, to the extent such laws or regulations are
applicable, in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. 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.
Transactions constituting a Change of Control are not limited to hostile
takeover transactions not approved by the current management of the Company.
Except to the extent that a transaction is described in the definition of
Change of Control, the Indenture does not contain provisions that permit
Holders of Notes to require the Company to purchase or redeem the Notes in the
event of a takeover, recapitalization or similar restructuring, including an
issuer recapitalization or similar transaction with management. Consequently,
the Change of Control provisions will not afford any protection in a highly
leveraged transaction, including such a transaction initiated by the Company,
management of the Company or an affiliate of the Company, if such transaction
does not result in a Change of Control. Holders of Notes are protected to the
extent that the negative covenants contained in the Indenture
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and the Credit Agreement limit the incurrence of additional indebtedness and
restrict the ability of the Company to grant liens and enter into guarantees
or sale and leaseback transactions in connection with such a transaction. See
"--Certain Covenants" and "Description of Credit Facilities." The Change of
Control provisions may not be waived by the Board of Directors of the Company
or the Trustee without the consent of Holders of at least a majority in
principal amount of the Notes. See "--Amendments and Waivers."
The occurrence of certain of the events which would constitute a Change of
Control would require mandatory repayment of all outstanding indebtedness
under the Credit Agreement, which will effectively prevent the repurchase of
the Notes unless and until the indebtedness under the Credit Agreement is
repaid in full. Future Senior Indebtedness of the Company may contain
prohibitions of certain events which would constitute a Change of Control or
require such Senior 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 Senior 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 upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases. The Company has no
outstanding securities or liabilities that are pari passu with the Notes and
which also contain Change of Control repayment provisions.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Company and its Subsidiaries to another person may be
uncertain.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that
the Company or a Restricted Subsidiary may Incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be greater than 2.0:1.
Notwithstanding the foregoing, the Company will not permit any Restricted
Subsidiary to issue, to any party other than the Company or a Wholly Owned
Subsidiary of the Company, (i) any Preferred Stock or (ii) any Indebtedness
that by its terms is subordinated or junior in right of payment to any other
Indebtedness of such Restricted Subsidiary.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness (hereafter
"Permitted Indebtedness"):
(i) Indebtedness (x) of the Company under the Revolving Facility (as the
same may be amended from time to time without increasing the committed
amount available or outstanding, except as otherwise permitted by this
covenant) and (y) of the Company and Restricted Subsidiaries under other
credit agreements in an aggregate principal amount at any time outstanding
for both (x) and (y) not to exceed the greater of (A) (Pounds)15.0 million,
less any repayments and commitment reductions made pursuant to the
provisions of clause (a)(iii)(A) of "--Limitation on Sales of Assets and
Subsidiary Stock," and (B) the Borrowing Base at the time such Indebtedness
is Incurred;
(ii) Indebtedness of the Company owing to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by
the Company or any Wholly Owned
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Subsidiary; provided, however, that any subsequent issuance or transfer of
any Capital Stock or any other event that results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Company or a Wholly Owned
Subsidiary) will be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the issuer thereof;
(iii) Indebtedness represented by the Notes;
(iv) any Indebtedness (other than the Indebtedness described in clauses
(i) through (iii) above) outstanding on the Issue Date;
(v) any Refinancing Indebtedness Incurred in respect of any Indebtedness
described in clause (i), (iii), (iv) or paragraph (a) above;
(vi) (A) Indebtedness or Preferred Stock of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness or
Preferred Stock Incurred in contemplation of, 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 Subsidiary or was otherwise acquired by the
Company); provided, however, that at the time such Restricted Subsidiary is
acquired by the Company, the Company would have been able to Incur $1.00 of
additional Indebtedness pursuant to paragraph (a) after giving effect to
such acquisition (including the Incurrence of such Indebtedness or
Preferred Stock pursuant to this clause (vi)) and (B) Refinancing
Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness
Incurred by such Restricted Subsidiary pursuant to this clause (vi);
(vii) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by the
Company and its Restricted Subsidiaries in the ordinary course of their
business and which do not secure other Indebtedness, and (B) of the Company
or any Restricted Subsidiary under Currency Agreements and Interest Rate
Agreements, in each case entered into for bona fide hedging purposes of the
Company or such Restricted Subsidiary in the ordinary course of business
and not for purposes of speculation; provided, however, that, in the case
of Currency Agreements and Interest Rate Agreements, such Currency
Agreements and Interest Rate Agreements do not increase the Indebtedness of
the Company or any Restricted Subsidiary outstanding at any time other than
as a result of fluctuations in foreign currency exchange rates or interest
rates or by reason of fees, indemnities and compensation payable
thereunder;
(viii) Purchase Money Indebtedness and Capitalized Lease Obligations in
an aggregate principal amount on the date of Incurrence which, when added
to all other Purchase Money Indebtedness and Capitalized Lease Obligations
Incurred pursuant to this clause (viii) and then outstanding, not to exceed
(Pounds)5.0 million;
(ix) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to paragraph (a) or any other clause of this paragraph (b)) in an
aggregate principal amount on the date of Incurrence which, when added to
all other Indebtedness Incurred pursuant to this clause (ix) and then
outstanding, not to exceed (Pounds)12.0 million;
(x) Indebtedness represented by a grant or advance made available by a
federal, state or governmental agency or department or other like body
which is repayable only upon the Company or a Restricted Subsidiary (as the
case may be) failing to satisfy one or more conditions set out in the terms
of such grant or advance, provided there has been no such failure to
satisfy any of such conditions, not to exceed (Pounds)1.0 million
outstanding from time to time;
(xi) Indebtedness arising from indemnification agreements or purchase
price adjustments in the ordinary course of business; or
(xii) Indebtedness owed in respect of compensation claims or other
employee insurance arrangements in the ordinary course of business.
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(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness will be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations.
(d) Notwithstanding any other provision of this covenant, the maximum amount
of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a
result of fluctuations in the exchange rates of currencies. For purposes of
determining the outstanding principal amount of any particular Indebtedness
Incurred pursuant to this covenant, (i) Indebtedness Incurred pursuant to the
Credit Agreement prior to or on the date of the Indenture shall be treated as
Incurred pursuant to clause (i) of paragraph (b) above, (ii) Indebtedness
permitted by this covenant need not be permitted solely by reference to one
provision permitting such Indebtedness but may be permitted in part by one
such provision and in part by one or more other provisions of this Section
permitting such Indebtedness and (iii) in the event that Indebtedness or any
portion thereof meets the criteria of more than one of the types of
Indebtedness described in this covenant, the Company, in its sole discretion,
shall classify such Indebtedness and only be required to include the amount of
such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in respect
of its Capital Stock (including any payment in connection with any merger
or consolidation involving the Company) except (A) dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and (B) dividends or distributions payable to the Company or another
Restricted Subsidiary (and, if such Restricted Subsidiary is not wholly
owned and such dividend or distribution is being paid on Voting Stock other
than Preferred Stock, to its other shareholders on a pro rata basis);
(ii) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of the Company held by any Person or any Capital Stock of a
Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary);
(iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment 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) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment described in
clauses (i) through (iv) hereof being herein referred to as a "Restricted
Payment") if at the time the Company or such Restricted Subsidiary makes
such Restricted Payment:
(1) a Default will have occurred and be continuing (or would result
therefrom);
(2) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "--
Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors, whose
determination will be conclusive and evidenced by a resolution of the
Board of Directors) declared or made subsequent to 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 January 1, 1998, to the end
of the most recent fiscal quarter ending at least 45 days prior to
the date of such Restricted Payment, (or, in case such Consolidated
Net Income will be a deficit, minus 100% of such deficit);
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(B) the aggregate Net Cash Proceeds received by the Company from
the issue 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 the Company or an employee stock ownership plan
or other trust established by the Company or any of its
Subsidiaries;
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary)
subsequent to the Issue Date of any Indebtedness of the Company or
its Restricted Subsidiaries issued after the Issue Date that is
convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or
other property distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange); and
(D) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (i) payments of dividends,
repayments of the principal of loans or advances or other transfers
of assets to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase or redemption of Capital Stock of the Company or
Subordinated Obligations made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or other trust established
by the Company or any of its Subsidiaries); provided, however, that (A)
such purchase or redemption will be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale
will be excluded from clause (3)(B) of paragraph (a) above;
(ii) any purchase or redemption of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to paragraph (b) of the covenant described under "--Limitation on
Indebtedness;" provided, however, that such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under "--
Limitation on Sales of Assets and Subsidiary Stock;" provided, however,
that such purchase or redemption will be excluded in the calculation of the
amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that such dividend will be included in the
calculation of the amount of Restricted Payments; or
(v) the repurchase of shares of, or options to purchase shares of, common
stock of the Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company 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 shall not
exceed (Pounds)1.0 million in any calendar year; provided further, however,
that such repurchases shall be excluded in the calculation of the amount of
Restricted Payments.
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Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company will not, and will 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 (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company or any Restricted
Subsidiary, (ii) make any loans or advances to the Company or any Restricted
Subsidiary or (iii) transfer any of its property or assets to the Company or
any Restricted Subsidiary, except:
(1) any encumbrance or restriction arising under applicable law;
(2) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date;
(3) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred in
contemplation of, 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 otherwise acquired by the Company) and
outstanding on such date;
(4) any encumbrance or restriction pursuant to an agreement constituting
Refinancing Indebtedness of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this covenant or this clause (3) or
contained in any amendment to an agreement referred to in clause (1) or (2)
of this covenant or this clause (3); provided, however, that the
encumbrances and restrictions contained in any such refinancing agreement
or amendment are no less favorable to the Noteholders than encumbrances and
restrictions contained in such agreements;
(5) in the case of clause (iii), any encumbrance or restriction (A) that
restricts in a customary manner the subletting, assignment or transfer of
any property or asset that is subject to a lease, license or similar
contract, (B) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of the Company
or any Restricted Subsidiary not otherwise prohibited by the Indenture or
(C) contained in security agreements or mortgages securing Indebtedness of
a Restricted Subsidiary to the extent such encumbrance or restrictions
restrict the transfer of the property subject to such security agreements
or mortgages;
(6) 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; and
(7) Purchase Money Indebtedness and Capital Lease Obligations permitted
by clause (viii) of the covenant described under "--Limitation on
Indebtedness."
Nothing contained in this covenant shall prevent the Company from entering
into any agreement or instrument providing for the incurrence of Permitted
Liens, nor shall this covenant be deemed to restrict the sale or other
disposition of property or assets of the Company or any of its Restricted
Subsidiaries in compliance with the other provisions of the Indenture.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless:
(i) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value of the
shares and assets subject to such Asset Disposition;
(ii) at least 80% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or Cash Equivalents; and
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(iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be):
(A) first, to the extent the Company elects (or is required by the
terms of any Senior Indebtedness or Indebtedness (other than Preferred
Stock) of a Wholly Owned Subsidiary), to prepay, repay or purchase
Senior Indebtedness (other than the Notes) or Indebtedness (other than
Preferred Stock) of a Wholly Owned Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company) within
365 days after the later of the date of such Asset Disposition or the
receipt of such Net Available Cash;
(B) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the Company or
such Restricted Subsidiary elects, to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or
another Restricted Subsidiary) within 365 days from the later of such
Asset Disposition or the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make an
Offer (as defined below) to purchase Notes pursuant to and subject to
the conditions set forth in section (b) of this covenant, and
(D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C), to (x)
acquire Additional Assets (other than Indebtedness and Capital Stock) or
(y) prepay, repay or purchase Indebtedness of the Company (other than
Indebtedness owed to an Affiliate of the Company and other than
Disqualified Stock of the Company) or Indebtedness of any Restricted
Subsidiary (other than Indebtedness owed to the Company or an Affiliate
of the Company), in each case described in this clause (D) within one
year from the receipt of such Net Available Cash or, if the Company has
made an Offer pursuant to clause (C), six months from the date such
Offer is consummated;
provided, however that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A), (C) or (D) above, the
Company or such Restricted Subsidiary will retire such Indebtedness and
will 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 covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available
Cash in accordance with this covenant except to the extent that the aggregate
Net Available Cash from all Asset Dispositions that is not applied in
accordance with this covenant exceeds (Pounds)3.0 million.
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of Indebtedness of the Company (other than Disqualified Stock of
the Company) or any Restricted Subsidiary and the release of the Company or
such Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Disposition and (y) securities received by the
Company or any Restricted Subsidiary from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(C) of this covenant, the Company will be required
to purchase Notes tendered pursuant to an offer by the Company for the Notes
(the "Offer") at a purchase price of 100% of their principal amount plus
accrued interest and Additional Amounts, if any, to the date of purchase (and,
in the case of Definitive Notes, subject to the right of Holders of record on a
record date to receive interest on the relevant interest payment date and
Additional Amounts, if any, in respect thereof) in accordance with the
procedures (including prorationing in the event of oversubscription) set forth
in the Indenture. If the aggregate purchase price of Notes tendered pursuant to
the Offer is less than the Net Available Cash
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allotted to the purchase of the Notes, the Company will apply the remaining
Net Available Cash in accordance with clause (a)(iii)(D) of this covenant. The
Company will not be required to make an Offer for Notes pursuant to this
covenant if the Net Available Cash available therefor (after application of
the proceeds as provided in clauses (A) and (B) of this covenant section
(a)(iii)) is less than (Pounds)3.0 million for any particular Asset
Disposition (which lesser amount will be carried forward for purposes of
determining whether an Offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations, including any securities laws of the U.K. and Luxembourg and the
requirements of the Luxembourg Stock Exchange or any other securities exchange
on which the Notes are listed, to the extent such laws or regulations are
applicable, in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter
into or conduct any transaction (including, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate
of the Company (an "Affiliate Transaction") on terms (i) that are less
favorable to the Company or such Restricted Subsidiary, as the case may be,
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 and (ii) that, in
the event such Affiliate Transaction involves an aggregate amount in excess of
$1.0 million, are not in writing and have not been approved by a majority of
the members of the Board of Directors having no personal stake in such
Affiliate Transaction and who are not employed by or otherwise associated with
such Affiliate. In addition, if such Affiliate Transaction involves an amount
in excess of $5.0 million, a fairness opinion must be provided by an
independent internationally recognized appraisal or investment banking firm.
(b) The provisions of the foregoing paragraph (a) will 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) loans or advances to
employees in the ordinary course of business in accordance with past practices
of the Company or its Subsidiaries, but in any event not to exceed (Pounds)1.0
million in the aggregate outstanding at any one time, (iv) the payment of
reasonable fees and the provision of reasonable indemnities in the ordinary
course of business to directors of and consultants to the Company or its
Subsidiaries who are not employees of the Company or its Subsidiaries, (v) any
transaction between the Company and a Wholly Owned Subsidiary or between
Wholly Owned Subsidiaries, (vi) transactions pursuant to written agreements as
in effect on the Issue Date, (vii) any issuance of Capital Stock by the
Company, and (viii) employment agreements providing for reasonable
compensation and reasonable indemnities in the ordinary course of business.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell any Capital Stock of a Restricted
Subsidiary, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue, sell or otherwise dispose of any of its Capital Stock
except: (i) to the Company or a Wholly Owned Subsidiary, or (ii) if,
immediately after giving effect to such issuance or sale, neither the Company
nor any of its Subsidiaries own any Capital Stock of such Restricted
Subsidiary. The proceeds of any sale of such Capital Stock permitted by
section (ii) above will be treated as Net Available Cash from an Asset
Disposition and must be applied in accordance with the terms of the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist
any Lien, other than Permitted Liens, on any of its
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property or assets (including Capital Stock), whether owned on the Issue Date
or thereafter acquired, securing any obligation, unless contemporaneously
therewith (or prior thereto) effective provision is made to secure the Notes
on an equal and ratable basis with such obligation for so long as such
obligation is so secured; provided, however, that the Company will not permit
any Lien securing any Subordinated Obligation or Preferred Stock of the
Company.
Limitation on Guarantees of Company Indebtedness. The Company will not
permit any Restricted Subsidiary to Guarantee any Indebtedness of the Company
or to secure any Indebtedness of the Company with a Lien on the assets of such
Restricted Subsidiary, unless contemporaneously therewith (or prior thereto)
effective provision is made to Guarantee or secure the Notes, as the case may
be, on an equal and ratable bases with such Guarantee or Lien for so long as
such Guarantee or Lien remains effective, and in an amount equal to the amount
of Company Indebtedness so Guaranteed or secured; provided, however, that any
Guarantee by a Restricted Subsidiary of a Subordinated Obligation of the
Company shall be subordinated and junior in right of payment to the
contemporaneous Guarantee of the Notes by such Restricted Subsidiary; and
provided, further, that the Company will not permit a Restricted Subsidiary to
secure any Subordinated Obligation of the Company or to Guarantee or secure
any Preferred Stock of the Company.
Reports to Holders. Whether or not required by the rules and regulations of
the Commission, the Company shall furnish to the holders of the Notes (i) all
annual and quarterly financial information that would be required to be
contained in a filing with the Commission on Forms 20-F and 10-Q (or any
successor forms) if the Company were required to file such Forms (except that
quarterly financial information need not contain any reconciliation to U.S.
generally accepted accounting principles), including a "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
and, with respect to the annual financial information, a report thereon by the
Company's certified independent accounts and (ii) all information that would
be required to be contained in current reports that would be required to be
filed with the Commission on Form 8-K if the Company were required to file
such reports; provided, however, that (x) such quarterly financial information
may be prepared in accordance with generally accepted accounting principles in
the U.K., shall be furnished within 60 days following the end of each fiscal
quarter of the Company and may be provided in a report on Form 6-K, (y) such
annual financial information shall be furnished within 120 days following the
end of the fiscal year of the Company and (z) such information that would be
required to be contained in a report on Form 8-K may be provided in a report
on Form 6-K. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing). In addition, the Company shall furnish to the
Holders of the Notes and to prospective investors, upon the requests of such
Holders, any information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act so long as the Notes are not freely transferable
under the Act by Persons not "affiliates" under the Securities Act.
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than a Related
Business.
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (a) the Company or such
Subsidiary would be entitled to (i) 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 Indebtedness" and (ii) 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;" (b) the net cash proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are
at least equal to the fair value (as determined in good faith by the Board of
Directors) of such property and (c) the
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transfer of such property is permitted by, and the Company applies the
proceeds of such transaction in compliance with, the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock."
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
will be a corporation organized and existing under the laws of the England and
Wales or the United States of America, any state thereof or the District of
Columbia and the Successor Company (if not the Company) will expressly assume,
by an indenture supplemental to the Indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indenture; (ii) immediately after giving
effect to such transaction (and treating any Indebtedness which becomes an
obligation of the Successor Company or any Restricted Subsidiary as a result
of such transaction as having been Incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default will have
occurred and be continuing; (iii) immediately after giving effect to such
transaction, the Successor Company would be able to Incur an additional $1.00
of Indebtedness under paragraph (a) of the covenant described under "--
Limitation on Indebtedness;" (iv) immediately after giving effect to such
transaction, the Successor Company will have Consolidated Net Worth in an
amount which is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; (v) the Company will 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) the Company will have delivered
to the Trustee opinions of tax counsel reasonably acceptable to the Trustee
stating that (A) 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 (or beneficial owner, if not 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
(B) no other taxes on income (including taxable capital gains) will be payable
under the laws of the U.K. or any other jurisdiction where the Successor
Issuer is or becomes located by a Holder (or beneficial owner, if not a
Holder) who is not and is not deemed to be a resident of the U.K. or other
jurisdiction where the Successor Company is or becomes located and does not
carry on a trade in the U.K. 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, the Company under the Indenture, 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.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (A) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company and (B) the Company may merge with
a Wholly-Owned Subsidiary incorporated solely for the purpose of
reincorporating the Company in another jurisdiction to realize tax or other
benefits.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on or Additional Amounts, if any, with respect to any Note
when due, continued for 30 days, (ii) a default in the payment of principal of
any Note when due at its Stated Maturity, upon redemption, upon required
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repurchase, upon declaration or otherwise, (iii) the failure by the Company to
comply with its obligations under the covenant described under "--Merger and
Consolidation" above, (iv) the failure by the Company to comply for 30 days
after notice with any of its obligations under the covenants described under
"--Change of Control" or "--Certain Covenants" above (in each case, other than
the failure to purchase Notes when required), (v) the failure by the Company
to comply for 60 days after notice with its other agreements contained in the
Notes or the Indenture, (vi) the failure by the Company or any Subsidiary to
pay any Indebtedness within any applicable grace period after final maturity
or the acceleration of any such Indebtedness by the holders thereof because of
a default if the total amount of such Indebtedness unpaid or accelerated
exceeds (Pounds)7.5 million or its foreign currency equivalent (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of the Company or any Subsidiary (the "bankruptcy provisions")
or (viii) the rendering of any judgment or decree for the payment of money in
excess of (Pounds)7.5 million or its foreign currency equivalent against the
Company or any Subsidiary if (A) an enforcement proceeding thereon is
commenced or (B) such judgment or decree remains outstanding for a period of
60 days following such judgment and is not discharged, waived or stayed (the
"judgment default provision").
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body.
However, a Default under clauses (iv) or (v) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the Default and the Company does not
cure such Default within the time specified in clauses (iv) and (v) hereof
after receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Company may declare the principal of
and accrued but unpaid interest and Additional Amounts, if any, on all the
Notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
occurs, the principal of and interest and Additional Amounts, if any, on all
the Notes will become immediately due and payable without any declaration or
other act on the part of the Trustee or any Holders. Under certain
circumstances referred to in the Indenture, 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 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), interest or Additional Amounts, if any, when
due, no Holder 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 of the request 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
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conflicts with law or the Indenture or that the Trustee determines is unduly
prejudicial to the rights of any other Holder or that would involve the
Trustee in personal liability. Prior to taking any action under the Indenture,
the Trustee will be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must give to each Holder notice of the
Default within the earlier of 90 days after it occurs or 30 days after it is
known to the Trustee or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if
any), interest or Additional Amounts, if any, on any Note, the Trustee may
withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding notice is in the interests of the
Noteholders. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within
30 days after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may be waived without
notice to any Holder but with the consent of the Holders of a majority in
principal amount of the Notes then outstanding (in each case, including
consents obtained in connection with a tender offer or exchange offer for the
Notes). However, without the consent of each Holder of an outstanding Note
affected, 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 premium payable upon
the redemption of any Note or change the time at which any Note may be
redeemed as described under "--Optional Redemption" above, (v) make any Note
payable in money other than that stated in the Note, (vi) impair the right of
any Holder to receive payment of principal of and interest and Additional
Amounts, if any, 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 Holder of the Notes or amend
the terms of the Notes in the Indenture in a way that would result in a loss
of an exemption from any of the Taxes described thereunder or an exemption
from any obligation to withhold or deduct Taxes so described thereunder unless
the Company agrees to pay Additional Amounts, if any, in respect thereof.
Without the consent of any Holder, 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 secure the Notes, to add to the covenants of the
Company for the benefit of the Noteholders 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 or to comply with any requirement of the Commission
in connection with the qualification of the Indenture under the TIA.
The consent of the Noteholders 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.
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After an amendment under the Indenture becomes effective, the Company is
required to provide notice of such amendment to Noteholders briefly describing
such amendment. However, the failure to give such notice to all Noteholders,
or any defect therein, will not impair or affect the validity of the
amendment.
NOTICES
Notice regarding the Notes will be (i) if Global Notes are outstanding,
published in a leading newspaper having a general circulation in New York
(which is expected to be the Wall Street Journal) (and, if and so long as the
Notes are listed on the Luxembourg Stock Exchange and the rules of such Stock
Exchange shall so require, a newspaper having general circulation in
Luxembourg (which is expected to be the Luxemburger Wort)) 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 (and if
and 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)). 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. 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
specified in the Indenture. The Company at any time may terminate its
obligations under the covenants described under "--Change of Control," "--
Certain Covenants," the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Subsidiaries and the judgment default
provision described under "--Defaults" above and the limitations contained in
clauses (iii) and (iv) under "--Merger and Consolidation" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto and the Company will not be
required to repurchase the Notes upon a Change of Control. 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 Subsidiaries) or clause (viii) under "--Defaults"
above or because of the failure of the Company to comply with clause (iii) or
(iv) under "--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee cash in Deutsche
Marks or Federal Republic of Germany Obligations for the payment of principal,
premium (if any) 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 Opinions of Counsel to the effect that (i) Holders of the
Notes will not recognize any income, gain or loss for U.S. Federal income tax
purposes or income tax purposes as a result of such deposit and defeasance and
will be subject to U.S. Federal income tax and U.K. income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of
legal defeasance only, such Opinion of Counsel 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), (ii) 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
and (iii) payments
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from the defeasance trust will be free and exempt from any and all withholding
and other income taxes of whatever nature imposed or levied by or on behalf of
the U.K. or any political subdivision thereof or therein having the power to
tax.
WITHHOLDING TAXES
All payments made by the Company on the Notes (whether or not in the form of
Definitive Notes) 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 U.K. or any political subdivision thereof or any authority
having power to tax therein (each a "U.K. Tax Authority"), unless the
withholding or deduction of such Taxes is then required by law. If any
deduction or withholding for, or on account of, any Taxes of any U.K. Tax
Authority shall at any time be required on any payments made by the Company
with respect to the Notes, including payments of principal, redemption price,
interest, liquidated damages or premium, the Company 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 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 U.K. (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 U.K.) 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 (including regulations, administrative
practice or official interpretations thereof) 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 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, which is required or imposed
by a statute, treaty, regulation, protocol, or administrative practice of the
taxing jurisdiction as a precondition to exemption from all or part of such
Taxes;
(iii) except in the case of the winding up of the Company, any Note
presented for payment (where presentation is required) in the U.K. (unless by
reason of the Company's actions 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 the last day of 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 clauses (i) to (iv) inclusive
above.
Upon request, the Company will provide the Trustee with documentation
satisfactory to the Trustee evidencing the payment of Additional Amounts.
Copies of such documentation will be made available to the Holders upon
request.
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The Company 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 or any other document or instrument referred to therein, or the receipt
of any payments with respect to the Notes, excluding any such taxes, charges
or similar levies imposed by any jurisdiction outside of the U.K., 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.
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar (in the case of Definitive Notes) and
Paying Agent with regard to the Notes.
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.
CURRENCY INDEMNITY
Deutsche Marks is the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes, including
damages. Any amount received or recovered in a currency other than Deutsche
Marks (whether as a result of, or the enforcement of, a judgment or order of a
court of any jurisdiction, in the winding-up or dissolution of the Company or
otherwise) by any holder of a Note in respect of any sum expressed to be due
to it from the Company shall only constitute a discharge to the Company to the
extent of the Deutsche Mark amount which the recipient is able to purchase
with the amount so received or recovered in that other currency on the date of
that receipt or recovery (or, if it is not practicable to make that purchase
on that date, on the first date on which it is practicable to do so). If that
Deutsche Mark amount is less than the Deutsche Mark amount expressed to be due
to the recipient under any Note, the Company shall indemnify the recipient
against any loss sustained by it as a result. In any event, the Company shall
indemnify the recipient against the cost of making any such purchase. For the
purposes of this paragraph, the holder of a Note shall certify in a
satisfactory manner to the Trustee (indicating the sources of information
used) that it would have suffered a loss had an actual purchase of Deutsche
Marks been made with the amount so received in that other currency on the date
of receipt or recovery (or, if a purchase of Deutsche Marks on such date had
not been practicable due to currency market conditions generally, on the first
date on which it would have been practicable, it being required that the need
for a change of date be certified in the manner mentioned above). These
indemnities constitute a separate and independent obligation from the
Company's other obligations, shall give rise to a separate and independent
cause of action, shall apply irrespective of any indulgence granted by any
holder of a Note and shall continue in full force and effect despite any other
judgement, order, claim or proof for a liquidated amount in respect of any sum
due under any Note. But see "--Substitution of Currency."
CERTAIN DEFINITIONS
"Additional Assets" means (i) any tangible property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary 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; (iii) Capital Stock
constituting a minority interest in any Person that at such time is a
Restricted Subsidiary; or (iv) any reimbursement to the Company or its
Restricted Subsidiaries for expenditures made, and costs incurred, to repair,
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rebuild, replace or restore property subject to loss, damage or taking to the
extent that the Net Proceeds consist of insurance proceeds received on account
of such loss, damage or taking; 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 Transactions with Affiliates" and "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
"Affiliate" shall also mean any beneficial owner of shares representing 5% or
more of the total voting power of the Voting Stock (on a fully diluted basis)
of the Company or of rights or warrants to purchase such Voting 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, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the
purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of inventory in
the ordinary course of business, (iii) the disposition of all or substantially
all of the assets of the Issuer in the manner permitted pursuant to the
provisions described under the caption "--Merger and Consolidation," (iv) for
purposes of the provisions described under "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock" only, a disposition subject to the
covenant described under "--Certain Covenants Limitation on Restricted
Payments," (v) grant of a non-exclusive license of intellectual property in
the ordinary course of business, (vi) the surrender or waiver of contract
rights or settlement, release of surrender of tort or other claims and (vii)
the sale or other disposition of the Leicester Plant, other than to an
Affiliate of the Company.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Credit Agreement, the other Senior Credit Documents and any Refinancing
Indebtedness with respect thereto, as amended from time to time, including
principal, premium (if any), interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees
and all other amounts payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
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"Borrowing Base" means as of any date, an amount equal to the sum of (i) 60%
of the aggregate book value of inventory plus (ii) 85% of the aggregate book
value of all accounts receivable (net of bad debt reserves) of the Company and
its Restricted Subsidiaries on a Consolidated basis, as determined in
accordance with U.K. GAAP consistently applied less (iii) the outstanding
principal amount of all Indebtedness that is permitted to be outstanding by
virtue of clause (iv) of the covenant described under "--Limitation on
Indebtedness," including any Refinancing Indebtedness in respect thereof. To
the extent that information is not available as to the amount of inventory or
accounts receivable as of a specific date, the Company shall use the most
recent available information for purposes of calculating the Borrowing Base.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in Luxembourg, the State of New York, Frankfurt or
London or a place of payment are authorized or required by law to close.
"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.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with U.K. GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with U.K. GAAP; and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the government of the United States or the U.K. or
any agency or instrumentality thereof, having maturities of not more than one
year from the date of acquisition; (ii) marketable general obligations issued
by any state of the United States of America or any political subdivision of
any such state or any public instrumentality thereof maturing within one year
from the date of acquisition thereof and, at the time of acquisition thereof,
having a credit rating of "A" or better from either Standard & Poor's Ratings
Service, a division of the McGraw-Hill Companies, Inc., or Moody's Investors
Service, Inc.; (iii) certificates of deposit, time deposits, eurodollar time
deposits, overnight bank deposits or bankers' acceptances having maturities of
not more than one year from the date of acquisition thereof issued by any
commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard &
Poor's Ratings Service, a division of the McGraw-Hill Companies, Inc., or "A"
or the equivalent thereof by Moody's Investors Service, Inc., and having
capital and surplus in excess of $500 million; (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (i), (ii) and (iii) entered into with any bank meeting
the qualifications specified in clause (iii) above; (v)commercial paper rated
at the time of acquisition thereof at least "A-2" or the equivalent thereof by
Standard & Poor's Ratings Service, a division of the McGraw-Hill Companies,
Inc., or "P-2" or the equivalent thereof by Moody's Investors Service, Inc.,
or carrying an equivalent rating by a nationally recognized rating agency, if
both of the two named rating agencies cease publishing ratings of investments,
and in either case maturing within 270 days after the date of acquisition
thereof; and (vi) interests in any investment company which invests solely in
instruments of the type specified in clauses (i) through (v) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Texon International plc, a public limited company
incorporated under the laws of England and Wales.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination in respect of the most recent such quarter to
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(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, (B) if since the beginning of such
period the Company or any Restricted Subsidiary shall have made any Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets that are the
subject of such Asset Disposition for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for such
period and Consolidated Interest Expense for such period shall be reduced by
an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
the Company and its continuing Restricted Subsidiaries are no longer liable
for such Indebtedness after such sale), (C) if since the beginning of such
period the Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person that
becomes a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all
of an operating unit of a business, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period and (D) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition or
any Investment or acquisition of assets that would have required an adjustment
pursuant to clause (B) or (C) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment or acquisition of assets occurred on the
first day of such period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings related thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro
forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company after consultation with the
independent certified public accountants of the Company. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term as at
the date of determination in excess of 12 months).
"Consolidated Current Liabilities" means, as of any date of determination,
the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), on a consolidated basis,
after eliminating (a) all intercompany items between the Company and any
Restricted Subsidiary and (b) all current maturities of long-term
Indebtedness, all as determined in accordance with U.K. GAAP consistently
applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries, plus, to the extent
Incurred by the Company and its Restricted Subsidiaries in such period but not
included in such interest expense, (i) interest expense attributable
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to Capitalized Lease Obligations and Attributable Debt, (ii) amortization of
debt discount and debt issuance cost, (iii) capitalized interest, (iv) noncash
interest expense, (v) commissions, discounts and other fees and charges with
respect to letters of credit (other than with respect to trade letters of
credit in the ordinary course of business) and bankers' acceptance financing,
(vi) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by the Company or any Restricted Subsidiary;
provided that payment of such amounts by the Company or any Restricted
Subsidiary is being made to, or is sought by, the holders of such Indebtedness
pursuant to such Guarantee, (vii) net costs associated with Hedging
Obligations (including amortization of fees), other than costs associated with
Currency Agreements made to hedge currency exposure in connection with trade
receivables or payables and purchases of supplies in the ordinary course of
business, (viii) payments in respect of Preferred Stock of Restricted
Subsidiaries of the Company or Disqualified Stock of the Company held by
Persons other than the Company or a Wholly Owned Subsidiary, and (ix) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust; provided, however, that there shall be
excluded therefrom any such interest expense of any Unrestricted Subsidiary to
the extent the related Indebtedness is not Guaranteed or paid by the Company
or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any Person if such Person is not a Restricted Subsidiary, except
that (A) subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income; (ii) any
net income (loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of other distributions (whether of capital or by
means of intercompany loans, advances or transfers) by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject to
the limitations contained in clause (iv) below, the Company's equity in the
net income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend or other distribution
(whether of capital or by means of an intercompany loan, advance or transfer)
(subject, in the case of a dividend or other distribution that could have been
made to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain or loss realized upon the sale or other disposition
of any asset of the Company or its consolidated Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) that is not sold or otherwise
disposed of in the ordinary course of business and any gain (but not loss)
realized upon the sale or other disposition of any Capital Stock of any
Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of
a change in accounting principles. Notwithstanding the foregoing, for the
purpose of the covenant described under "Certain Covenants--Limitation on
Restricted Payments" only, there shall be excluded from Consolidated Net
Income any dividends, repayments of loans or advances or other transfers of
assets from Unrestricted Subsidiaries to the Company or a Restricted
Subsidiary to the extent such dividends, repayments or transfers increase the
amount of Restricted Payments permitted under such covenant pursuant to clause
(a)(3)(D) thereof.
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"Consolidated Net Tangible Assets" means, as of any date of determination,
the sum of the amounts that would appear on a consolidated balance sheet of
the Company and its consolidated Restricted Subsidiaries as the total assets
(less accumulated depreciation and amortization, allowances for doubtful
receivables, other applicable reserves and other properly deductible items) of
the Company and its consolidated Restricted Subsidiaries, determined on a
consolidated basis in accordance with U.K. GAAP consistently applied, and
after deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of (without duplication): (a) the excess of
cost over fair market value of assets or businesses acquired; (b) any
revaluation or other write-up in book value of assets subsequent to the last
day of the fiscal quarter of the Company immediately preceding the Issue Date
as a result of a change in the method of valuation in accordance with U.K.
GAAP; (c) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items; (d) minority interests in consolidated Subsidiaries held by
Persons other than the Company or a Restricted Subsidiary; (e) treasury stock;
(f) cash set aside and held in a sinking or other analogous fund established
for the purpose of redemption or other retirement of Capital Stock to the
extent such obligation is not reflected in Consolidated Current Liabilities;
and (g) Investments in and assets of Unrestricted Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and the Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated
value of all outstanding Capital Stock of the Company plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B)
any amounts attributable to Disqualified Stock.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with U.K. GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in a Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Corporate Trust Office" means the office at which the Trustee's corporate
trust business is principally administered, which at the date hereof is
located at 101 Barclay Street, Floor 21 West, New York, NY 10286.
"Credit Agreement" means the Credit Agreement as amended, waived or
otherwise modified from time to time, to be executed by and among the Company,
Chase Manhattan plc, The Chase Manhattan Bank and Chase Manhattan
International Limited (except to the extent that any such amendment, waiver or
other modification thereto would be prohibited by the terms of the Indenture,
unless otherwise agreed to by the Holders of at least a majority in aggregate
principal amount of Notes at the time outstanding).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default, all as described under "Defaults" above.
"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 exercisable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes.
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"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense and (iv) amortization expense, in each case for such
period. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary
of the Company shall be added to Consolidated Net Income to compute EBITDA
only to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Republic of Germany Obligations" means securities that are direct
and unconditional obligations of the Federal Republic of Germany or any of its
states (Bundeslander), as defined in Section 1807 No. 2 of the German Civil
Code (Burgerliches Gesetzbuch), as from time to time amended, and are not
callable or redeemable at the option of the issuer thereof.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any other 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
other Person (whether arising by virtue of partnership arrangements, or by
agreement 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 purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation 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.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means (i) in the case of Global Notes, the bearer
thereof which will initially be the Book-Entry Depositary and (ii) in the case
of Definitive Notes, the Person in whose name a Note is registered on the
Registrar's books.
"Incur" means to 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 Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Person at the time it becomes a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto); (iv)
all obligations of such Person to pay the deferred and unpaid purchase price
of property or services (except Trade Payables), which purchase price is due
more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services; (v) all
Capitalized Lease Obligations and all Attributable Debt of such Person; (vi)
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 the Company, the maximum liquidation preference (or, if
greater, maximum mandatory redemption or repurchase price) with respect to any
Preferred Stock (but excluding, in each case, any accrued dividends except to
the extent such dividends increase such preference (or price)); (vii) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person;
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provided, however, that the amount of Indebtedness of such Person shall be the
lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and (ix) 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.
"Initial Purchasers" means Chase Manhattan Bank AG, Chase Securities Inc.
and Chase Manhattan International Limited.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement as to which such Person is party or a beneficiary.
"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 such Person) or other
extension 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" and the covenant described under "--
Certain Covenants--Limitation on Restricted Payments," (i) "Investment" shall
include the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of any Subsidiary of
the Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a redesignation of such Subsidiary as
a Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the
time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Leicester Plant" means the real property and related equipment owned by
Texon UK Limited located in Leicester, England.
"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
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise) but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of (i) all 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 paid or accrued as a liability under U.K. 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 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
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the proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition, (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with U.K. GAAP, against any liabilities associated with the assets disposed of
in such Asset Disposition and retained by the Company or any Restricted
Subsidiary after such Asset Disposition and (v) any portion of the purchase
price from an Asset Disposition placed in escrow (whether as a reserve for
adjustment of the purchase price, for satisfaction of indemnities in respect
of such Asset Disposition or otherwise in connection with such Asset
Disposition); provided, however, that upon the termination of such escrow, Net
Available Cash shall be increased by any portion of funds therein released to
the Company or any Restricted Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the proceeds in cash or Cash Equivalents 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 or expenses
actually incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Officer" means the Chairman of the Board, the Chief Executive, the Finance
Director, any executive director or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. Unless otherwise required by the TIA, the counsel
may be an employee of or counsel to the Company or the Trustee.
"Permitted Holders" means Apax Ventures IV, Apax Ventures IV International
Partners L.P., Apax European Buy-In Fund International Partners L.P., Apax
European Buy-In Fund, Apax CR III or Chase Equity Associates L.P., any of
their respective Affiliates, and any limited partnership, investment trust or
investment fund which in each case is managed or advised by any of Apax
Partners & Co. Strategic Investors Limited, Apax Partners & Co. Ventures
Limited and Chase Capital Partners or any of their respective Affiliates; and
any Person acting in the capacity of an underwriter in connection with a
public or private offering of the Company's Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; provided, however,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade
terms; provided, however, that such trade terms may include such concessionary
trade terms as the Company or any such Restricted Subsidiary deems reasonable
under the circumstances; (v) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary and not exceeding (Pounds)1.0 million in the aggregate
outstanding at any one time; (vii) stock, obligations or securities received
in settlement of debts created in the ordinary course of business and owing to
the Company or any Restricted Subsidiary or in satisfaction of judgments;
(viii) a joint venture or other entity principally engaged in a Related
Business, provided, however, that the aggregate amount of all such Investments
under this clause (viii) shall not exceed (Pounds)2.0 million; and (ix) any
Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition
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as permitted pursuant to the covenant described under "--Certain Covenants--
Limitation on Sales of Assets and Subsidiary Stock."
"Permitted Liens" means, with respect to any Person, (a) pledges or deposits
by such Person under workmen's compensation laws, unemployment insurance 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 United States government
bonds to secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes, assessments, governmental charges or
claims or import duties or for the payment of rent, government contracts,
performance and return of money bonds and other obligations of a like nature,
in each case Incurred in the ordinary course of business; (b) Liens imposed by
law, such as carriers', warehousemen's, landlord's, suppliers', materialmen's,
repairmen's and mechanics' Liens, in each case for sums not yet due or being
contested in good faith by appropriate proceedings 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 property taxes not yet due or payable or subject to penalties for
non-payment and which are being contested in good faith and by appropriate
proceedings; provided that any reserve or other appropriate provision required
in accordance with U.K. GAAP shall have been made therefor; (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;
(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 properties 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; provided,
however, that the Lien may not extend to any other property owned by the
Company or any Restricted Subsidiary at the time the Lien is Incurred, and the
Indebtedness secured by the Lien may not be Incurred more than 365 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 existing on the Issue Date; (h) Liens on property or shares of
stock of a Person at the time such Person becomes a Subsidiary; provided,
however, 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 Liens may not extend to any other property owned
by the Company or any Restricted Subsidiary; (i) Liens on property at the time
the Company or a Restricted Subsidiary acquired the property, including any
acquisition by means of a merger or consolidation with or into the Company or
any Restricted Subsidiary; provided, however, that such Liens are not created
or Incurred in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other property
owned by the Company or any Restricted Subsidiary; (j) Liens securing
Indebtedness or other obligations of a Restricted Subsidiary owing to the
Company or a Wholly Owned Subsidiary; (k) Liens securing Hedging Obligations
so long as the related Indebtedness is, and is permitted to be under the
Indenture, secured by a Lien on the same property securing such Hedging
Obligations; (l) Liens to secure any refinancing, refunding, extension,
renewal or replacement (or successive refinancings, refundings, extensions,
renewals or replacements) as a whole, or in part, of any Indebtedness secured
by any Lien referred to in the foregoing clauses (f), (g), (h) and (i);
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 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), (g), (h) or (i) at the time the original Lien became a Permitted
Lien under the Indenture and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement; (m) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (n) judgment and attachment Liens
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not giving rise to an Event of Default; (o) leases or subleases granted to
others in the ordinary course of business; (p) Liens arising out of
consignment or similar arrangements for the sale of goods entered into by the
Company or its Restricted Subsidiaries in the ordinary course of business; (q)
Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (r) Liens granted by the Company on the stock of United
Texon Limited securing Indebtedness of the Company under the Revolving
Facility; (s) Liens granted by the Company securing Indebtedness of the
Company permitted under clauses (b) (iii) or (viii) of "Certain Covenants--
Limitations on Indebtedness," or securing Refinancing Indebtedness in respect
thereof; (t) Liens securing Indebtedness (other than Preferred Stock) of a
Restricted Subsidiary permitted under clause (a) or clauses (b)(i), (iv), (v),
(vi), (vii), (viii) or (ix) of "Certain Covenants--Limitations on
Indebtedness" and (u) Liens securing aggregate Indebtedness outstanding from
time to time not in excess of 10.0% of Consolidated Net Tangible Assets.
"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 corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
ordinary shares of the Company pursuant (i) to an effective registration
statement under the Securities Act or (ii) a placement outside the United
States involving the distribution of an offering circular to at least 100 bona
fide prospective purchasers and listing of such ordinary shares on the
Luxembourg Stock Exchange or other Recognized Stock Exchange (a "Qualified
Placement").
"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii)at least 15% of the total issued and outstanding ordinary
shares of the Company has been distributed by means of an effective
registration statement under the Securities Act or a Qualified Placement.
"Purchase Agreement" means the agreement for the purchase of DM 245 million
principal amount of Senior Notes between the Company and the Initial
Purchasers dated January 27, 1998.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligation
under any title retention agreement and other purchase money obligations with
respect to the acquisition of an asset in the ordinary course of business, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Restricted Subsidiary of such
asset, including additions and improvements; provided, however, that any Lien
arising in connection with any such Indebtedness shall be limited to the
specified asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property on which such asset is
attached; and provided further, that such Indebtedness is Incurred within 180
days after such acquisition by the Company or Restricted Subsidiary of such
asset and does not exceed the lesser of the fair market value or the purchase
price of such asset.
"Recognized Stock Exchange" means a recognized stock exchange within the
meaning of Section 841 of the U.K. Income and Corporation Taxes Act of 1988.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively,
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"refinances," and "refinanced" shall have a correlative meaning) any
Indebtedness existing on the date of the Indenture or Incurred in compliance
with the Indenture (including Indebtedness of the Company that refinances
Indebtedness of any Restricted Subsidiary (to the extent permitted in the
Indenture) and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (i) the
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being refinanced, (ii) the 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 is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if issued with original issue discount, the aggregate accreted
value) then outstanding of the Indebtedness being refinanced; provided
further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Restricted Subsidiary that refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Company and the Restricted Subsidiaries as conducted on
the Issue Date.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Revolving Facility" means the Revolving Facility under the Credit Agreement
(as defined therein).
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person, other than leases between the Company and a Wholly
Owned Subsidiary or between Wholly Owned Subsidiaries.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Credit Documents" means the collective reference to the Credit
Agreement and the Security Documents (as defined in the Credit Agreement).
"Senior Indebtedness" means all Indebtedness of the Company including
principal of, premium (if any), accrued interest (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization
relating to the Company whether or not a claim for post-filing interest is
allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and other amounts owing with respect to such
Indebtedness, whether outstanding on the Issue Date or thereafter Incurred,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that the obligations constituting such
Indebtedness are not superior in right of payment to the Notes; provided,
however, that Senior Indebtedness shall not include (i) any obligation of the
Company to any Subsidiary of the Company, (ii) any liability for taxes owed or
owing by the Company, (iii) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (iv) any Indebtedness or
obligation of the Company which is subordinate or junior in any respect to any
other Indebtedness or obligation of the Company, including any Subordinated
Obligations, (v) any obligations with respect to any Capital Stock, or (vi)
any Indebtedness Incurred in violation of the Indenture.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant
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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 beyond the control of the issuer unless such
contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" of any Person means 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 U.K. or the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or
the U.K. or any agency thereof, (ii) investments in time deposit accounts,
certificates of deposit and money market deposits maturing within 180 days of
the date of acquisition thereof issued by a bank or trust Company which is
organized under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States of America having capital,
surplus and undivided profits aggregating in excess of $250,000,000 (or the
foreign currency equivalent thereof) and whose long-term debt 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 the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard and Poor's Ratings Service, a division
of The McGraw-Hill Companies, Inc. ("S&P"), and (v) investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States
of America, or by any political subdivision or taxing authority thereof, and
rated at least "A" by S&P or "A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa -77bbbb)
as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions" means the establishment of and initial drawings under the
Revolving Facility, the Offering and the Acquisition (including the use of the
proceeds of such financings and the payment of related fees and expenses).
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means any Vice President or any other officer or assistant
officer of the Trustee assigned by the Trustee to the Corporate Trust Office
to administer its corporate trust matters.
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"U.K. GAAP" means accounting principles and practices generally accepted in
the U.K. and approved by the Institute of Chartered Accountants of England and
Wales or other applicable authority, as in effect on the Issue Date. All
ratios and comparisons contained in the Indenture shall be computed in
conformity with U.K. GAAP.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness
of, or owns or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total consolidated assets of (Pounds)10,000 or less or (B) if
such Subsidiary has consolidated assets greater than (Pounds)10,000, then such
designation would be permitted under the covenant entitled "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) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"--Limitation on 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 or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned
by the Company or another Wholly Owned Subsidiary.
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DESCRIPTION OF THE NOTE DEPOSITARY AGREEMENT
GENERAL
The Exchange Notes will be represented initially by the Global Exchange
Note, which will be issued in bearer form without coupons and which will
represent the aggregate principal amount of the outstanding Exchange Notes.
The Global Exchange Note will be deposited with The Bank of New York, 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 Exchange 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 the Company upon request.
Upon confirmation by DTC that the Book-Entry Depositary has custody of the
Global Exchange Note and upon acceptance by DTC of the certificateless
depositary interest pursuant to the Letter of Representations, DTC will record
beneficial interests in the Global Exchange Note. Book-Entry Interests will be
recorded in denominations of DM 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 (with respect to interests of its Participants) and on the
records of Participants or Indirect Participants (with respect to interests of
Indirect Participants). The laws of some 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 Exchange 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 Exchange Note for all purposes under the Indenture.
Except as set forth below under "--Issuance of Definitive Notes," Participants
or Indirect Participants will not be entitled to have Exchange Notes or Book-
Entry Interests registered in their names, will not receive or be entitled to
receive physical delivery of Exchange 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 and, Indirect Participants
must rely on the procedure of the Participants 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 Exchange 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 interest 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.
Purchasers of beneficial interests in the Exchange Notes will hold their
beneficial interests in the Global Exchange Note. Investors may hold their
beneficial interest in the Global Exchange Note directly through DTC, if they
are participants in such system, or indirectly through organizations which
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are participants in such system. All interests in the Global Exchange Note,
including those held through Euroclear Operator or Cedel, may be subject to
the procedures and requirements of DTC. Those interests held through the
Euroclear Operator or Cedel may also be subject to the procedures and
requirements of such system.
Although DTC, the Euroclear Operator and Cedel have agreed to certain
procedures to facilitate transfers of beneficial interests in the Global
Exchange 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 the Company, 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 THE GLOBAL EXCHANGE NOTE
Payment of principal of and interest on, and any other amount due in respect
of, the Global Exchange Note will be made to the Book-Entry Depositary, as the
Holder thereof. All such amounts will be payable, by a Paying Agent located
outside of the United Kingdom, in Deutsche Marks or U.S. 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 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 Notes--Withholding Taxes," such Additional Amounts
will be paid by the Company to the Book-Entry Depositary as may be necessary
in order that the net amounts received by the Holder of the Global Exchange
Note or owners of Book-Entry Interests after such deduction or withholding
shall be not less than the amounts specified in such Exchange Note to which
such Holder or owner is entitled. DTC, upon receipt of any payment from the
Book-Entry Depositary, 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. The Company 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. None of the Company, the Trustee, the Book-Entry Depositary or
any other agent of the Company, 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 Participants's ownership of Book-Entry
Interests or for maintaining, supervising or reviewing any records relating to
a Participants's ownership of Book-Entry Interests.
To the extent that any holder of Book-Entry Interests has not made an
election to receive payments in Deutsche Marks in respect of any payment of
principal or interest, the aggregate amount designated for all such holders of
Book-Entry Interests in respect of such payment (the "DM Conversion Amount")
will be converted by the Paying Agent into U.S. dollars and paid to or as
directed by the Book-Entry Depositary for payment through DTC's settlement
system to its relevant Participants. All costs of any such conversion and any
wire transfers will be deducted from such payments. Any such conversion shall
be based on The Bank of New York's bid quotation, at or prior to 11:00 a.m.
New York time, on the second New York Business Day preceding the relevant
payment date, for the purchase by the Paying Agent of the DM Conversion Amount
of U.S. dollars for settlement on such payment date. If such bid quotation is
not available for any reason, the Paying Agent will endeavor to obtain a bid
quotation from a leading foreign exchange bank in New York City selected by
the Paying Agent for such purpose. If no bid quotation from a leading foreign
exchange bank is
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available, payment of the DM Conversion Amount will be made in Deutsche Marks
to or as directed by the Book-Entry Depositary for distribution to the account
or accounts specified by DTC to the Book-Entry Depositary.
INFORMATION REGARDING DTC, THE EUROCLEAR OPERATOR AND CEDEL
DTC, the Euroclear Operator and Cedel have advised the Company 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 Purchaser), 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 world-wide 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.
The Company understands that under existing industry practices, if either
the Company 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 the Global Exchange Note (or a portion thereof) is redeemed,
the Book-Entry Depositary will deliver all amounts received by it in respect
of the redemption of the Global Exchange Note to DTC and surrender such Global
Exchange Note to the Trustee for cancellation or, in the case
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of a partial redemption, endorsement to reflect the reduction in the principal
amount of the Global Exchange Note equal to the principal amount redeemed. 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 Exchange Note (or portion
thereof). For any redemptions of the Global Exchange 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 DM 1,000 principal amount or less shall be redeemed in
part. Once redeemed in part, a new Global Exchange 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 Exchange Note 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 Interests (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 the Company with 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 the Company 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 instruction
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, the Company, 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
NOTES AS SET FORTH UNDER "CERTAIN INCOME TAX CONSIDERATIONS--MATERIAL U.K. 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, such Holder
will be entitled to receive Additional Amounts with respect to such Notes. See
"Description of Exchange Notes--Withholding Taxes."
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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 the Company may require a
Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Exchange
Notes selected for redemption or for a period of 15 days before a selection of
Exchange Notes to be redeemed. If Definitives Notes are issued, the Company
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 EXCHANGE 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 Exchange 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 Exchange 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 Exchange
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 Exchange 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 the Company, the Global Exchange Note 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 Exchange Notes. All notices regarding the Exchange Notes will be
(i) in the case of the Global Exchange Note, published in a leading newspaper
having a general circulation in New York (which is expected to be the Wall
Street Journal) (and if and so long as the Exchange Notes are listed on the
Luxembourg Stock Exchange and the rules of such Stock Exchange shall so
require, a newspaper having a general circulation in Luxembourg (which is
expected to be The Luxemburger Wort)) 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 (and if and so long as the
Notes are listed on the Luxembourg Stock Exchange and the rules of such Stock
Exchange shall to require, published in a newspaper having a general
circulation in Luxembourg (which is expected to be The Luxemburger Wort)).
ACTION BY BOOK-ENTRY DEPOSITARY
Subject to certain limitations, upon the occurrence of a default with
respect to the Exchange Notes, or in connection with any other right of the
Holder of the Global Exchange Note 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.
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CHARGES OF BOOK-ENTRY DEPOSITARY
The Company has agreed to pay all charges of the Book-Entry Depositary under
the Note Depositary Agreement. The Company has also agreed to indemnify the
Book-Entry Depositary against certain liabilities incurred by it under the
Note Depositary Agreement.
AMENDMENT AND TERMINATION
The Note Depositary Agreement may be amended by agreement among the Company
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 the
Company; (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 TIA; 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 Exchange 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 the Company and the Trustee.
The Company 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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TAX CONSIDERATIONS
MATERIAL U.K. TAX CONSEQUENCES
The following discussion represents the opinion of Dickson Minto W.S. as to
the material U.K. tax consequences of the receipt, ownership, and disposition
of Exchange Notes received in exchange for Old Notes pursuant to the Exchange
Offer. Except where noted, it relates only to the position of persons who are
the absolute beneficial owners of their Notes and may not apply to special
situations, such as those of dealers in securities. Furthermore, the
discussion below is generally based upon the provisions of the U.K. tax laws
and U.K. Inland Revenue practice as in effect on the date hereof, and such
provisions may be repealed, revoked or modified so as to result in U.K. tax
consequences different from those discussed below. Persons considering the
exchange of Old Notes pursuant to the Exchange Offer should consult their own
tax advisers concerning U.K. tax consequences in light of their particular
situations as well as any consequences arising under the law of any other
relevant tax jurisdiction (including the application of any relevant double
taxation treaty). No representations with respect to the tax consequences to
any particular holder of Book-Entry Interests are made hereby.
It should be noted that the U.K. Inland Revenue announced on November 18,
1997 that the arrangements under which quoted Eurobond interest is received
from U.K. collecting agents without income tax being deducted will be reviewed
after December 9, 1998.
Taxation of Interest. While the Notes continue to be in bearer form and are
listed on a recognized stock exchange (as defined by section 841 Taxes Act
1988) interest on the Notes may be paid without withholding for income tax
provided:
(a) the person by or through whom the payment is made is not in the U.K.;
(b) the payment is made by or through a person who is in the U.K. and
either of the following requirements is met
(i) the person receiving the interest is beneficially entitled to the
interest, beneficially owns the Notes and is not resident in the U.K.
for tax purposes; or
(ii) the Notes are held within a recognized clearing system within
the meaning of section 841A Taxes Act 1988 (The Euroclear Operator and
Cedel have each been designated as a recognized clearance system for
this purpose)
and the person by or through the payment is made has received a declaration
to that effect in the form required by law and the Inland Revenue has not
issued a notice to the person by or through the payment is made stating
that they consider that the above conditions have not been satisfied.
If the above requirements are not satisfied, interest will be paid under
deduction of income tax at the lower rate (currently 20%) subject to any
direction to the contrary by the Inland Revenue in respect of any relief which
may be available pursuant to the provisions of any applicable double taxation
treaty.
If the Notes cease to be represented by the Global Exchange Note and
Definitive Notes are issued interest on the Definitive Notes will be paid
under deduction of income tax.
Where a U.K. collecting agent (except by means of clearing of a cheque or
arranging for the clearing of the cheque):
(a) 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
(b) collects or secures payment of or receives interest on the Notes for
a Noteholder; or
(c) otherwise acts for another person in arranging the collection of
securing payment of interest on the Notes
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then the collecting agent will be liable to account for U.K. income tax at the
lower rate (currently 20%) unless:
(i) 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 the declaration in the form required by law is
obtained; or
(ii) the relevant Notes are held in a recognized clearing system for
which the collecting agent is a depository; or
(iii) the person beneficially entitled to the interest is not resident in
the U.K. and beneficially owns the relevant Notes or is specified by
regulation; or
(iv) the interest arises to trustees not resident in the U.K. of certain
discretionary or accumulation trusts where none of the beneficiaries of the
trust is resident in the U.K.; or
(v) the person beneficially entitled to the interest is eligible for
certain relief's from tax in respect of the interest; or
(vi) the interest falls to be treated as income of, or of the government
of, a sovereign power or of certain international organizations.
A declaration in the form required by law needs to be provided in the cases
of clauses (iii) to (vi) in order for the interest to be paid with
withholding.
The interest on a Note is derived from the U.K. and accordingly will be
chargeable to U.K. tax by direct assessment even if the interest is paid
without deduction. Interest on the Notes received without deduction or
withholding will not be chargeable to U.K. income tax in the hands of a holder
of a Note who is not resident in the U.K. unless the holder of the Note
carries on a trade, profession or vocation within the U.K. through a UK branch
or agency in connection with which the interest is received or to which the
Notes are attributable.
There are certain exemptions for interest received by certain categories or
agencies (such as some brokers and investment managers).
Where interest on the Notes has been paid under deduction of lower rate
income tax (currently 20%) Noteholders which are not resident in the U.K. may
be able to recover all or part of the tax deducted if there is an appropriate
provision under an applicable double taxation treaty between the country in
which they are resident for tax purposes and the U.K. A United States holder
who is entitled to the benefit of the U.S./U.K. double taxation treaty would
normally be able to recover in full for any tax withheld by making the
appropriate claim. A claim may be made by a United States holder prior to the
interest being paid and if accepted the Inland Revenue will authorize
subsequent payments to be made without withholding. In the case of an advance
claim such a claim should be made well in advance of the interest payment date
and in the case of a claim for repayment well before the end of the
appropriate limitation period (being six years after the end of the U.K. year
of assessment to which the interest relates).
Taxation of Accrued Income. A transfer or exchange of a Note by a non
corporate Noteholder resident or ordinarily resident in the U.K. or carrying
on a trade in the U.K. through a branch or agency with which the ownership of
the Notes is connected or attributable may give rise to a charge to income tax
in respect of an amount representing interest on the Note which has accrued
since the last interest payment date.
Corporate Noteholders who are within the U.K. charge to corporation tax will
not be taxed in this way. Corporate Noteholders who are within the U.K. charge
to corporation tax are generally charged to tax in each accounting period by
reference to the interest accrued in that period in accordance with an
authorized accruals or mark to market basis of accounting.
Capital Gains. A disposal or exchange of a Note by a non corporate
Noteholder who is resident or ordinarily resident for tax purposes in the U.K.
or carries on the trade profession or vocation in the U.K.
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through a branch or agency to which the Note is attributable or connected may
give rise to a chargeable gain or allowable loss for the purposes of taxation
of chargeable gains. In the event that the Noteholder receives a premium on
redemption the premium should be treated as a capital receipt. As the Notes
are issued in a currency other than sterling, in order to calculate any
chargeable gain it will be necessary for a person liable to U.K. tax and
chargeable gains to prepare the pound sterling value of the Notes at
acquisition and disposal. Any difference may give rise to a gain or a loss for
tax purposes.
Corporate Noteholders who are within the charge to a corporation tax will be
taxed and relieved on their Notes in accordance with an authorized accruals or
mark to market basis of accounting. Foreign exchange gains and losses in
respect of the Notes held by such a company will be taxed and relieved as
income for U.K. corporation tax purposes in accordance with the company's
accounts.
Stamp Duty And Stamp Duty Reserve Tax. No U.K. stamp duty or stamp duty
reserve tax is payable on the issue or transfer of the Global Exchange Note or
on the issue or transfer of a Definitive Note.
UNITED STATES TAX CONSIDERATIONS
The following discussion represents the opinion of Mayer, Brown & Platt as
to the material U.S. federal income tax consequences of the receipt, ownership
and disposition of Exchange Notes received by U.S. Holders (as defined below)
in exchange for Old Notes pursuant to the Exchange Offer. The discussion is
not a complete analysis or description of all potential tax consequences to
such holders and does not address all tax considerations that may be relevant
to all categories of investors (such as dealers in securities or commodities,
tax-exempt investors, investors whose functional currency is not the U.S.
dollar and other investors subject to special rules, including investors
holding Notes as part of a currency hedge, a straddle, a "synthetic security"
or other integrated investment (including a "conversion transaction")
comprised of a Note and one or more other investments).
Holders contemplating the exchange of Old Notes pursuant to the Exchange
Offer are urged to consult their own tax advisors concerning the U.S. federal,
state and local tax consequences of the receipt, ownership and disposition of
Exchange Notes.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), judicial decisions, administrative pronouncements, and existing and
proposed Treasury regulations, changes to any of which after the date of this
Prospectus could apply on a retroactive basis and affect the tax consequences
described herein.
The term "U.S. Holder" means a beneficial owner of a Book Entry Interest in
the Global Exchange Note that (a) holds the Note as a capital asset and (b)
is, for U.S. federal income tax purposes, (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political
subdivision thereof or (iii) otherwise subject to U.S. federal income taxation
on a net income basis in respect of the Notes.
Exchange Offer. A U.S. Holder of a Note will not recognize taxable income,
gain or loss on receipt of an Exchange Note in exchange for an Old Note
pursuant to this Exchange Offer, and for the purpose of determining the amount
and character of gain or loss upon the subsequent sale or other disposition of
Exchange Notes, a U.S. Holder will have the tax basis and holding period in an
Exchange Note as the U.S. Holder's tax basis and holding period in the Old
Note exchanged therefor.
Payments of Interest. The gross amount of interest paid on a Note will be
includible in the gross income of a U.S. Holder at the time it is received or
accrued, depending on the U.S. Holder's method of accounting for U.S. federal
income tax purposes, under the rules described below. The Notes are not
believed to have been issued with any original issue discount. This treatment
is based upon the assumption that no liquidated damages will be paid on
account of a Registration Default. The United States Internal Revenue Service
could, however, assert a different position, which could result in the
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Notes being treated as issued with original issue discount, and thereby
affecting the timing and character of interest income of U.S. Holders.
In the case of a cash method U.S. Holder, the amount of interest income in
respect of any interest payment will be determined by translating such payment
into U.S. dollars at the spot exchange rate in effect on the date such
interest payment is received. No exchange gain or loss will be realized with
respect to the receipt of such interest payment, other than exchange gain or
loss that is attributable to any difference between the exchange rate utilized
to translate the Deutsche Mark payment into U.S. dollars by the Paying Agent
(as described above under "Description of the Note Depositary Agreement--
Payments on the Global Exchange Note") and the spot exchange rate in effect on
the date such interest payment is received or, in the case of a U.S. Holder
that elects to receive payments on the Notes in Deutsche Marks, that is
attributable to the actual disposition of the Deutsche Marks received. Any
such exchange gain or loss will generally be treated as ordinary income or
loss. In the case of an accrual method U.S. Holder, the amount of any interest
income accrued during any accrual period will generally be determined by
translating such accruals into U.S. dollars at the average exchange rate
applicable to the accrual period (or, with respect to an accrual period that
spans two taxable years, at the average exchange rate for the partial period
within the taxable year). Such a U.S. Holder will additionally realize
exchange gain or loss with respect to any interest income accrued on the date
such interest income is received (or on the date the Note is disposed of) in
an amount equal to the difference between (x) the U.S. dollars received in
respect of such interest payment or, in the case of a U.S. Holder that elects
to receive payments on the Notes in Deutsche Marks, the amount determined by
converting the amount of the payment received into U.S. dollars at the spot
exchange rate in effect on the date such payment is received and (y) the
amount of interest income accrued in respect of such payment according to the
rule set forth in the prior sentence. Notwithstanding the rules described
above, an accrual method U.S. Holder may alternatively make an election to
apply a "spot accrual convention" that effectively allows such U.S. Holder to
translate accrued interest into U.S. dollars at a single spot exchange rate,
as set forth in Treasury regulations (S) 1.988-2(b)(2)(iii)(B). The amount of
interest income received by a U.S. Holder as set forth in this paragraph will
generally be treated as "passive income" or, in the case of certain U.S.
Holders, "financial services income," from sources outside the United States,
and any foreign currency exchange gain or loss as set forth in this paragraph
will generally be treated as realized from sources within the United States.
Market Discount. If a U.S. Holder acquired a Note at a price that is lower
than its remaining principal amount by 0.25% or more of the sum of all amounts
payable on the Note after the purchase date other than stated interest
multiplied by the number of remaining whole years to maturity, the Note would
be considered to bear "market discount" in the hands of such U.S. Holder. In
such case, gain realized by the U.S. Holder on the disposition of the Note
generally will be treated as ordinary interest income to the extent of the
market discount that accrued on the Note while held by such U.S. Holder and
will thus be treated as earned from sources outside the United States. In
addition, the U.S. Holder could be required to defer the deduction of a
portion of the interest paid on any indebtedness incurred or continued to
purchase or carry the Note. Market discount on a Note will be treated as
accruing ratably over the term of such Note, or, at the election of the U.S.
Holder, under a constant yield method. Alternatively, a U.S. Holder may elect
to include market discount in income currently as it accrues (on either a
ratable or constant yield basis), in which case the rule regarding deferral of
interest deductions will not apply. Such election, once made, applies to all
market discount bonds acquired by the taxpayer on or after the first day of
the first taxable year to which such election applies and may not be revoked
without the consent of the Internal Revenue Service. Market discount will be
accrued by a U.S. Holder in Deutsche Marks. The amount includible in income by
a U.S. Holder in respect of such accrued market discount will be the U.S.
dollar value of the amount accrued, generally calculated at the spot exchange
rate in effect on the date that the Note is disposed of by the U.S. Holder.
However, if the U.S. Holder has elected to include market discount in income
currently, the amount of accrued market discount includible in income for any
accrual period will be determined in Deutsche Marks and then translated into
U.S. dollars on the basis of the average exchange rate in effect during such
accrual period.
119
<PAGE>
Premium. A. U.S. Holder that acquired a Note at a cost greater than the sum
of all amounts payable on the Note after the purchase date other than stated
interest would be considered to have purchased the Note at a premium, and may
elect to amortize such premium (as an offset to interest income), using a
constant yield method over the remaining term of the Note. Such election, once
made, generally applies to all bonds held or subsequently acquired by the U.S.
Holder on or after the first taxable year to which the election applies and
may not be revoked without the permission of the Internal Revenue Service. A
U.S. Holder that elects to amortize such premium must reduce its tax basis in
a Note by the amount of the premium amortized during its holding period. A
U.S. Holder must calculate the amortization of premium in Deutsche Marks.
Amortization deductions attributable to a period reduce interest payments in
respect of that period and therefore are translated into U.S. dollars at the
rate used by the U.S. Holder for such interest payments. Exchange gain or loss
will be realized with respect to amortized bond premium on a Note based on the
difference between the exchange rate computed as described above and the spot
exchange rate on the date on which the U.S. Holder acquired the Note. In
general, a U.S. Holder will treat gain or loss as received from sources within
the United States. With respect to a U.S. Holder that does not elect to
amortize bond premium, the amount of bond premium will be included in the U.S.
Holder's tax basis when the Note matures or is disposed of by the U.S. Holder.
Sale, Retirement and Other Disposition of the Notes. Upon the sale, exchange
or retirement of a Note, a U.S. Holder will generally recognize taxable gain
or loss equal to the difference between the amount realized (not including any
amounts received that are attributable to accrued and unpaid interest, which
will be taxable as interest income, accrued market discounts, and exchange
gain or loss as set forth above and in this paragraph) and the U.S. Holder's
tax basis in the Note. A U.S. Holder's tax basis in a Note generally will be
its cost, which generally will be calculated by reference to the spot exchange
rate for Deutsche Marks in effect on the date of purchase. The value of any
amount received by a U.S. Holder on retirement of the Note generally will be
determined by reference to the spot exchange rate for Deutsche Marks in effect
on the date the Note is retired. Gain or loss recognized on the sale or
retirement of a Note (determined as described above) will be capital gain or
loss and will be long-term gain or loss if the Note was held for more than one
year at the time of the disposition. U.S. Holders that are individuals may be
eligible for preferential treatment for net capital gains, particularly with
respect to capital assets that are held for more than 18 months at the time of
disposition. Gain recognized by a U.S. Holder generally will be treated as
U.S. source income. U.S. Holders should consult their tax advisors regarding
the source of loss recognized on the sale, exchange or retirement of a Note.
Notwithstanding the foregoing, gain or loss recognized by a U.S. Holder on the
sale, exchange or retirement of a Note generally will be treated as ordinary
income or loss to the extent that the gain or loss is attributable to changes
in Deutsche Mark exchange rates during the period in which the U.S. Holder
held the Note or, in the case of a U.S. Holder that does not elect to receive
payments on the Notes in Deutsche Marks, to the extent of any difference
between the amount realized on retirement of the Note calculated by reference
to the spot exchange rate for Deutsche Marks in effect on the date of
retirement and the actual amount of U.S. dollars received. In general, such
foreign currency gain or loss will be treated by a U.S. Holder as realized
from sources within the United States.
Information Reporting and Backup Withholding. In general, information
reporting requirements will apply to certain payments of principal and
interest paid in respect of the Notes and to the sales proceeds of Notes paid
to U.S. Holders, other than certain exempt U.S. Holders (such as
corporations). A 31% backup withholding tax will apply to such payments if the
U.S. Holder fails to provide a taxpayer identification number or certification
of foreign or other exempt status or to comply with applicable requirements of
the backup withholding rules. Any amounts withheld under the backup
withholding rules will be eligible for credit against such U.S. Holder's U.S.
federal income tax liability, provided the required information is furnished
to the Internal Revenue Service.
120
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Old
Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1998, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer (including the expenses of one counsel for the holders of
the Notes) other than commissions or concessions of any broker-dealers and
will indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Mayer, Brown & Platt, special U.S. counsel for the Company. Certain aspects of
the validity of the Exchange Notes will be passed upon for the Company by
Dickson Minto W.S., U.K. counsel to the Company.
EXPERTS
The consolidated financial statements of USM (Holdings) Limited as of April
24, 1995 and for the period from January 1, 1995 to April 24, 1995 and the
consolidated financial statements of United Texon Limited as of December 31,
1996 and 1997 and for the periods from April 25, 1995 to December 31, 1995 and
the years ended December 31, 1996 and 1997 and the consolidated financial
statements of Texon International plc as of December 31, 1997 being both the
date it acquired United Texon Limited and the end of its financial reporting
period, included in the Registration Statement have been audited and reported
upon by KPMG, independent chartered accountants. Such consolidated financial
statements have been included herein in reliance upon the reports of KPMG and
upon the authority of said firm as experts in accounting and auditing.
121
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form F-4 under the Securities Act of
1933 (the "Securities Act"), with respect to the Exchange Notes offered hereby
(the "Registration Statement"). This Prospectus, which constitutes a part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement, certain parts of which have been omitted from the
Prospectus in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Exchange Notes offered
hereby, reference is made to the Registration Statement, including the
exhibits and schedules filed therewith, and the financial statements and notes
filed as a part thereof. Statements made in the Prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each such document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirely by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is required to file reports with the Commission. All reports and
other information filed by the Company, and the Registration Statement,
including the exhibits and schedules thereto, may be inspected and copied at
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at Seven World Trade Center, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
New York, New York, and Chicago, Illinois, at the prescribed rates.
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, the Company shall furnish to the holders of the
Notes and file with the Trustee and the Commission (i) all annual and
quarterly financial information that would be required to be contained in a
filing with the Commission on Forms 20-F and 10-Q (or any successor forms) if
the Company were required to file such Forms (except that quarterly financial
information need not contain any reconciliation to U.S. generally accepted
accounting principles) and (ii) all information that would be required to be
contained in current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports;
provided, however, that (x) such quarterly financial information may be
prepared in accordance with U.K. generally accepted accounting principles,
shall be furnished within 60 days following the end of each fiscal quarter of
the Company and may be provided in a report on Form 6-K, (y) such annual
financial information shall be furnished within 120 days following the end of
the fiscal year of the Company and (z) such information that would be required
to be contained in a report on Form 8-K may be provided in a report on Form 6-
K.
As a foreign private issuer, the Company is exempt from certain provisions
of the Exchange Act prescribing the furnishing and content of proxy
statements.
122
<PAGE>
TEXON INTERNATIONAL PLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TEXON INTERNATIONAL PLC
CONSOLIDATED FINANCIAL STATEMENTS OF TEXON INTERNATIONAL PLC AND ITS
PREDECESSOR COMPANIES, UNITED TEXON LIMITED AND USM (HOLDINGS) LIMITED
<TABLE>
<CAPTION>
CONTENTS PAGE
- -------- ----
<S> <C>
Independent auditors' report............................................... F-2
Consolidated profit and loss accounts...................................... F-3
Consolidated balance sheets................................................ F-4
Consolidated cash flow statements.......................................... F-5
Reconciliation of net cash flow to movement in net debt.................... F-6
Consolidated statements of total recognised gains and losses............... F-7
Reconciliation of movements in total shareholders' deficit................. F-8
Notes to the consolidated financial statements............................. F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Texon International plc:
We have audited the accompanying consolidated balance sheets of United Texon
Limited and subsidiaries as of December 31, 1996 and 1997, and of Texon
International plc and subsidiaries as of December 31, 1997, and the related
consolidated profit and loss accounts, cash flow statements, statements of
total recognised gains and losses and reconciliation of movements in
shareholders' funds of USM (Holdings) Limited for the period from January 1,
1995 to April 24, 1995, and of United Texon Limited for the period from April
25, 1995 to December 31, 1995, and the years ended December 31, 1996 and 1997,
and of Texon International plc for December 31, 1997 being both the date it
acquired United Texon Limited and the end of its financial reporting period.
These consolidated financial statements are the responsibility of the
management of Texon International plc. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom which standards are substantially equivalent
to auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the consolidated financial position
of United Texon Limited and subsidiaries as of December 31, 1996 and 1997, and
of Texon International plc and subsidiaries as of December 31, 1997, and the
consolidated results of operations and cash flows of USM (Holdings) Limited
for the period from January 1, 1995 to April 24, 1995, of United Texon Limited
for the period from April 25, 1995 to December 31, 1995, and the years ended
December 31, 1996 and 1997, and of Texon International plc for December 31,
1997 being both the date it acquired United Texon Limited and the end of its
financial reporting period, in conformity with generally accepted accounting
principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected the results of operations for the years,
ended December 31, 1996 and 1997 and shareholders' equity as of December 31,
1996 and 1997, to the extent summarised in Note 26 to the consolidated
financial statements.
/s/ KPMG
Chartered Accountants
Registered Auditors
London, England
March 31, 1998
F-2
<PAGE>
TEXON INTERNATIONAL PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
----------- --------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25,
1995 TO 1995 TO YEAR ENDED YEAR ENDED
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31,
NOTES 1995 1995 1996 1997
----- ----------- ------------ ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Sales turnover
Continuing
operations........... 3 38,172 76,905 127,887 121,556
Discontinued
operations........... 27,652 54,008 77,074 66,255
------- ------- -------- --------
65,824 130,913 204,961 187,811
Cost of sales
Continuing
operations........... (25,835) (55,689) (83,606) (79,015)
Discontinued
operations........... (17,286) (39,784) (52,446) (44,322)
------- ------- -------- --------
(43,121) (95,473) (136,052) (123,337)
Gross profit
Continuing
operations........... 12,337 21,216 44,281 42,541
Discontinued
operations........... 10,366 14,224 24,628 21,933
------- ------- -------- --------
22,703 35,440 68,909 64,474
Marketing and
administrative expenses 4,5
Continuing
operations........... (8,409) (16,917) (28,001) (32,932)
Discontinued
operations........... (9,378) (25,060) (28,401) (24,552)
------- ------- -------- --------
(17,787) (41,977) (56,402) (57,484)
Operating profit/(loss) 4,5
Continuing
operations........... 3,928 4,299 16,280 9,609
Discontinued
operations........... 988 (10,836) (3,773) (2,619)
------- ------- -------- --------
4,916 (6,537) 12,507 6,990
Profit on sale of
discontinued
activities............. 5b -- -- -- 1,602
Profit/(loss) before
interest and taxation 6
Continuing
operations........... 3,928 4,299 16,280 9,609
Discontinued
operations........... 988 (10,836) (3,773) (1,017)
------- ------- -------- --------
4,916 (6,537) 12,507 8,592
Interest receivable..... 140 237 229 298
Interest payable and
similar charges........ 7 (3,510) (7,873) (11,267) (10,915)
------- ------- -------- --------
Profit/(loss) on
ordinary activities
before taxation...... 1,546 (14,173) 1,469 (2,025)
Taxation on profit on
ordinary activities.... 9 (650) (988) (1,905) (1,988)
------- ------- -------- --------
Profit/(loss) on
ordinary activities
after taxation....... 896 (15,161) (436) (4,013)
Minority equity
interests.............. 17 68 109 (293) (305)
------- ------- -------- --------
Net profit/(loss) for
the financial year..... 16 964 (15,052) (729) (4,318)
------- ------- -------- --------
(Accretion)/waiver of
dividend and
redemption premium on
non-equity preference
shares............... 15 -- (1,450) (3,767) 5,217
------- ------- -------- --------
Retained profit/(loss)
for the period for
equity shareholders.. 964 (16,502) (4,496) 899
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
TEXON INTERNATIONAL PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
TEXON
INTERNATIONAL
UNITED TEXON LIMITED PLC
------------------------- -------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
NOTES 1996 1997 1997
----- ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets.............................................................. 10 26,554 15,841 17,098
CURRENT ASSETS
Stocks....................................................................... 11 36,047 16,716 16,716
Debtors...................................................................... 12 34,994 19,345 19,345
Cash at bank and in hand..................................................... 1,791 1,143 1,156
-------- -------- --------
72,832 37,204 37,217
CREDITORS (amounts falling due within one year)................................ 13 (99,873) (113,734) (114,393)
NET CURRENT ASSETS/(LIABILITIES)
Due within one year.......................................................... (29,793) (77,392) (78,038)
Debtors due after one year................................................... 2,752 862 862
TOTAL NET CURRENT LIABILITIES.................................................. (27,041) (76,530) (77,176)
-------- -------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES.......................................... (487) (60,689) (60,078)
======== ======== ========
CREDITORS
Amounts falling due after more than one year................................. 13 33,897 698 698
Provisions for liabilities and charges....................................... 14 30,461 6,422 6,422
CAPITAL AND RESERVES--EQUITY
Called up share capital...................................................... 15 29,050 29,050 13
Share premium account........................................................ 16 4,950 4,950 --
Share capital to be issued (including share premium)......................... 16 -- -- 55,600
Goodwill write-off reserve................................................... 16 (81,809) (79,462) (124,242)
Profit and loss account...................................................... 16 (18,257) (23,778) --
-------- -------- --------
Shareholders' deficit
Equity interest.............................................................. (100,283) (98,240) (68,629)
Non--equity interests........................................................ 15 34,217 29,000 --
(66,066) (69,240) (68,629)
Minority equity interests...................................................... 17 1,221 1,431 1,431
-------- -------- --------
(64,845) (67,809) (67,198)
-------- -------- --------
(487) (60,689) (60,078)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TEXON INTERNATIONAL PLC
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- --------------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
NOTES 1995 1995 1996 1997 1997
----- ----------- ------------ ------------ ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flow from operating activities........ 21a 2,723 4,311 27,329 4,976 --
Return on investments and servicing of
finance................................... 21b (3,274) (5,214) (6,459) (5,665) --
Taxation................................... (347) (1,894) (564) (2,678) --
Capital expenditure and financial
investment................................ 21b 2,685 (3,847) (3,298) 5,990 --
Acquisitions and disposals................. 21b -- (29,356) -- -- (64,175)
------ ------- ------- ------ -------
Cash inflow/(outflow) before use of liquid
resources................................. 1,787 (36,000) 17,008 2,623 (64,175)
Financing
Increase/(decrease) in debt................ 21b (3,317) 1,393 (17,499) (4,029) 64,175
Value of shares............................ 867 34,000 -- -- 13
------ ------- ------- ------ -------
Increase/(decrease) in cash in the period.. (663) (607) (491) (1,406) 13
====== ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TEXON INTERNATIONAL PLC
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
NOTES 1995 1995 1996 1997 1997
----- ----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C> <C>
Increase/(decrease) in cash in the period........... 21c (663) (607) (491) (1,406) 13
Cash inflow/(outflow) from debt and lease
financing.......................................... 2,450 (1,393) 17,499 4,029 --
------- -------- -------- ------- -------
Change in net debt resulting from cash flows........ 1,787 (2,000) 17,008 2,623 13
Non cash movements in debt.......................... 867 (5,535) -- (3,434) --
New finance leases.................................. -- -- (3,925) -- --
Translation differences............................. (1,591) (1,868) 2,899 (106) --
Loans and finance leases acquired with subsidiary... -- (93,101) -- -- (64,175)
------- -------- -------- ------- -------
Movement in net debt in the period.................. 1,063 (102,504) 15,982 (917) (64,162)
Net debt brought forward............................ (93,035) -- (102,504) (86,522) --
------- -------- -------- ------- -------
Net debt carried forward............................ (91,972) (102,504) (86,522) (87,439) (64,162)
======= ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TEXON INTERNATIONAL PLC
CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Net profit/(loss) for the financial year................... 964 (15,052) (729) (4,318) --
Exercised share options.................................... -- -- -- 2,803 --
Currency translation differences on foreign currency
working capital/net tangible assets and goodwill.......... 887 518 (5,652) (4,187) --
Currency translation differences on foreign currency
borrowings................................................ (750) (377) 3,035 181 --
Elimination of currency translation differences on goodwill
included in other reserves................................ (1,856) (1,384) 7,868 2,347 --
------ ------- ------ ------ ---
Total recognised gains /(losses) in the period............. (755) (16,295) 4,522 (3,174) --
====== ======= ====== ====== ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
TEXON INTERNATIONAL PLC
RECONCILIATION OF MOVEMENTS IN TOTAL SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Retained profit/(loss) for the year for equity
shareholders.............................................. 964 (16,502) (4,496) 899 --
Appropriation from equity to non-equity included therein
(in respect of the preference shares)..................... -- 1,450 3,767 (5,217) --
------- ------- ------- ------- --------
964 (15,052) (729) (4,318) --
New share capital issued................................... 867 34,000 -- -- 13
New share capital to be issued............................. -- -- -- -- 55,600
Exercised share options.................................... -- -- -- 2,803 --
Goodwill written off during period......................... -- (88,293) -- -- (124,242)
Foreign exchange adjustments............................... (1,719) (1,243) 5,251 (1,659) --
------- ------- ------- ------- --------
Net (decrease)/increase to shareholders' deficit........... 112 (70,588) 4,522 (3,174) (68,629)
Opening shareholders' deficit.............................. (51,724) -- (70,588) (66,066) --
------- ------- ------- ------- --------
Closing shareholders' deficit.............................. (51,612) (70,588) (66,066) (69,240) (68,629)
======= ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 BUSINESS ACTIVITY AND BASIS OF PRESENTATION
The Group formed by Texon International plc and its subsidiaries ("the
Group") is engaged in manufacturing and supplying shoe materials and machinery
to the footwear industry world-wide.
Texon International acquisition
On December 23, 1997, Texon International plc and the shareholders of United
Texon Limited entered into an acquisition agreement (the "Acquisition
Agreement") under which Texon International plc agreed to acquire the entire
issued share capital of United Texon Limited (the "Acquisition"). The
Acquisition was conditional upon (i) consummation of the offering by Texon
International plc of Senior Notes due 2008 (the "Offering") and (ii) a
Revolving Facility being made available unconditionally. These conditions were
duly fulfilled on January 30, 1998.
Under the terms of the Acquisition Agreement, Texon International plc had
control of the financial and operational management of United Texon Limited
effective from December 31, 1997 and Texon International plc has therefore
prepared consolidated accounts at December 31, 1997, see Note 25. Texon
International plc did not trade previously and Texon International plc has no
consolidated profit or loss for the period from its incorporation on December
17, 1997 to December 31, 1997, consequently no consolidated profit and loss
account has been included for Texon International plc.
United Texon Limited acquisition
United Texon Limited was incorporated on January 5, 1995. On April 24, 1995,
United Texon Limited acquired USM (Holdings) Limited in a transaction (the
"1995 Acquisition") accounted for using the purchase method. The consolidated
financial information presented herein for the periods ended December 31,
1995, December 31, 1996 and December 31, 1997 relate to United Texon Limited
and its subsidiaries. The consolidated financial information presented herein
for the period ended April 24, 1995 relates to USM (Holdings) Limited.
Machinery disposal
On December 31, 1997, United Texon Limited disposed of the group of
companies operating the shoe machinery business through a sale to a new
company formed by the shareholders of United Texon Limited ("the Machinery
Disposal"). The Machinery Disposal is treated as a disposal in the 1997
financial statements of United Texon Limited and the comparative figures have
been reanalysed to show the Machinery business as a discontinued operation.
Consolidated financial information
The consolidated financial information presented herein for the periods
prior to Texon International plc's acquisition of United Texon Limited relates
to United Texon Limited and USM (Holdings) Limited. United Texon Limited and
USM (Holdings) Limited are also referred to collectively as ("the Group") in
these consolidated financial statements where appropriate.
2 ACCOUNTING POLICIES
The following paragraphs describe the significant accounting policies used
in preparing the consolidated financial statements.
A) BASIS OF PREPARATION
The consolidated financial statements have been prepared in pounds sterling
and in accordance with generally accepted accounting principles in the UK ("UK
GAAP"). These accounting principles differ in certain significant respects
from accounting principles generally accepted in the United States ("US
GAAP"). Note 26 sets out a description and the related effect on net
income/(loss) and shareholders' deficit of the significant differences.
F-9
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2 ACCOUNTING POLICIES (CONTINUED)
B) BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements
of USM (Holdings) Limited and its subsidiary undertakings for the period ended
April 24, 1995, and of United Texon Limited and its subsidiary undertakings
for the period ended December 31, 1995, the years ended December 31, 1996 and
1997, and Texon International plc and its subsidiary undertakings as at
December 31, 1997. As the Acquisition was only effective from 18:00 hours on
December 31, 1997, a consolidated balance sheet for United Texon Limited as of
that date has been included for reference purposes only.
The consolidated financial statements incorporate the results and assets and
liabilities of each company and its subsidiaries after eliminating
intercompany balances and transactions.
Any excess of the cost of investment including acquisition costs, over the
fair value of net assets acquired is written off to other reserves.
C) SALES TURNOVER
Sales turnover comprises the invoiced value (excluding value added tax) for
the sale of products from stock, the provision of machine servicing and the
leasing of machines, sales turnover is recognized at the time of shipment of
products, the date of provision of service or over the life of the lease.
D) FOREIGN EXCHANGE
The closing assets and liabilities of subsidiaries denominated in overseas
currencies have been translated at the exchange rates ruling at the balance
sheet date. The results for the period of overseas companies have been
translated at the average exchange rate relevant for the period. Differences
arising on the translation of assets and liabilities and the results for the
year denominated in overseas currencies are taken to reserves along with the
effect of foreign exchange contracts and foreign currency borrowings entered
into for the purpose of hedging those exposures. The currency translation on
goodwill passes through other reserves in accordance with the accounting
policy for goodwill. All other profits or losses on exchange are dealt with in
the consolidated profit and loss accounts.
To reduce the effect of fluctuating currency exchange rates, foreign
currency forward contracts are entered into to hedge firm commitments. The
Group does not enter into speculative foreign exchange contracts. Differences
arising on the translation of foreign currency forward contracts to hedge
these commitments are recognized when the commitment matures.
E) STOCK
Stock is stated at the lower of cost, including factory overheads where
applicable, and net realisable value on a first in first out basis. Provision
is made for slow-moving and obsolete items.
F) RESEARCH AND DEVELOPMENT
Research, development and patent expenditure is written off in the year in
which it is incurred.
F-10
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2 ACCOUNTING POLICIES (CONTINUED)
G) DEPRECIATION OF TANGIBLE FIXED ASSETS
Depreciation of tangible fixed assets is provided on the cost of the assets
so as to write off the cost less the estimated residual value of the assets
over their estimated useful lives by equal annual instalments over the
following periods:
<TABLE>
<CAPTION>
YEARS
-------------------------------
<S> <C>
Freehold buildings............................. 20 to 45
Leasehold improvements......................... Over the shorter of useful life
or term of the lease
Leased machinery............................... 5 to 10
Plant and equipment............................ 5 to 13
Office equipment............................... 3 to 10
Motor vehicles................................. 3 to 5
</TABLE>
H) LEASE COMMITMENTS
Where leases are entered into which entails taking substantially all the
risks and rewards of ownership of an asset, the lease is treated as a "finance
lease'. Other leases are treated as operating leases.
An asset subject to a finance lease is recorded in the consolidated balance
sheet as a tangible fixed asset and is depreciated over its estimated useful
life or the term of the lease, whichever is shorter. Future instalments under
such leases, net of finance charges, are included within creditors. Rentals
payable are apportioned between the finance element, which is charged to the
consolidated profit and loss accounts, and the capital element which reduces
the outstanding obligation for future instalments.
Operating lease payments and receipts are charged to the consolidated profit
and loss accounts on a straight line basis over the life of the lease.
I) MACHINERY LEASED TO CUSTOMERS
Leased machinery retained by the Group, is included in tangible fixed assets
at cost to the Group less accumulated depreciation. Cost includes factory
overheads and, where applicable, costs of importation. Leases are treated as
operating leases and income from them is recognised over the lease period.
Where the Group have transferred machinery on lease to its customers, but
retained the ability or obligation to re-acquire the machinery at the end of
the primary lease period, the asset has been included in tangible fixed assets
as above, and the proceeds received credited to the consolidated profit and
loss accounts over the primary lease period.
In the event of the Group re-acquiring machinery, the Group's exposure is
limited to the realisable market value of the machines.
J) TAXATION
The charge for taxation is based on the profit/(loss) for the year and takes
into account taxation deferred because of timing differences between the
treatment of certain items for taxation and accounting purposes. Provision is
made for deferred tax only to the extent that it is probable that an actual
liability will crystallise.
F-11
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2 ACCOUNTING POLICIES (CONTINUED)
K) PENSIONS AND OTHER POST RETIREMENT BENEFITS
Pension schemes are operated in the UK and in overseas countries. The
expected cost of defined benefit pension schemes is charged to the
consolidated profit and loss accounts so as to spread the cost of pensions
over the remaining service lives of employees in the scheme. Variations from
the regular cost are spread over the expected remaining service lives of
current employees in the scheme. The pension cost is assessed in accordance
with the advice of qualified actuaries.
Provision is also made for post retirement medical and life assurance
benefits of retired employees and certain current employees in the US.
L) NET EARNINGS/(LOSS) PER ORDINARY SHARE
Historical net earnings/(loss) per share is not shown as the historical
arrangement is not indicative of the continuing capital structure.
M) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates.
N) DISCONTINUED OPERATIONS
United Texon Limited carried out its activities through two divisions: the
Machinery division and the Materials division. On December 31, 1997, the group
of companies comprising the Machinery division was disposed of and accordingly
the results of this division have been separately disclosed.
In order to provide full financial information for the Machinery division
for the periods prior to January 1, 1997 management have made reasonable
estimates and judgements based on their knowledge of the business. The
information has been compiled as follows:
Gross profit
Gross profit has historically been analysed by product line and accordingly
can be analysed by division. Segmental information included in the Group's
audited consolidated statutory accounts has historically disclosed the
divisional split of revenues and gross profit.
Operating income/(loss)
Research and development and distribution and marketing costs can
predominately be directly associated with a specific division and have been
allocated accordingly. Common costs, including
F-12
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2 ACCOUNTING POLICIES (CONTINUED)
administration costs, have been allocated by management on a category by
category basis dependent on the type of income or cost on an appropriate
basis. Pension costs have been analysed between divisions based on the
divisional employee numbers on a demerged basis.
Interest and tax
Interest on substantially all of the borrowings has been allocated to the
Materials division in accordance with the Materials division assuming the debt
following the sale of the Machinery division. Taxation charges have been
allocated between divisions based on the post sale Group structure.
3 ANALYSIS OF TURNOVER, GROSS PROFIT AND CAPITAL EMPLOYED
Operations were divided into two segments: Materials and related products
and Machinery and related products. As discussed in Note 1, the Materials and
Machinery business have been separated and the Machinery business sold with
effect from December 31, 1997. Consequently, the following analyses show the
activities of each of the companies split between "continuing" and
"discontinued" operations.
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
----------- --------------------------------------
PERIOD FROM
JANUARY 1, PERIOD FROM
1995 APRIL 25,
TO APRIL 1995 TO YEAR ENDED YEAR ENDED
24, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
----------- ------------ ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
TURNOVER ANALYSED BY MAJOR
BUSINESS ACTIVITY:
Continuing operations...... 38,401 77,295 128,602 122,343
Discontinued operations.... 27,967 54,595 78,227 67,048
------ ------- ------- -------
66,368 131,890 206,829 189,391
Sales between operations... (544) (977) (1,868) (1,580)
------ ------- ------- -------
External turnover.......... 65,824 130,913 204,961 187,811
====== ======= ======= =======
OPERATING PROFIT/(LOSS)
ANALYSED BY MAJOR BUSINESS
ACTIVITY:
Continuing operations...... 3,928 4,299 16,280 9,609
Discontinued operations.... 988 (10,836) (3,773) (2,619)
------ ------- ------- -------
4,916 (6,537) 12,507 6,990
====== ======= ======= =======
CAPITAL EXPENDITURES:
Continuing operations...... 496 1,455 3,188 1,722
Discontinued operations.... 1,329 3,026 2,959 1,538
------ ------- ------- -------
1,825 4,481 6,147 3,260
====== ======= ======= =======
DEPRECIATION:
Continuing operations...... 805 1,424 2,161 2,355
Discontinued operations.... 1,365 2,600 3,671 2,583
------ ------- ------- -------
2,170 4,024 5,832 4,938
====== ======= ======= =======
</TABLE>
F-13
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3 ANALYSIS OF TURNOVER, GROSS PROFIT AND CAPITAL EMPLOYED (CONTINUED)
<TABLE>
<CAPTION>
TEXON
INTERNATIONAL
UNITED TEXON LIMITED PLC
------------------------- -------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
OPERATING ASSETS/(LIABILITIES) EMPLOYED BY MAJOR BUSINESS ACTIVITY:
Continuing operations................................................................. 28,652 23,800 25,057
Discontinued operations............................................................... 7,663 -- --
-------- ------- -------
36,315 23,800 25,057
RECONCILIATION TO NET LIABILITIES:
Cash.................................................................................. 1,791 1,143 1,156
Borrowings............................................................................ (87,221) (87,660) (64,396)
Taxes................................................................................. (2,230) (975) (975)
Accrued bank interest................................................................. (3,663) (4,117) (4,117)
Future rental income.................................................................. (4,697) -- --
Non-operating accruals................................................................ -- -- (23,923)
Reorganisation reserve................................................................ (5,140) -- --
-------- ------- -------
(101,160) (91,609) (92,255)
-------- ------- -------
NET LIABILITIES....................................................................... (64,845) (67,809) (67,198)
======== ======= =======
</TABLE>
F-14
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3 ANALYSIS OF TURNOVER, GROSS PROFIT AND CAPITAL EMPLOYED (CONTINUED)
GEOGRAPHICAL ANALYSIS OF CONTINUING OPERATIONS IS AS FOLLOWS:
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
----------- ----------------------------------------
PERIOD FROM PERIOD
JANUARY 1, FROM APRIL 25,
1995 TO 1995 TO YEAR ENDED YEAR ENDED
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
----------- -------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
TURNOVER ANALYSIS BY
COMPANY LOCATION:
Europe................... 25,647 49,292 83,725 80,413
America.................. 7,440 14,898 24,473 23,652
Asia..................... 2,609 7,115 11,567 11,167
Other.................... 2,705 5,990 8,837 7,111
------ ------ ------- -------
38,401 77,295 128,602 122,343
====== ====== ======= =======
Export sales from the
UK...................... 7,148 19,975 19,954 16,825
====== ====== ======= =======
TURNOVER ANALYSIS BY
DESTINATION:
Europe................... 22,768 42,882 65,029 59,178
America.................. 6,310 12,333 21,564 21,658
Asia..................... 5,687 14,317 24,752 26,398
Other.................... 3,636 7,763 17,257 15,109
------ ------ ------- -------
38,401 77,295 128,602 122,343
====== ====== ======= =======
OPERATING PROFIT ANALYSIS
BY
COMPANY LOCATION:
Europe................... 3,306 2,746 12,782 6,449
America.................. 329 635 1,918 1,665
Asia..................... 40 438 940 1,135
Other.................... 253 480 640 360
------ ------ ------- -------
3,928 4,299 16,280 9,609
====== ====== ======= =======
</TABLE>
GEOGRAPHICAL OPERATING ASSETS EMPLOYED ANALYSED BY COMPANY LOCATION FOR
CONTINUING OPERATIONS IS AS FOLLOWS:
<TABLE>
<CAPTION>
TEXON
INTERNATIONAL
UNITED TEXON LIMITED PLC
------------------------- -------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Europe........................................................................... 13,760 10,591 11,848
America.......................................................................... 5,064 2,943 2,943
Asia............................................................................. 6,938 7,950 7,950
Other............................................................................ 2,890 2,316 2,316
------ ------ ------
-------------------------------------------------- 28,652 23,800 25,057
====== ====== ======
</TABLE>
Operating assets have been analysed above, rather than net assets, as it
more appropriately reflects the divisions by excluding cash balances and
amounts falling due for bank loans and
F-15
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3 ANALYSIS OF TURNOVER, GROSS PROFIT AND CAPITAL EMPLOYED (CONTINUED)
overdrafts, obligations under finance leases, accrued interest and the accrued
consideration for the Acquisition.
The customer base is diverse both in its geographical spread, types of
footwear companies (athletic and traditional, men's and women's) and across
the spectrum of branded shoe companies, manufacturers, converters and
distributors. No single customer accounted for more than 3% of sales in 1995,
1996 or 1997.
The Group purchases most of the raw materials for its products on the open
market, and sales may be affected by changes in the market price of such raw
materials.
The Group does not engage in commodity hedging transactions for raw
materials. Although the Group has generally been able to pass on increases in
the price of raw materials to its customers, there can be no assurance that it
will be able to do so in the future, on a timely basis or at all. The results
of operations have in the past been affected by fluctuations in the price of
the primary raw material, wood pulp, for its cellulose products. Additionally,
significant increases in the price of the Group's products due to increases in
the cost of raw materials, could have a negative effect on demand for its
products and a material adverse effect on the Group's business, financial
condition and results of operation.
4 OPERATING PROFIT
Operating profit/(loss) is stated after charging:
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
----------- ----------------------------------------
PERIOD FROM PERIOD
JANUARY 1, FROM APRIL 25,
1995 TO 1995 TO YEAR ENDED YEAR ENDED
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
----------- -------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Marketing and
distribution costs...... 11,633 25,205 36,328 33,235
Research and development
costs................... 1,418 3,545 4,037 3,810
Administration expenses:
Operating expenses..... 4,099 9,394 11,397 9,838
Other expenses......... 637 3,833 4,640 10,601
------ ------ ------ ------
17,787 41,977 56,402 57,484
====== ====== ====== ======
</TABLE>
F-16
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4 OPERATING PROFIT (CONTINUED)
Operating profit relating to continuing operations is stated after charging:
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
----------- -----------------------------------------
PERIOD FROM
JANUARY 1, PERIOD FROM
1995 TO APRIL 25, 1995 YEAR ENDED YEAR ENDED
APRIL 24, TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
----------- --------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Marketing and
distribution costs..... 5,520 10,862 18,923 19,428
Research and
development............ 423 892 1,312 1,351
Administration expenses:
Operating expenses.... 1,897 3,647 5,725 5,285
Other expenses........ 569 1,516 2,041 6,868
----- ------ ------ ------
8,409 16,917 28,001 32,932
===== ====== ====== ======
</TABLE>
5 EXCEPTIONAL ITEMS
A) EXCEPTIONAL ITEMS INCLUDED WITHIN OPERATING PROFIT:
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
----------- -----------------------------------------
PERIOD FROM
JANUARY 1, PERIOD FROM
1995 TO APRIL 25, 1995 YEAR ENDED YEAR ENDED
APRIL 24, TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
----------- --------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
OPERATING PROFIT BEFORE
EXCEPTIONAL ITEMS...... 4,916 3,573 12,507 12,649
EXCEPTIONAL ITEMS
Restructuring
provision......... i) -- (10,110) -- --
Cost of abortive
sale............. ii) -- -- -- (1,712)
Refinancing costs.....
iii) -- -- -- (1,144)
Share options..... iv) -- -- -- (2,803)
----- ------- ------ ------
OPERATING PROFIT/(LOSS)
FOR THE PERIOD......... 4,916 (6,537) 12,507 6,990
===== ======= ====== ======
</TABLE>
I)Restructuring provision
In 1995, the decision was taken to significantly restructure the Group. The
costs of these projects totalling (Pounds)10,110,000 was provided in the 1995
accounts as an exceptional item ((Pounds)5,760,000 in cost of sales and
(Pounds)4,350,000 in marketing and administrative costs). Of the charge
(Pounds)1,634,000 related to the continuing operations ((Pounds)1,434,000 in
costs of sales and (Pounds)200,000 in marketing and administrative costs).
The balance sheet accrual relating to the restructuring provision amounted
to (Pounds)nil as of December 31, 1997 and (Pounds)5,140,000 and
(Pounds)9,374,000 as of December 31, 1996 and 1995 respectively.
F-17
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5 EXCEPTIONAL ITEMS (CONTINUED)
II)Cost of abortive sale
In October 1997, the shareholders of United Texon Limited aborted a proposed
sale of its shares. The costs of this abortive sale, amounting to
(Pounds)1,712,000 have been treated as an exceptional item in continuing
operations.
III)Refinancing costs
In July 1997, United Texon Limited refinanced its Senior Loan facilities
with a syndicate of banks led by Chase Manhattan Bank plc. The cost of this
refinancing, amounting to (Pounds)1,144,000 has been treated as an exceptional
item in continuing operations.
IV)Share options
On October 22, 1997 United Texon Limited issued share options to five senior
employees. The excess of market value over the exercise price of the options,
estimated at (Pounds)2,803,000 has been treated as an exceptional item in
continuing operations.
B)PROFIT ON SALE OF DISCONTINUED OPERATION
Effective December 31, 1997, the entire Machinery division ("Machinery
Group") was sold by United Texon Limited for a nominal consideration to a new
company owned principally by United Texon Limited's shareholders. The net gain
on the sale of the Machinery Group amounted to (Pounds)1,602,000. The total
profit on disposal being (Pounds)3,250,000 with (Pounds)1,648,000 of costs
associated with the demerger. The net gain has been treated as an exceptional
item.
The exceptional items relating to the discontinued operations had no effect
on United Texon Limited's tax charge or minority interest.
F-18
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6 PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE INTEREST
Profit/(loss) on ordinary activities before interest is stated after
charging/(crediting):
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
------------ -----------------------------------------
PERIOD FROM
JANUARY 1, PERIOD FROM
1995 APRIL 25, 1995 YEAR ENDED YEAR ENDED
TO APRIL 24, TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
------------ --------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
COMBINED GROUP
Depreciation of tangible
fixed assets
Owned................. 2,137 3,926 5,702 4,768
Leased................ 33 98 130 170
Operating lease charges
Hire of plant and
machinery............ 546 1,091 1,376 1,360
Other lease charges... 627 1,253 1,745 1,657
Finance lease charges
Plant and machinery... 14 30 59 77
Leased machinery...... 265 412 488 322
Pension costs........... 1,028 2,160 3,145 2,959
Profit on sale of
properties............. (897) -- -- (386)
Loss/(profit) on sale of
other assets........... 6 (73) (51) (251)
Net foreign exchange
losses................. 148 371 66 51
Provision for doubtful
debtors................ 272 517 672 558
CONTINUING OPERATIONS
Depreciation of tangible
fixed assets
Owned................. 772 1,326 2,031 2,213
Leased................ 33 98 130 142
Operating lease charges
Hire of plant and
machinery............ 333 666 840 546
Other lease charges... 420 840 1,170 742
Finance lease charges
Plant and machinery... 14 30 59 68
Leased machinery...... -- -- -- --
Pension costs........... 290 928 1,246 1,144
Profit on sale of
properties............. -- -- -- (386)
Profit on sale of other
assets................. -- (20) (3) (266)
Net foreign exchange
losses/(profits)....... 149 72 45 (53)
Provision for doubtful
debtors................ 176 227 467 378
</TABLE>
F-19
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7 INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
--------------- -----------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 APRIL 25, 1995 YEAR ENDED YEAR ENDED
TO APRIL 24, TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
--------------- --------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
INTEREST PAYABLE AND
SIMILAR CHARGES ON:
Borrowings totally
repayable within
5 years.............. (934) (6,288) (3,086) (7,874)
Debenture interest
repayable within
5 years.............. -- -- -- (3,041)
Borrowings repayable
after 5 years........ (2,576) -- (5,543) --
Debenture interest
repayable after
5 years.............. -- (1,585) (2,638) --
------ ------ ------- -------
(3,510) (7,873) (11,267) (10,915)
====== ====== ======= =======
</TABLE>
8DIRECTORS AND EMPLOYEES
The average number of employees (including directors) was made up as
follows:
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
----------- --------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25,
1995 TO 1995 TO YEAR ENDED YEAR ENDED
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Manufacturing.............. 1,221 1,194 1,142 1,021
Selling, distribution and
administration............ 1,250 1,252 1,174 1,058
----- ----- ----- -----
2,471 2,446 2,316 2,079
===== ===== ===== =====
Total number of employees
at end of period.......... 2,481 2,400 2,259 1,071
===== ===== ===== =====
</TABLE>
As of December 31, 1997 Texon International plc had 1,071 employees, of
which 603 were in manufacturing and 468 in selling, distribution and
administration.
F-20
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8 DIRECTORS AND EMPLOYEES (CONTINUED)
Payments in respect of these employees were as follows:
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
------------ -----------------------------------------
PERIOD FROM
JANUARY 1, PERIOD FROM
1995 APRIL 25, 1995 YEAR ENDED YEAR ENDED
TO APRIL 24, TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
------------ --------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Wages................... 15,669 31,212 45,672 43,980
Social security costs... 1,870 3,549 5,768 5,342
Other pension costs..... 1,028 2,160 3,145 2,959
Health and other payroll
costs.................. 868 1,088 2,130 2,033
------ ------ ------ ------
19,435 38,009 56,715 54,314
====== ====== ====== ======
</TABLE>
Directors' emoluments including pension contributions comprise:
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
------------ -----------------------------------------
PERIOD FROM
JANUARY 1, PERIOD FROM
1995 APRIL 25, 1995 YEAR ENDED YEAR ENDED
TO APRIL 24, TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
------------ --------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Fees................. 7 40 60 60
Other emoluments..... 311 198 1,090 1,146
Pensions............. 14 5 37 117
--- --- ----- -----
332 243 1,187 1,323
=== === ===== =====
</TABLE>
Included within other emoluments for the years ended December 31, 1996 and
1997, is (Pounds)306,000 and (Pounds)375,000, respectively, paid as
compensation to Directors and past Directors for loss of office. Directors of
United Texon Limited who were compensated during 1996 for loss of office were,
Mr Bates (resigned May 31, 1996), Mr Burton (resigned June 28, 1996) and Mr
Price (resigned August 6, 1996). The directors compensated for loss of office
during 1997 were Dr Coutts who resigned from United Texon Limited on December
31, 1997 and Mr Fleming, who following the sale of the Machinery business,
resigned from the Machinery division on December 31, 1997 and was compensated
by British United Shoe Machinery Co Limited, a subsidiary within the Machinery
division.
Pensions for the year ended December 31, 1996 includes a contribution of
(Pounds)26,361 paid on behalf of two Directors as compensation for loss of
office.
F-21
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8 DIRECTORS AND EMPLOYEES (CONTINUED)
Directors' emoluments:
The emoluments of the Chairman were (Pounds)54,000, (Pounds)133,000,
(Pounds)201,000 and (Pounds)545,000 for the period from January 1, 1995 to
April 24, 1995, period from April 25, 1995 to December 31, 1995 and the years
ended December 31, 1996 and 1997 respectively.
Emoluments of the highest paid Director were (Pounds)68,000,
(Pounds)133,000, (Pounds)224,000 and (Pounds)545,000 for the period from
January 1, 1995 to April 24, 1995, period from April 25, 1995 to December 31,
1995 and the years ended December 31, 1996 and 1997 respectively.
Three Directors have benefits accruing under money purchase pension schemes.
The remuneration of the executive Directors is authorised by the
Remuneration Committee of the Board which consists of non-executive Directors
only.
While the consolidated profit and loss accounts include the total emoluments
of the employees of United Texon Limited for the year, the Directors'
emoluments shown above are only for the period in which they were a director
of United Texon Limited.
Additional information relating to Directors share options is located in
Note 15.
F-22
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9 TAXATION
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
----------- --------------------------------------
PERIOD FROM PERIOD
JANUARY 1, FROM APRIL
1995 TO 25, 1995 TO YEAR ENDED YEAR ENDED
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
----------- ------------ ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
TAXABLE INCOME/(LOSS):
UK......................... (1,589) (8,417) (1,949) (11,590)
Overseas................... 3,135 (5,756) 3,418 9,565
------ ------- ------ -------
1,546 (14,173) 1,469 (2,025)
====== ======= ====== =======
THE TAX CHARGE IS MADE UP
AS FOLLOWS:
UK
Corporation tax at 31.5%,
(1996 and 1995: 33%).... -- -- -- --
Deferred tax............. -- -- -- (247)
OVERSEAS TAXATION
Corporation tax.......... (641) (830) (2,324) (1,796)
Withholding tax.......... (11) (83) (195) (3)
Deferred tax............. 2 (107) (69) 36
------ ------- ------ -------
(650) (1,020) (2,588) (2,010)
CURRENT YEAR ADJUSTMENTS IN
RESPECT OF PRIOR YEARS
Corporation tax.......... -- 112 (13) 22
Deferred tax............. -- (80) 696 --
------ ------- ------ -------
(650) (988) (1,905) (1,988)
====== ======= ====== =======
Continuing operations...... (367) (682) (2,387) (1,492)
Discontinued operations.... (283) (306) 482 (496)
------ ------- ------ -------
(650) (988) (1,905) (1,988)
====== ======= ====== =======
</TABLE>
The December 31, 1997 charge for UK Corporation Tax at 31.5% (1996 and 1995:
33%) is stated after double tax relief of (Pounds)512,000 (December 31, 1996:
(Pounds)177,000; period April 25, 1995 to December 31, 1995: (Pounds)988,000;
period from January 1, 1995 to April 24, 1995: (Pounds)Nil).
At December 31, 1997, Texon International plc and its subsidiaries had
carried forward tax losses available for continuing operations of
(Pounds)11,971,000, with (Pounds)4,020,000 expiring between December 31, 1997
and December 31, 2012 and (Pounds)7,951,000 being unlimited.
The taxable profits generated by the Foshan Texon Cellulose Board
Manufacturing Co Limited are subject to a tax holiday until December 31, 1997,
and at half the standard rate for the following three years (the current
standard rate is 33%).
F-23
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9 TAXATION (CONTINUED)
The table below reconciles the expected UK statutory charge to the actual
taxes:
<TABLE>
<CAPTION>
USM
(HOLDINGS)
LIMITED UNITED TEXON LIMITED
--------------- -----------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 APRIL 25, 1995 YEAR ENDED YEAR ENDED
TO APRIL 24, TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
--------------- --------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
EXPECTED TAXATION
CHARGE/(BENEFIT) AT UK
CORPORATION TAX RATES
(1997: 31.5%; 1996 and
1995: 33%)............. 510 (4,677) 485 (638)
Current year tax losses
not relieved........... 758 5,801 1,743 4,043
Benefit of prior year
losses................. (736) (406) (441) (2,922)
Withholding tax......... 11 83 195 3
Overseas tax rates...... 107 219 836 1,469
Benefit of overseas tax
holiday................ -- -- (230) (229)
Prior year tax
adjustment............. -- (32) (683) (22)
Non-deductible
expenses............... -- -- -- 1,308
Non-taxable gain on
disposal of
discontinued
operations............. -- -- -- (1,024)
---- ------ ----- ------
Actual taxes on income.. 650 988 1,905 1,988
==== ====== ===== ======
</TABLE>
To the extent that dividends remitted from overseas subsidiaries and
associated undertakings are expected to result in additional taxes,
appropriate amounts have been provided. No taxes have been provided for
unremitted earnings of subsidiaries and associated undertakings when such
amounts are considered permanently re-invested.
F-24
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10 CONSOLIDATED TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
MACHINERY
LAND AND PLANT AND OFFICE MOTOR LEASED TO
BUILDINGS MACHINERY EQUIPMENT VEHICLES CUSTOMERS TOTAL
----------- ----------- ----------- ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
UNITED TEXON LIMITED
<S> <C> <C> <C> <C> <C> <C>
COST
At January 1, 1997...... 11,105 35,358 3,367 652 13,041 63,523
Exchange adjustment..... (270) (749) (80) (12) (293) (1,404)
Additions............... 9 1,813 111 173 1,154 3,260
Disposals............... (1,450) (1,646) (526) (235) (4,808) (8,665)
Discontinued
operations............. (1,309) (12,142) (1,877) (218) (8,777) (24,323)
------ ------- ------ ---- ------ -------
At December 31, 1997.... 8,085 22,634 995 360 317 32,391
====== ======= ====== ==== ====== =======
ACCUMULATED DEPRECIATION
At January 1, 1997...... 2,734 22,577 2,757 334 8,567 36,969
Exchange adjustment..... (122) (371) (149) (53) (287) (982)
Provided during the
year................... 340 2,571 182 154 1,691 4,938
Disposals............... (743) (1,521) (483) (113) (3,430) (6,290)
Discontinued
operations............. (480) (9,629) (1,561) (138) (6,277) (18,085)
------ ------- ------ ---- ------ -------
At December 31, 1997.... 1,729 13,627 746 184 264 16,550
====== ======= ====== ==== ====== =======
NET BOOK VALUE AT
DECEMBER 31, 1997...... 6,356 9,007 249 176 53 15,841
------ ------- ------ ---- ------ -------
NET BOOK VALUE AT
DECEMBER 31, 1996...... 8,371 12,781 610 318 4,474 26,554
====== ======= ====== ==== ====== =======
- -------------------------------------------------------------------------------------------------
TEXON INTERNATIONAL PLC
COST
Assets acquired......... 6,356 9,007 249 176 53 15,841
Fair value adjustments.. 1,257 -- -- -- -- 1,257
------ ------- ------ ---- ------ -------
At December 31, 1997.... 7,613 9,007 249 176 53 17,098
====== ======= ====== ==== ====== =======
ACCUMULATED DEPRECIATION
Depreciation on assets
acquired............... -- -- -- -- -- --
------ ------- ------ ---- ------ -------
Net book value at
December 31, 1997...... 7,613 9,007 249 176 53 17,098
====== ======= ====== ==== ====== =======
</TABLE>
Included in the total net book value of plant and machinery at December 31,
1997 is (Pounds)1,005,000 (December 31, 1996: (Pounds)1,244,000) in respect of
assets held under finance leases and hire purchase contracts. Depreciation
charged during the year ended December 31, 1997 related to such plant and
machinery is (Pounds)142,000 (December 31, 1996: (Pounds)128,000).
Included in the net book value of machinery leased to customers as of
December 31, 1997 is (Pounds)24,000 (December 31, 1996: (Pounds)2,201,000) in
respect of assets sold to finance companies on terms whereby the assets may be
re-acquired at the end of the primary lease period under a re-marketing
agreement with such finance companies.
F-25
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10 CONSOLIDATED TANGIBLE FIXED ASSETS (CONTINUED)
Land and Buildings comprise:
<TABLE>
<CAPTION>
SHORT
FREEHOLD LEASEHOLD TOTAL
----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
UNITED TEXON LIMITED
COST
At January 1, 1997........................ 10,782 323 11,105
Exchange adjustment....................... (255) (15) (270)
Reclassification.......................... -- 5 5
Capital expenditure....................... -- 4 4
Disposals................................. (1,441) (9) (1,450)
Discontinued operations................... (1,014) (295) (1,309)
------ ---- ------
Cost at December 31, 1997................. 8,072 13 8,085
====== ==== ======
ACCUMULATED DEPRECIATION
At January 1, 1997........................ 2,555 179 2,734
Exchange adjustment....................... (120) (2) (122)
Provided in the year...................... 322 18 340
Disposals................................. (734) (9) (743)
Discontinued operations................... (299) (181) (480)
------ ---- ------
Accumulated depreciation at December 31,
1997..................................... 1,724 5 1,729
====== ==== ======
NET BOOK VALUE
At December 31, 1997...................... 6,348 8 6,356
====== ==== ======
At December 31, 1996...................... 8,227 144 8,371
====== ==== ======
- ------------------------------------------------------------------------------
TEXON INTERNATIONAL PLC
COST
Assets acquired........................... 6,348 8 6,356
Fair value adjustments.................... 1,257 -- 1,257
------ ---- ------
At December 31, 1997...................... 7,605 8 7,613
====== ==== ======
ACCUMULATED DEPRECIATION
Depreciation on assets acquired........... -- -- --
====== ==== ======
NET BOOK VALUE
At December 31, 1997...................... 7,605 8 7,613
====== ==== ======
</TABLE>
F-26
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11 STOCKS
Stocks comprise the following:
<TABLE>
<CAPTION>
TEXON
INTERNATIONAL
UNITED TEXON LIMITED PLC
------------------------- -------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Raw materials......................................................................... 2,747 2,283 2,283
Work in progress...................................................................... 10,146 1,148 1,148
Finished goods and goods for resale................................................... 23,154 13,285 13,285
------ ------ ------
36,047 16,716 16,716
====== ====== ======
</TABLE>
12DEBTORS
Debtors comprise the following:
<TABLE>
<CAPTION>
TEXON
INTERNATIONAL
UNITED TEXON LIMITED PLC
------------------------- -------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade debtors, net of (Pounds)1,529,000 (1996: (Pounds)1,626,000) allowance for
doubtful debtors..................................................................... 28,920 16,868 16,868
Other debtors......................................................................... 2,152 1,288 1,288
Prepayments and accrued income........................................................ 1,170 327 327
------ ------ ------
32,242 18,483 18,483
====== ====== ======
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Trade debtors......................................................................... 670 -- --
Other debtors......................................................................... 2,082 862 862
------ ------ ------
2,752 862 862
------ ------ ------
Total debtors......................................................................... 34,994 19,345 19,345
====== ====== ======
</TABLE>
F-27
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12 DEBTORS (CONTINUED)
Other debtors falling due after more than one year relate to deposits on
leased assets, bonds and cash surrender insurance. The movement on the
allowance for doubtful debts may be analysed as follows:
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Balance at beginning of period............................. 2,196 2,341 2,343 1,626 --
Charge for the period...................................... 272 517 662 558 --
Utilised during the period................................. (175) (557) (1,274) (576) --
Allowance acquired......................................... -- -- -- -- 1,529
Exchange adjustment........................................ 48 42 (105) (79) --
----- ----- ------ ----- -----
Balance at end of period................................... 2,341 2,343 1,626 1,529 1,529
===== ===== ====== ===== =====
</TABLE>
13 CREDITORS
<TABLE>
<CAPTION>
TEXON
INTERNATIONAL
UNITED TEXON LIMITED PLC
------------------------- -------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Amounts falling due within one year
Borrowings, bank loans and overdrafts............................................... 56,587 60,446 60,446
Obligations under finance leases.................................................... 147 224 224
Payments received on account........................................................ 519 81 81
Trade creditors..................................................................... 13,036 9,460 9,460
Taxation and social security........................................................ 4,965 2,333 2,333
Other creditors..................................................................... 3,900 871 871
Accruals............................................................................ 20,719 13,105 37,028
Debentures.......................................................................... -- 27,214 3,950
------ ------- -------
99,873 113,734 114,393
====== ======= =======
Amounts falling due after more than one year
Obligations under finance leases (falling due in 2-5 years)......................... 945 698 698
Future lease income................................................................. 2,318 -- --
Debentures, falling due in 2-5 years................................................ 3,950 -- --
Borrowings, bank loans
Repayable after more than 1 year.................................................. 6,461 -- --
Debentures
Falling due after more than 5 years............................................... 20,223 -- --
------ ------- -------
33,897 698 698
====== ======= =======
</TABLE>
F-28
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13 CREDITORS (CONTINUED)
Texon International plc and United Texon Limited had no trade balances
bearing imputed interest at December 31, 1997. The weighted average interest
rate on short-term and total borrowings at December 31, 1997 was 9.33% (1996:
8.79%).
BORROWINGS, BANK LOANS AND OVERDRAFTS COMPRISE:
<TABLE>
<CAPTION>
TEXON
INTERNATIONAL
UNITED TEXON LIMITED PLC
------------------------- -------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Amounts falling due within one year
Senior Secured Loans................................................................. 51,128 48,122 48,122
Mezzanine Debt....................................................................... -- 6,854 6,854
Other loans and bilateral facilities................................................. 5,459 5,470 5,470
------ ------ ------
56,587 60,446 60,446
====== ====== ======
Amounts falling due after more than one year
Mezzanine Debt........................................................................ 6,461 -- --
------ ------ ------
6,461 -- --
====== ====== ======
</TABLE>
Following the acquisition of United Texon Limited by Texon International plc
on December 31, 1997 the Senior Secured loans, Mezzanine Debt and Loan notes
became repayable on demand and were repaid on completion of the transaction on
January 30, 1998. As a part of the same transaction Texon International plc
acquired the deep discounted bonds from the shareholders of United Texon
Limited and as described in more detail in Note 25a entered into a new Credit
Agreement. Details pertaining to the borrowings, bank loans and overdrafts as
of December 31,1997 are given below.
The Senior Secured Loans are from a syndicate of banks and are secured by
fixed and floating charges on the worldwide assets of the Group's
subsidiaries. The final maturity of the Senior Secured Loans is March 31,
2002. As at December 31, 1996, the Group was in breach of financial covenants
regarding the Senior Secured Loans making them technically repayable on
demand. On July 29, 1997 the Group successfully negotiated a new agreement
resulting in the debt no longer being repayable on demand. The relevant
interest rate effective on the loans in 1997 was 2.25% per annum over LIBOR
(1996: 2.25%).
The Group has unused available bank facilities as of December 31, 1997, of
(Pounds)3,539,000. The facilities are available as part of and under the same
terms as the existing debt.
The Group is subject to various financial ratio covenants under the Senior
credit agreement of July 29, 1997. Under the terms of the Senior credit
agreement in place at December 31, 1997, the Group was prevented from paying a
dividend on the ordinary shares.
The date for repayment of the Mezzanine Debt is September 30, 2002. United
Texon Limited's relevant interest rate for 1997 was 3.5% over the relevant
cost of funds payable in cash, with a further 6% per annum payable on
redemption. The third party lender has a second charge on the assets of
F-29
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13 CREDITORS (CONTINUED)
United Texon Limited. No interest was paid during 1997 and interest accrues
thereon at 10.5% over the relevant cost of funds.
Others loans and bilateral facilities represent credit facilities of
subsidiaries with third parties.
DEBENTURES COMPRISE:
Details concerning the Bonds and Loan notes as of December 31, 1997 are given
below:
<TABLE>
<CAPTION>
TEXON
INTERNATIONAL
UNITED TEXON LIMITED PLC
------------------------- -------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Amounts falling due within one year
Deep Discounted Bonds................................................................ -- 23,264 --
Loan notes........................................................................... -- 3,950 3,950
------ ------ -----
-- 27,214 3,950
Amounts falling due after more than one year ====== ====== =====
Deep discounted bonds................................................................ 20,223 -- --
Loan notes........................................................................... 3,950 -- --
------ ------ -----
24,173 -- --
====== ====== =====
</TABLE>
The Deep Discounted Bonds were purchased from the shareholders by Texon
International plc in connection with its acquisition of United Texon Limited
and are included within accruals in Texon International plc's balance sheet as
of December 31, 1997.
The Deep Discounted Bonds which accrue at a discount rate of 15% per annum
are redeemable at par on September 30, 2002 for (Pounds)45,184,000.
Loan notes comprise a Loan note of (Pounds)450,000 redeemable on June 30,
1999, upon which no interest is payable. Options on Loan notes of
(Pounds)158,476 are not exercised at December 31, 1997, against which no
interest is payable until exercised and (Pounds)3,341,816 of Loan notes upon
which interest is payable at a rate of 5% per annum. If interest is not paid
at each six month period from January 1, 1996, then interest of 8% per annum
is charged on this outstanding interest. The Loan notes are redeemable at
United Texon Limited's option but in any event not later than the earlier of
the date of sale or flotation of the Company or June 30, 1999.
F-30
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14 PROVISIONS FOR LIABILITIES AND CHARGES
UNITED TEXON LIMITED
<TABLE>
<CAPTION>
OTHER
PENSIONS DEFERRED TAX PROVISIONS TOTAL
----------- ------------ ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Balance at January 1, 1997... 16,957 (526) 14,030 30,461
Exchange adjustment.......... (2,043) (3) 438 (1,608)
Provided..................... 1,679 211 2,848 4,738
Utilised..................... (830) -- (2,811) (3,641)
Disposal of Machinery
division.................... (12,069) 102 (11,561) (23,528)
------- ---- ------- -------
At December 31, 1997......... 3,694 (216) 2,944 6,422
======= ==== ======= =======
At December 31, 1996......... 16,957 (526) 14,030 30,461
======= ==== ======= =======
</TABLE>
- -------------------------------------------------------------------------------
TEXON INTERNATIONAL PLC
<TABLE>
<CAPTION>
OTHER
PENSIONS DEFERRED TAX PROVISIONS TOTAL
----------- ------------ ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Provisions acquired............ 3,694 (216) 2,944 6,422
----- ---- ----- -----
At December 31, 1997........... 3,694 (216) 2,944 6,422
===== ==== ===== =====
</TABLE>
PENSIONS:
Pensions are discussed in Note 22.
DEFERRED TAXATION:
<TABLE>
<CAPTION>
TEXON
INTERNATIONAL
UNITED TEXON LIMITED PLC
------------------------- -------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
DEFERRED TAXATION IS REPRESENTED BY
Excess of capital allowances over accumulated depreciation............................ 64 (51) (51)
Intercompany profit contained in stock................................................ (725) (262) (262)
Other provisions and timing differences............................................... 135 97 97
---- ---- ----
(526) (216) (216)
==== ==== ====
</TABLE>
Properties valued in the accounts at more than their historical cost in the
local books of Texon International plc and United Texon Limited could give
rise to a tax liability of approximately (Pounds)1.7 million and (Pounds)1.3
million respectively if sold at net book value. Provision for this liability
has not been made in the accounts in cases where there is no intention of
selling the properties and in others any tax liability would be extinguished
by available tax losses. There are no other potential liabilities for deferred
tax, not provided in the financial statements.
OTHER PROVISIONS:
Other provisions at December 31, 1997 includes (Pounds)606,000 (1996:
(Pounds)8,622,000) for post retirement medical and life insurance benefits of
retired employees and certain current employees in the United States. (See
Note 23).
F-31
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15 SHARE CAPITAL
TEXON INTERNATIONAL PLC
<TABLE>
<CAPTION>
TEXON INTERNATIONAL PLC
-------------------------------------
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1997 1997
---------------- --------------------
NUMBER OF SHARES PAR VALUE (Pounds)
<S> <C> <C>
AUTHORISED SHARE CAPITAL
Ordinary A voting shares of (Pounds)1
each.................................. 3,436,277 3,436,277
Ordinary A non-voting shares of
(Pounds)1 each........................ 163,723 163,723
Ordinary B voting shares of (Pounds)1
each.................................. 400,000 400,000
Redeemable cumulative preference shares
of 10p each........................... 52,000,000 5,200,000
---------
9,200,000
=========
</TABLE>
<TABLE>
<CAPTION>
TEXON INTERNATIONAL PLC
----------------------------------
NUMBER OF CONSIDERATION
SHARES PAR VALUE PAID
--------- ---------- -------------
(Pounds) (Pounds)
<S> <C> <C> <C>
ISSUED SHARE CAPITAL
Ordinary B voting shares of (Pounds)1 each
Issued fully paid........................... 1 1 1
Issued partly paid.......................... 49,999 12,501 12,501
------ ------ ------
50,000 12,502 12,502
====== ====== ======
</TABLE>
On December 31, 1997 Texon International plc acquired the entire share
capital including preference shares of United Texon Limited. The consideration
includes the shares described as "share capital to be issued" as discussed in
Note 25.
Under the terms of the revolving credit facility and the 10% Series A Notes
due 2008, Texon International plc are prevented from paying a dividend on
preference shares and ordinary shares until certain financial ratios have been
met.
The redeemable cumulative preference shares are redeemable at the option of
the Company and carry a fixed cumulative dividend, calculated as a percentage
of the redemption value of (Pounds)52.0 million, payable semi-annually at a
rate exclusive of any associated tax credit. The dividend is 15% through
September 30, 2002. However, any preference dividend payments due on or prior
to December 31, 2000, which are paid on or prior to the due date, shall be
deemed to satisfy three times the amount of the preference dividend so paid,
provided that arrears of accrued but unpaid dividends in respect of previous
periods have been paid until December 31, 2000, in the event that the dividend
is not paid on the due date, it shall accumulate at a rate of 15%.
F-32
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15 SHARE CAPITAL (CONTINUED)
UNITED TEXON LIMITED
Details of the issued share capital including the mandatorily redeemable
cumulative preference shares acquired by Texon International plc at December
31, 1997 are given below:
<TABLE>
<CAPTION>
UNITED TEXON LIMITED
-------------------------------------
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1997 1997
---------------- --------------------
NUMBER OF SHARES PAR VALUE (Pounds)
<S> <C> <C>
AUTHORISED SHARE CAPITAL
Ordinary voting shares of 1p each...... 4,999,568 49,996
Ordinary non-voting shares of 1p each.. 250,327 2,503
Mandatorily redeemable cumulative
preference shares of (Pounds)1 each... 29,000,000 29,000,000
----------
29,052,499
==========
</TABLE>
<TABLE>
<CAPTION>
UNITED TEXON LIMITED
-----------------------------------
NUMBER OF CONSIDERATION
SHARES PAR VALUE PAID
---------- ---------- -------------
(Pounds) (Pounds)
<S> <C> <C> <C>
ISSUED SHARE CAPITAL
Ordinary voting shares of 1p each........ 4,749,673 47,497 4,749,673
Ordinary non-voting shares of 1p each.... 250,327 2,503 250,327
Mandatorily redeemable cumulative
preference shares of (Pounds)1 each..... 29,000,000 29,000,000 29,000,000
---------- ----------
29,050,000 34,000,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
UNITED TEXON LIMITED
-------------------------------------
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1996 1996
---------------- --------------------
NUMBER OF SHARES PAR VALUE (Pounds)
<S> <C> <C>
AUTHORISED SHARE CAPITAL
Ordinary voting shares of 1p each....... 5,092,000 50,920
Ordinary non-voting shares of 1p each... 157,895 1,579
Mandatorily redeemable cumulative
preference shares of (Pounds)1 each.... 29,000,000 29,000,000
----------
29,052,499
==========
</TABLE>
<TABLE>
<CAPTION>
UNITED TEXON LIMITED
-----------------------------------
AS OF DECEMBER 31, 1996
-----------------------------------
NUMBER OF CONSIDERATION
SHARES PAR VALUE PAID
---------- ---------- -------------
(Pounds) (Pounds)
<S> <C> <C> <C>
ISSUED SHARE CAPITAL
Ordinary voting shares of 1p each......... 4,842,105 48,421 4,842,105
Ordinary non-voting shares of 1p each..... 157,895 1,579 157,895
Mandatorily redeemable cumulative
preference shares of (Pounds)1 each...... 29,000,000 29,000,000 29,000,000
---------- ----------
29,050,000 34,000,000
========== ==========
</TABLE>
F-33
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15 SHARE CAPITAL (CONTINUED)
MANDATORILY REDEEMABLE CUMULATIVE PREFERENCE SHARES:
The mandatorily redeemable cumulative preference shares are redeemable at
United Texon Limited's option but in any event not later than the earlier of
the date of sale or flotation of the company or September 30, 2002, at par
together with premium of 7 1/2% per annum from date of allotment to date of
redemption. In addition, the mandatorily redeemable cumulative preference
shares carry the right to a preference dividend that accrues at the rate of 5%
per annum from January 1, 1996, to date of redemption. The accretion of the
preference dividend and redemption premium has been included as an
appropriation in the profit and loss account and a transfer made for the
amounts involved between equity and non-equity interests within the total of
shareholders' equity.
On October 6, 1997, United Texon Limited's shareholders waived their
entitlement to the premium on redemption in respect of the period from January
1, 1996, to December 31, 1997, together with additional amounts representing
interest on the preference dividend for the same period. The premium payable
on the redemption of the preference shares from the date of issue to December
31, 1997, was also waived. From January 1, 1998, the original rights and
entitlements are restored.
As a result of the waiver the redemption premium, preference dividend and
interest charges transferred from equity to non-equity interests in prior
periods has been reversed in 1997.
Non-equity interests are comprised of the following:
<TABLE>
<CAPTION>
(Pounds)
<S> <C>
NON-EQUITY INTERESTS
Preference shares of (Pounds)1 each (at issue).................... 29,000,000
Acretion of redemption premium for the period..................... 1,450,000
----------
Non-equity interest at December 31, 1995.......................... 30,450,000
Acretion of redemption premium for the period..................... 2,284,000
Accrued preference dividend and interest on accrued preference
dividend......................................................... 1,483,000
----------
Non-equity interest at December 31, 1996.......................... 34,217,000
Reversal of redemption premium ................................... (3,734,000)
Waiver of accrued preference dividend and interest on accrued
preference dividend.............................................. (1,483,000)
----------
Non-equity interest at December 31, 1997.......................... 29,000,000
==========
</TABLE>
SHARE OPTIONS-UNITED TEXON LIMITED
Share options over 62,500 ordinary shares and 150,000 ordinary shares were
previously granted to Directors in 1995 and 1996 at an exercise price of
(Pounds)1 per share. The exercise price exceeded the fair value of the shares
at the date of grant, there were no conditions for exercise and no expiration
date for the options. No options were exercised or forfeited in 1995 and 1996.
The share options for the 212,500 ordinary shares were forfeited during 1997
in connection with the establishment of a new share option scheme.
Under the 1997 share option scheme 925,273 share options were granted to
directors and officers at a weighted average exercise price per share of 1p.
In 1997 671,123 were exercised with the remaining 254,150 being forfeited.
The options were granted in October 1997, and were only exercisable on the
occurrence of a capital event (ie. a sale or listing). The number of shares to
which individuals were entitled was
F-34
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15 SHARE CAPITAL (CONTINUED)
determined in relation to the capital value of the Company. The acquisition of
United Texon Limited by Texon International plc triggered the exercise of the
options. The shares were issued on January 30, 1998, effective as at December
31, 1997.
The total compensation cost included in the results of United Texon Limited
in the year ended December 31, 1997 in respect of the 1997 share option scheme
was (Pounds)2.8 million. The weighted average grant date fair value of options
granted during the year was (Pounds)4.18.
SUMMARY OF SHARE CAPITAL MOVEMENT
Movements in share capital are summarized below:
<TABLE>
<CAPTION>
SHARE CAPITAL
---------------------------------------------------------------------------------------------------------
MANDATORILY MANDATORILY MANDATORILY MANDATORILY
REDEEMABLE REDEEMABLE REDEEMABLE REDEEMABLE
CUMULATIVE CUMULATIVE CUMULATIVE CUMULATIVE
PREFERENCE PREFERENCE ORDINARY PREFERENCE PREFERENCE ORDINARY
SHARES OF (Pounds)1 SHARES OF SHARES OF SHARES OF (Pounds)1 SHARES OF SHARES OF
EACH LPENCE EACH LPENCE EACH EACH LPENCE EACH LPENCE EACH TOTAL
------------------- ----------- ----------- ------------------- ------------- ------------- -------------
(NUMBER) (NUMBER) (NUMBER) ((Pounds)000) ((Pounds)000) ((Pounds)000) ((Pounds)000)
<S> <C> <C> <C> <C> <C> <C> <C>
AUTHORIZED:
USM (Holdings)
Limited
December 31,
1994, April 24,
1995........... 15,000,000 122,500 6,106,095 15,000 1 61 15,062
United Texon
Limited
April 25, 1995
and December
31, 1995, 19996
and 1997....... 29,000,000 0 5,249,895 29,000 0 52 29,052
ISSUED:
USM (Holdings)
Limited
December 31,
1994........... 5,971,714 122,500 6,030,960 5,972 1 60 6,033
Issued in
exchange for
mezzanine
interest........ 867,615 0 0 868 868
---------- ------- --------- ------ --- --- ------
April 24, 1995... 6,839,349 122,500 6,030,960 6,840 1 60 6,901
========== ======= ========= ====== === === ======
United Texon
Limited
United Texon
Limited shares
issued in
exchange for
cash........... 29,000,000 5,000,000 29,000 50 29,050
---------- --------- ------ --- ------
April 25, 1995
and December
31, 1995, 1996
and 1997....... 29,000,000 5,000,000 29,000 50 29,050
========== ========= ====== === ======
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
TEXON INTERNATIONAL PLC
<TABLE>
<CAPTION>
SHARE CAPITAL
--------------------------------------------------------------------------
REDEEMABLE
CUMULATIVE REDEEMABLE
PREFERENCE CUMULATIVE
SHARES OF PREFERENCE
10PENCE ORDINARY SHARES SHARES OF ORDINARY SHARES
EACH OF (Pounds)1 EACH 10PENCE EACH OF (Pounds)1 EACH TOTAL
---------- ----------------- ------------- ----------------- -------------
(NUMBER) (NUMBER) ((Pounds)000) ((Pounds)000) ((Pounds)000)
<S> <C> <C> <C> <C> <C>
AUTHORIZED:
December 31, 1997....... 52,000,000 4,000,000 5,200 4,000 9,200
Issued:
Texon International plc
ISSUED PARTLY PAID...... 50,000 13 13
Share capital to be
issued for the
Acquisition............ 52,000,000 3,600,000 5,200 3,600 8,800
---------- --------- ----- ----- -----
December 31, 1997....... 52,000,000 3,650,000 5,200 3,613 8,813
========== ========= ===== ===== =====
</TABLE>
F-35
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16 RESERVES
<TABLE>
<CAPTION>
SHARE GOODWILL
PREMIUM WRITE-OFF PROFIT AND
ACCOUNT RESERVE LOSS ACCOUNT TOTAL
----------- ----------- ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
USM (HOLDINGS) LIMITED
Balance at January 1, 1995... 17,484 (73,932) (1,406) (57,854)
Retained profit for the
year........................ -- -- 964 964
Exchange adjustments......... -- (1,856) 137 (1,719)
------ -------- ------- --------
Balance at April 24, 1995.... 17,484 (75,788) (305) (58,609)
====== ======== ======= ========
UNITED TEXON LIMITED
Balance at April 25, 1995.... -- -- -- --
Share premium on issue of or-
dinary shares............... 4,950 -- -- 4,950
Goodwill written-off during
the period.................. -- (88,293) -- (88,293)
Retained profit/(loss) for
the year.................... -- -- (15,052) (15,052)
Exchange adjustments......... -- (1,384) 141 (1,243)
------ -------- ------- --------
Balance at December 31,
1995........................ 4,950 (89,677) (14,911) (99,638)
====== ======== ======= ========
Balance at January 1 1996.... 4,950 (89,677) (14,911) (99,638)
Retained profit/(loss) for
the year.................... -- -- (729) (729)
Exchange adjustments......... -- 7,868 (2,617) 5,251
------ -------- ------- --------
Balance at December 31,
1996........................ 4,950 (81,809) (18,257) (95,116)
====== ======== ======= ========
Balance at January 1, 1997... 4,950 (81,809) (18,257) (95,116)
Retained profit/(loss) for
the year.................... -- -- (4,318) (4,318)
Exercised share options...... -- -- 2,803 2,803
Exchange adjustments......... -- 2,347 (4,006) (1,659)
------ -------- ------- --------
Balance at December 31,
1997........................ 4,950 (79,462) (23,778) (98,290)
====== ======== ======= ========
- -------------------------------------------------------------------------------
TEXON INTERNATIONAL PLC
Balance at incorporation..... -- -- -- --
Goodwill written-off during
the period.................. -- (124,242) -- (124,242)
Share capital to be issued... 46,800 -- -- 46,800
------ -------- ------- --------
Balance at December 31,
1997........................ 46,800 (124,242) -- (77,443)
====== ======== ======= ========
</TABLE>
The Texon International plc and United Texon Limited accumulated translation
gains at December 31, 1997, were (Pounds)nil and (Pounds)2,349,000 respectively
(United Texon Limited 1996: (Pounds)4,008,000).
F-36
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17 MINORITY EQUITY INTERESTS
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
------------ -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 1995 TO YEAR ENDED YEAR ENDED 1997 TO
TO APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
------------ ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Balance at beginning of period............................ 1,053 -- 890 1,221 --
Acquisition of USM (Holdings) Limited..................... -- 960 -- -- --
Acquisition of United Texon Limited....................... -- -- -- -- 1,431
Minority interest in the profit/(loss) on ordinary
activities after tax..................................... (68) (109) 293 305 --
Exchange adjustments...................................... (25) 39 38 (95) --
----- ---- ----- ----- -----
Balance at end of period.................................. 960 890 1,221 1,431 1,431
===== ==== ===== ===== =====
</TABLE>
The minority interests relate to Texon International plc and United Texon
Limited's joint-venture operation in China. The Company owns 96% of USM (China
Holdings) Limited which in turn holds 60% of Foshan Texon Cellulose Board
Manufacturing Co Limited.
18 CONTINGENT LIABILITIES
Subsidiary undertakings have contingent liabilities amounting to
approximately (Pounds)681,000 in respect of guarantees given for commitments
in the normal course of trade.
From time to time, the Company is involved in routine ligitation incidental
to its business. The Company is not a party to any pending or threatened legal
proceeding which the Company believes would have a material adverse effect on
the Company's results of operations or financial condition.
19 FINANCIAL COMMITMENTS
Operating lease commitments of Texon International plc and United Texon
Limited for future minimum lease payments as at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
PROPERTY OTHER
----------- -----------
(Pounds)000 (Pounds)000
<S> <C> <C>
Leases expiring within 1 year...................... 164 244
Leases expiring in the second to fifth years
inclusive......................................... 161 237
Leases expiring over 5 years....................... 126 6
--- ---
451 487
=== ===
</TABLE>
20 RELATED PARTY TRANSACTIONS
The Chairman of United Texon Limited holds a Directorship in SATRA (Shoe and
Allied Trades Research Association). During the year ended December 31, 1997,
a subsidiary of United Texon Limited, British United Shoe Machinery Limited,
made payments to SATRA of (Pounds)28,078 (1996: (Pounds)61,884; period from
April 25, 1995 to December 31, 1995: (Pounds)61,639; period from January 1,
1995 to April 24, 1995: (Pounds)30,012).
F-37
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20 RELATED PARTY TRANSACTIONS (CONTINUED)
Certain Texon International plc and United Texon Limited shareholders have
had commercial relations with the companies. As a consequence, fees have been
paid to the shareholders for providing the services of directors, banking
services and strategic advice.
Transactions with related parties during the period (excluding interest paid
in the normal course of business) including fees is as follows:
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Fees for directors' services............................... -- 66 45 45 --
Banking and strategic advice............................... 100 2,520 80 155 500
Debt issuance.............................................. -- -- -- 700 --
--- ----- --- --- ---
- -------------------------------------------------- 100 2,586 125 900 500
=== ===== === === ===
</TABLE>
Amounts included within creditors in respect of related parties at December
31, 1997 totalled (Pounds)519,000. Included within prepayments in respect of
related parties at December 31, 1997 was an amount of (Pounds)14,000.
In a post balance sheet event described in Note 25 Texon International plc
paid a related party (Pounds)2.73 million in respect of debt issuance costs.
Peter Selkirk and Neil Fleming have an agreement with the holders of the A
ordinary shares in Texon International plc whereby they each may acquire from
those shareholders 80,000 A ordinary shares at a price of (Pounds)8.75 per
share. In addition, a further 240,000 A ordinary shares are available for
allocation, on a basis to be determined by the Remuneration Committee, to
Officers of the Company on the same terms as those described above.
SALE OF MACHINERY BUSINESS
The sale agreement contains warranties by United Texon Limited regarding the
shares being sold and provisions regulating aspects of the ongoing
relationship between United Texon Limited and the Machinery Group. These
include (i) provisions dealing with the sharing of historic insurance
coverage, (ii) mutual undertakings not to compete for three years or solicit
certain employees for 12 months, (iii) provisions for United Texon Limited to
make funds of up to (Pounds)2,000,000 available to the Machinery Group for
working capital purposes (to be repaid upon the completion of the Acquisition)
and (iv) an undertaking by the parties to determine an appropriate mechanism
for either winding up or splitting the UK pension scheme.
F-38
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21 NOTES TO THE CASH FLOW STATEMENT
A) RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS:
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Operating profit/(loss).................................... 4,916 (6,537) 12,507 8,592 --
Depreciation charges....................................... 2,170 4,024 5,832 4,938 --
Cash flow relating to restructuring charge................. -- 9,374 (4,234) (3,693) --
(Increase)/decrease in stocks.............................. (3,521) 3,656 2,228 18,362 --
(Increase)/decrease in debtors............................. (2,924) 4,032 2,208 14,233 --
Increase/(decrease) in creditors and accruals.............. 2,973 (10,165) 8,839 (39,622) --
Profit on sale of tangible fixed assets.................... (891) (73) (51) (637) --
Management share option expense............................ -- -- -- 2,803 --
------ ------- ------ ------- --
Net cash inflow/(outflow) from operating activities........ 2,723 4,311 27,329 4,976 --
====== ======= ====== ======= =====
</TABLE>
F-39
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21 NOTES TO THE CASH FLOW STATEMENT (CONTINUED)
B)ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received........................................ 140 237 229 298 --
Interest paid............................................ (3,135) (5,009) (6,141) (5,564) --
Interest element of finance leased payments.............. (14) (30) (59) (77) --
Interest element of finance leased machinery............. (265) (412) (488) (322) --
------ ------- ------- ------ -------
Net cash inflow/(outflow) for returns on investments and
servicing of finance...................................... (3,274) (5,214) (6,459) (5,665) --
====== ======= ======= ====== =======
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets.......................... (1,825) (4,481) (5,321) (3,260) --
Sale of tangible fixed assets.............................. 4,510 634 2,023 9,250 --
------ ------- ------- ------ -------
Net cash inflow/(outflow) for capital expenditure and
financial investment...................................... 2,685 (3,847) (3,298) 5,990 --
====== ======= ======= ====== =======
ACQUISITIONS AND DISPOSALS
Purchase/Sale of subsidiary undertaking.................... -- (29,356) -- -- (64,175)
------ ------- ------- ------ -------
Net cash inflow/(outflow) for acquisitions................. -- (29,356) -- -- (64,175)
====== ======= ======= ====== =======
FINANCING
Issue of ordinary share capital............................ -- 5,000 -- -- 13
Issue of preference share capital.......................... 867 29,000 -- -- --
Issue of debentures........................................ -- 16,000 -- -- --
Debt due within a year..................................... (3,288) (20,529) (17,256) (3,859) 64,175
Debt due beyond a year..................................... -- 6,000 -- -- --
New finance leases......................................... -- -- -- -- --
Capital element of finance lease rental payments........... (29) (78) (243) (170) --
------ ------- ------- ------ -------
Net cash inflow/(outflow) for financing.................... (2,450) 35,393 (17,499) (4,029) 64,188
====== ======= ======= ====== =======
</TABLE>
F-40
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21 NOTES TO THE CASH FLOW STATEMENT (CONTINUED)
C)ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
DEBT DUE DEBT DUE
OVER WITHIN AFTER FINANCE
CASH DRAFTS ONE YEAR ONE YEAR LEASES TOTAL
----------- ----------- ----------- ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C> <C>
USM (HOLDINGS) LIMITED
As at January 1, 1995... 3,388 (1,591) (12,455) (81,761) (616) (93,035)
Cash flow............... (755) 92 402 2,019 29 1,787
Other non-cash charges.. -- -- -- 867 -- 867
Exchange movements...... 71 (76) (55) (1,531) -- (1,591)
------ ------ ------- ------- ------ --------
As at April 24, 1995.... 2,704 (1,575) (12,108) (80,406) (587) (91,972)
UNITED TEXON LIMITED
As at April 25, 1995.... -- -- -- -- -- --
Cash flow............... 1,997 (2,604) (1,471) -- 78 (2,000)
Acquisition (excluding
cash and overdrafts)... -- -- (70,514) (22,000) (587) (93,101)
Other non-cash charges.. -- -- -- (5,535) -- (5,535)
Exchange movements...... 67 (137) (1,798) -- -- (1,868)
------ ------ ------- ------- ------ --------
As at December 31,
1995................... 2,064 (2,741) (73,783) (27,535) (509) (102,504)
As at January 1, 1996... 2,064 (2,741) (73,783) (27,535) (509) (102,504)
Cash flow............... 32 (523) 17,256 -- 243 17,008
Other non-cash charges.. -- -- -- (3,099) (826) (3,925)
Exchange movements...... (305) 350 2,854 -- -- 2,899
------ ------ ------- ------- ------ --------
As at December 31,
1996................... 1,791 (2,914) (53,673) (30,634) (1,092) (86,522)
As at January 1, 1997... 1,791 (2,914) (53,673) (30,634) (1,092) (86,522)
Cash flow............... 987 (1,227) 3,859 -- 170 3,789
Other non-cash charges.. -- -- (34,068) 30,634 -- (3,434)
Cash sold in disposal... (1,577) 411 -- -- -- (1,166)
Exchange movements...... (58) 366 (414) -- -- (106)
------ ------ ------- ------- ------ --------
As at December 31,
1997................... 1,143 (3,364) (84,296) -- (922) (87,439)
TEXON INTERNATIONAL PLC
Debt acquired December
31, 1997............... 1,143 (3,364) (61,032) -- (922) (64,175)
Proceeds from share
issue.................. 13 -- -- -- -- 13
------ ------ ------- ------- ------ --------
As at December 31,
1997................... 1,156 (3,364) (61,032) -- (922) (64,162)
====== ====== ======= ======= ====== ========
</TABLE>
D) CASH FLOW RELATING TO EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Provision at beginning of period........................... -- 10,110 9,374 5,140 --
Spend...................................................... -- (736) (4,234) (3,693) --
Discontinued operations.................................... -- -- -- (1,447) --
--- ------ ------ ------ ---
Provision at end of period................................. -- 9,374 5,140 -- --
==== ====== ====== ====== =====
</TABLE>
F-41
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21 NOTES TO THE CASH FLOW STATEMENT (CONTINUED)
E)CASH FLOW RELATING TO SALE OF BUSINESS
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Net assets disposed
Fixed Assets............................................. -- -- -- 6,238 --
Stock.................................................... -- -- -- 16,034 --
Debtors.................................................. -- -- -- 13,462 --
Creditors................................................ -- -- -- (40,150) --
Overdraft................................................ -- -- -- (411) --
Cash..................................................... -- -- -- 1,577 --
--- --- --- ------- ---
-- -- -- (3,250) --
Profit on disposal......................................... -- -- -- 3,250 --
=== === === ======= ===
</TABLE>
F) MAJOR NON-CASH TRANSACTIONS
(i) During the period to December 31, 1995 part of the consideration for
the purchase of subsidiary undertakings comprised loan notes of
(Pounds)3,525,000 and (Pounds)425,000 of other loan notes issued in the
year. Interest expense on the debentures of (Pounds)1,585,000 which was
not paid has been added to the debt during the period.
(ii) During the period to December 31, 1996 United Texon Limited entered
into finance lease arrangements in respect of assets with a total
capital value of (Pounds)826,000. Interest on the debentures of
(Pounds)2,638,000 and interest on the mezzanine debt of
(Pounds)461,000, which was not paid, has been added to the debt during
the year.
(iii) During the period to December 31, 1997, (Pounds)30,634,000 of debt
classified as due after one year has been reclassified as due within
one year. Interest on the debentures of (Pounds)3,071,000 and
interest on the mezzanine debt of (Pounds)363,000, which was not
paid, has been added to the debt during the period.
F-42
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21 NOTES TO THE CASH FLOW STATEMENT (CONTINUED)
G) PURCHASE OF SUBSIDIARY UNDERTAKING
<TABLE>
<CAPTION>
USM TEXON
(HOLDINGS) INTERNATIONAL
LIMITED UNITED TEXON LIMITED PLC
----------- -------------------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25, DECEMBER 31,
1995 TO 1995 TO YEAR ENDED YEAR ENDED 1997 TO
APRIL 24, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1997
----------- ------------ ------------ ------------ -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Net assets acquired:
Tangible fixed assets...................................... -- 29,738 -- -- 17,098
Stock...................................................... -- 43,923 -- -- 16,716
Debtors.................................................... -- 43,952 -- -- 19,345
Cash at bank and in hand................................... -- 2,704 -- -- 1,143
Creditors.................................................. -- (78,964) -- -- (32,272)
Overdrafts acquired........................................ -- (1,575) -- -- (3,364)
Loans and finance leases................................... -- (93,101) -- -- (61,954)
Minority shareholders' interests........................... -- (960) -- -- (1,431)
--- ------- --- --- -------
-- (54,283) -- -- (44,719)
Goodwill................................................... -- 80,284 -- -- 123,742
--- ------- --- --- -------
-- 26,001 -- -- 79,023
=== ======= === === =======
Satisfied by:
Cash payable in January 1998............................... -- -- -- -- 23,423
Cash....................................................... -- 22,476 -- -- --
Loan notes issued.......................................... -- 3,525 -- -- --
Shares to be issued in January 1998........................ -- -- -- -- 55,600
--- ------- --- --- -------
-- 26,001 -- -- 79,023
=== ======= === === =======
Analysis of net outflow of cash in respect of the purchase
of the subsidiary undertaking
Cash consideration......................................... -- (22,476) -- -- --
Net cash and overdrafts acquired........................... -- 1,129 -- -- --
--- ------- --- --- -------
-- (21,347) -- -- --
Acquisition costs.......................................... -- (8,009) -- -- (500)
--- ------- --- --- -------
Total costs of acquisition................................. -- (29,356) -- -- (500)
=== ======= === === =======
</TABLE>
22 PENSION COSTS
The majority of the Group's employees participate in pension schemes of the
defined benefit type that determine retirement pensions based on an employee's
years of service and a final pay definition. Some of these schemes are
externally funded within trusts, others are financed via internal book
reserves. For all these schemes contributions are paid or pension costs
charged based on advice received from qualified actuaries.
F-43
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22 PENSION COSTS (CONTINUED)
The major funded pension schemes are in the UK and the US. One of the plans
in the US that covers employees in the materials and machinery businesses is
in the process of being split. The existing plan's assets will be shared
between the plans for each business in proportion to the liabilities under
each plan. It is expected that future contributions paid into the plans and
related pension costs will not be materially different from those allocated to
the separate businesses in the recent past.
The UK pensions scheme will be split following the demerger. The precise
basis of the split has yet to be finalised and the pension liabilities and
costs have been calculated in accordance with the current intentions, which
will require the agreement of the Pension Schemes Office (a branch of the
Inland Revenue). While the precise basis for sharing assets has yet to be
finalised, it is not expected that future contributions paid into the plans
and related pension costs will be materially different from those applicable
to separate businesses in the recent past.
In Germany, Austria and Spain there are defined benefit pension arrangements
which are not separately funded, in accordance with local practice, and
provision for the pension liability is made in the Group's consolidated
balance sheet.
The Group has other defined contribution pension arrangements in the various
countries in which it operates, in accordance with local conditions and
regulations.
The under-funding of the US and UK pension scheme is being made good by
increased contributions over 20 years and 15 years respectively in accordance
with the actuaries' recommendation.
Details of the actuarial valuations for the two most significant funded
schemes are as follows:
<TABLE>
<CAPTION>
UNITED KINGDOM UNITED STATES
-------------- -------------
<S> <C> <C>
Date of last actuarial valuation..... September 30, 1996 January 1, 1997
Actuarial method..................... Projected Unit Projected Unit
Assumed excess of investment return
over salary increases............... 3% 2.5%
Assumed rate of pension increases.... 2.25% Nil
Value of assets at date of latest
valuation........................... (Pounds)35.7 million $12.3 million
Level of funding..................... 96% 94%
Actuaries............................ Watson Wyatt Partners Buck Consultants
</TABLE>
F-44
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22 PENSION COSTS (CONTINUED)
For the purposes of the disclosure in accordance with US GAAP (SFAS 87), the
funded status and pension cost of the major plans in Austria, Germany, Spain,
Italy, UK and the US as at December 31, 1996 and 1997 have been described in
the following tables. The 1997 disclosure relates to the continuing operations
only.
<TABLE>
<CAPTION>
UNITED TEXON LIMITED TEXON INTERNATIONAL PLC
-------------------------- --------------------------
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1997
-------------------------- --------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED COSTS BENEFITS EXCEED COSTS
------------- ------------ ------------- ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF:
Vested benefit obligations............................................. 41,675 15,521 24,831 3,299
Accumulated benefit obligations........................................ 42,188 15,627 25,195 3,489
------ ------- ------ ------
Projected benefit obligations.......................................... 49,257 16,658 29,443 3,815
Plan assets at fair value.............................................. 47,692 418 26,064 --
------ ------- ------ ------
Projected benefit obligations (in excess of) or less than plan assets.. (1,565) (16,240) (3,379) (3,815)
Unrecognised net (gain) or loss........................................ (2,854) 497 1,573 (298)
Prior service cost not yet recognised.................................. (55) 119 (19) --
Unrecognised net obligation on implementation.......................... 772 (516) 440 (18)
Adjustment to recognise minimum liability.............................. -- (382) -- (3)
Fourth quarter contribution............................................ -- -- 159 0
------ ------- ------ ------
Prepaid pension costs (pension liability).............................. (3,702) (16,522) (1,226) (4,134)
------ ------- ------ ------
Intangible assets...................................................... -- 205 -- --
------ ------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
------------
%
<S> <C>
ASSUMPTIONS
Weighted average discount rate..................................... 7.1
Long term rate of increases in remuneration........................ 2-5.5
</TABLE>
<TABLE>
<CAPTION>
UNITED TEXON LIMITED
-------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
(Pounds)000 (Pounds)000
<S> <C> <C>
THE NET PERIODIC PENSION COSTS FOR THE MAJOR
RETIREMENT PLANS UNDER SFAS NO. 87 COMPRISES
Service cost--present value of benefits earned
during the year.................................... 1,401 687
Interest cost on projected benefit obligations...... 4,812 2,178
Actual (return) on assets........................... (6,616) (3,534)
Net amortisation and deferral....................... 2,836 1,493
------ ------
Net periodic pension costs.......................... 2,433 824
====== ======
</TABLE>
F-45
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22 PENSION COSTS (CONTINUED)
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
-----------------
%
<S> <C>
ASSUMPTIONS
Weighted average discount rate................................ 8.4
Long term rate of increase in remuneration.................... 2-6
Expected long term rate of return on assets................... 8-9.5
</TABLE>
23 POST RETIREMENT MEDICAL BENEFIT PLAN
The US subsidiary of Texon International plc and United Texon Limited
sponsors a defined benefit post-retirement plan that covers 199 employees and
1,590 retirees including their dependants. The plan provides post-retirement
medical benefits in the form of a contribution to the retiree's health
insurance premium as well as managed care programs. There are post-retirement
death benefits for current retirees only. The following table sets forth the
plan's funded status at December 31, 1997. The 1997 disclosures relate to the
continuing operations only.
<TABLE>
<CAPTION>
TEXON
UNITED TEXON INTERNATIONAL
LIMITED PLC
-------------------- --------------------
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1996 1997
-------------------- --------------------
(Pounds)000 (Pounds)000
<S> <C> <C>
ACCUMULATED POST-RETIREMENT BENEFIT
OBLIGATION
Retirement eligible, retirees and
beneficiaries....................... 5,713 194
Active employees not fully eligible.. 357 351
------ ----
Total.............................. 6,070 545
Fair value of assets................. -- --
------ ----
Accumulated post-retirement benefit
obligation in excess of plan
assets............................ (6,070) (545)
Unrecognised net (gain)/loss from
past experience different from that
assumed and from changes in
assumptions......................... (1,364) (43)
Unrecognised transition
obligation/(asset).................. (1,480) 14
------ ----
Accrued post-retirement benefit
cost.............................. (8,914) (574)
====== ====
NET PERIODIC POST-RETIREMENT BENEFIT COST INCLUDED THE FOLLOWING COMPONENTS:
<CAPTION>
UNITED TEXON LIMITED UNITED TEXON LIMITED
-------------------- --------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------------- --------------------
(Pounds)000 (Pounds)000
<S> <C> <C>
Service cost......................... 25 18
Interest cost on accumulated post-
retirement benefit obligation....... 586 41
Amortisation of transitional
obligation/(asset).................. (166) 1
------ ----
Net periodic post-retirement benefit
cost................................ 445 60
====== ====
</TABLE>
For measurement purposes, an 11% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998, reducing to 5% in
2006. The health care cost trend assumption has an effect on the amounts
reported.
F-46
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
23 POST RETIREMENT MEDICAL BENEFIT PLAN (CONTINUED)
To illustrate, increasing the assumed health care cost trend rates by 1
percentage point each year would increase the accumulated post-retirement
benefit obligation as of December 31, 1997, by 8% ((Pounds)44,000) and the
aggregate of service and interest cost components of net periodic post-
retirement benefit cost for the year then ended by 10% ((Pounds)6,000).
<TABLE>
<S> <C>
Medical trend rates (initial rate)........................... 11.0% per annum
Assumed discount............................................. 7.5% per annum
</TABLE>
24 NEW UK ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Board issued Financial Reporting
Standard (FRS) 10. FRS 10 is effective for all accounting periods ending on or
after December 23, 1998 with earlier adoption permitted. The new requirements
must be applied prospectively from the period of adoption but can be applied
retrospectively. This FRS provides accounting and reporting standards for
goodwill and intangible assets and requires that goodwill and intangible
assets be capitalised and amortised over their expected useful lives up to a
maximum of 20 years, subject to the following exception: for assets which are
expected to last longer, including those with indefinite lives, the assets are
amortised over that longer period, or not at all as the case may be, and are
evaluated for impairment at least annually. Texon International plc has
decided to apply the provisions of FRS 10 prospectively in 1998. FRS 10 could
have a material effect on Texon International plc's financial position and
results of operations as it pertains to any future acquisitions.
25 POST BALANCE SHEET EVENTS
A)CREDIT FACILITY
As part of the Acquisition referred to in Note 1, on January 30, 1998 Texon
International plc entered into the Credit Agreement with Chase Manhattan and
other institutions. The Credit Agreement provides a multi-currency revolving
facility (the "Revolving Facility") in a maximum amount not exceeding
(Pounds)15.0 million. Letters of credit and bank guarantees may be issued as
part of the Revolving Facility. The Revolving Facility will be used to
refinance a portion of the senior bank facilities and provide for the working
capital and general corporate purposes of the Company. The availability of the
Revolving Facility will be subject to various conditions precedent customary
for facilities of this nature.
The Revolving Facility bears interest at a rate of 2% per annum plus LIBOR,
subject to certain reductions based on financial performance. The Revolving
Facility is a three year facility expiring on January 30, 2001. A commitment
fee of 0.75% per annum will be paid by Texon International plc on the undrawn
portion of the Revolving Facility. Each lender which issues a letter of credit
or bank guarantee under the Revolving Facility will receive an issuing bank
fee of 0.125% per annum in respect of its contingent liability for such letter
of credit or bank guarantee. Each lender will receive a letter of credit fee
calculated on a day to day basis in respect of issued letters of credit or
bank guarantees at a rate equal to the margin payable in respect of the
facilities and based on each lender's contingent liability in respect of such
letters of credit or bank guarantees.
Texon International plc will be required to make mandatory prepayments of
all outstanding loans under the Revolving Facility upon the occurrence of a
flotation, debt refinancing or change of control of the Company.
F-47
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
25 POST BALANCE SHEET EVENTS (CONTINUED)
The Credit Agreement contains customary covenants including restrictions on
disposal of assets, incurring additional indebtedness or contingent
liabilities, making acquisitions or investments, engaging in mergers or
consolidations, or amending other debt instruments.
In addition, the Company is required to comply with specified financial
ratios, including a total net interest cover ratio, a fixed charge ratio and a
total debt to EBITDA ratio, calculated on a rolling 12 month basis. The Credit
Agreement also contains customary events of default including payment default,
covenant default, cross-default and certain events of insolvency.
On January 30, 1998 the Company issued DM 245,000,000 (approximately
(Pounds)82.2 million) of 10% Series A Senior Notes due February 1, 2008.
Interest is payable on February 1 and August 1 of each year, commencing on
August 1, 1998.
The notes are subjected to restrictive covenants similar to those in the
Credit Agreement. The Company may be required to redeem the Notes at 101% of
the principal amount, together with accrued and unpaid interest upon a change
of control.
B)ISSUANCE OF SHARE CAPITAL
On January 30, 1998, Texon International plc issued the following shares of
share capital to be issued in connection with the acquisition of United Texon
Limited on December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF NOMINAL CONSIDERATION
SHARES VALUE PAID
--------- ---------- -------------
<S> <C> <C> <C>
NUMBER OF SHARES ((Pounds)) ((Pounds))
</TABLE>
<TABLE>
<S> <C> <C> <C>
Voting A ordinary shares of (Pounds)1 each....... 3,436,277 3,436,277 --
Non-voting A ordinary shares of (Pounds)1 each... 163,723 163,723 --
Voting B ordinary shares of (Pounds)1 each....... 270,000 270,000 270,000
Redeemable cumulative preference shares of 10p
each............................................ 52,000,000 5,200,000 --
--------- -------
9,070,000 270,000
========= =======
</TABLE>
In addition on January 30, 1998, the balance of 75p per share on 49,999
partly paid B ordinary shares was paid in cash.
The above shares were issued to effect the acquisition of United Texon
Limited as follows:
i) 2,855,298 Redeemable preference shares of 10p each issued at a premium
of 90p in part consideration for the acquisition of 100% of the Deep
Discounted Bond issued by United Texon Limited.
ii) 29,000,000 Redeemable preference shares of 10p each issued at a premium
of 90p included in share capital to be issued to purchase 100% of the
mandatorily Redeemable Preference shares of United Texon Limited.
iii) 20,144,702 Redeemable preference shares of 10p each issued at a
premium of 90p, 3,436,277 voting A ordinary shares of (Pounds)1 each
issued at par and 163,723 non-voting ordinary shares of (Pounds)1 each
issued at par all included in share capital to be issued to purchase
of 87.62% of the voting and 100% of the non-voting ordinary shares of
United Texon Limited.
F-48
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
25 POST BALANCE SHEET EVENTS (CONTINUED)
Cash consideration of (Pounds)2,810,000 was paid to members of management in
satisfaction of the liability for the purchase of 12.38% of the voting
ordinary shares of United Texon Limited issued upon exercise of the share
options and (Pounds)20,600,000 was paid as part consideration for the
acquisition of 100% of the Deep Discounted Bond.
C)MINORITY INTEREST
In February 1998, an outline agreement was entered into to acquire a further
30% of the Foshan Texon Cellulose Board Manufacturing Co Limited joint
venture. The price of US$ 2,625,000, is to be paid in three annual
instalments. Completion is expected by the end of April, 1998.
26 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in conformity with
accounting principles accepted in the UK ("UK GAAP") which differ in certain
respects from those generally accepted in the United States ("US GAAP"). The
significant areas of difference affecting the consolidated financial
statements of the Company are described below.
A)UNITED TEXON LIMITED ACQUISITION
Under UK GAAP, the acquisition of United Texon Limited by Texon
International plc on December 31, 1997 has been accounted for as an
acquisition and the assets and liabilities of United Texon Limited have been
recorded at their fair values as of that date with the excess consideration
paid charged directly to reserves as goodwill. Under US GAAP, purchase
accounting does not apply with respect to this transaction because there has
been no change in control. Accordingly, for US GAAP purposes, all assets and
liabilities are recorded at their historical United Texon Limited cost basis.
In addition, any excess consideration paid is treated as a capital transaction
and any costs incurred in connection with the acquisition are expensed.
B)MACHINERY GROUP DISPOSAL
Under UK GAAP, the sale of the Machinery Group to shareholders on December
31, 1997 resulted in a gain on disposal being recognised in the consolidated
profit and loss accounts. Since the sale was to existing shareholders of the
Group, this transaction would be accounted for as a spin-off under US GAAP
with the difference between the net book value of assets sold and
consideration received treated as a capital transaction. In addition, any
costs incurred in connection with the sale would be expensed under US GAAP.
C)GOODWILL
Under UK GAAP, the Group writes off goodwill arising on consolidation
directly to the goodwill write-off reserve in the year of acquisition. Under
US GAAP, goodwill arising on consolidation is capitalised on the consolidated
balance sheet and then amortised over its useful life, which Texon
International plc has estimated to be 20 years.
The gross cost under US GAAP at December 31, 1996 and December 31, 1997 of
goodwill is approximately (Pounds)81,809,000 and (Pounds)79,775,000,
respectively. Accumulated amortisation under US GAAP at December 31, 1996 and
December 31, 1997 of goodwill is (Pounds)7,430,000 and (Pounds)11,487,000
respectively.
F-49
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
26 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
D) RESTRUCTURING AND INTEGRATION COSTS
Under UK GAAP, when a decision has been taken to restructure part of the
Group's business, provisions are made for the impairment of asset values
together with severance and other costs. US GAAP requires a number of specific
criteria to be met before such costs can be recognised as an expense. Among
these is the requirement that all the significant actions arising from a
restructuring and integration plan and their expected completion dates must be
identified by the consolidated balance sheet date.
Certain restructuring charges recognised in the period to December 31, 1995
under UK GAAP were not recognisable as restructuring charges under US GAAP
until the year ended December 31, 1996.
E)PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The Group accounts for the costs of pensions and other post-retirement
benefits under the rules set out in UK accounting standards. US GAAP is more
prescriptive in respect of actuarial assumptions and the allocation of costs
to accounting periods. (See Notes 22 and 23).
F)REDEEMABLE PREFERENCE SHARES
Under UK GAAP, preference shares with mandatory redemption features or
redeemable at the option of the security holder are classified as non-equity
interests as a component of total shareholders' deficit. Under US GAAP such
mandatorily redeemable preference shares are classified outside of
shareholders' deficit.
G)DEFERRED TAXATION
Under UK GAAP, Texon International plc provides for deferred taxation using
the partial liability method on all material timing differences to the extent
that it is considered probable that the liabilities will crystallise in the
foreseeable future. Under US GAAP, deferred taxation is provided for all
temporary differences on a full liability basis. Deferred tax assets are also
recognised to the extent that it is more likely than not that the benefit will
be realised.
F-50
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
26 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
The UK deferred tax asset as at December 31, 1996 and 1997 can be reconciled
as follows to the US GAAP net deferred tax asset:
<TABLE>
<CAPTION>
UK GAAP UNPROVIDED US GAAP
1997 ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Property plant and equipment.............. 97 -- 97
Other temporary differences............... -- 560 560
Liabilities not provided under UK GAAP.... -- 1,700 1,700
---- ------- -------
97 2,260 2,357
==== ======= =======
DEFERRED TAX ASSETS:
Intercompany profit....................... (262) -- (262)
Deferred interest......................... -- (3,974) (3,974)
Net operating losses...................... -- (4,216) (4,216)
Property plant and equipment.............. (51) (745) (796)
Pensions and long-term retirement
benefits................................. -- (1,208) (1,208)
Intangible assets......................... -- (1,418) (1,418)
Other (including receivables provision)... -- (209) (209)
---- ------- -------
(313) (11,770) (12,083)
Less valuation allowance.................. -- 9,726 9,726
---- ------- -------
(313) (2,044) (2,357)
Net deferred tax (asset)/liability........ (216) 216 --
==== ======= =======
<CAPTION>
UK GAAP UNPROVIDED US GAAP
1996 ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Property plant & equipment................ 64 -- 64
Other temporary differences............... 135 -- 135
Liabilities not provided under UK GAAP.... -- 1,800 1,800
---- ------- -------
199 1,800 1,999
---- ------- -------
DEFERRED TAX ASSETS:
Intercompany profit....................... (725) -- (725)
Deferred interest......................... -- (2,803) (2,803)
Net operating losses...................... -- (11,742) (11,742)
Capital losses............................ -- (149) (149)
Property plant & equipment................ -- (1,553) (1,553)
Pensions and long-term retirement
benefits................................. -- (6,127) (6,127)
Intangible assets......................... -- (1,895) (1,895)
Other (including receivables provision)... -- (1,355) (1,355)
---- ------- -------
(725) (25,624) (26,349)
Less valuation allowance.................. -- 24,350 24,350
---- ------- -------
(725) (1,274) (1,999)
---- ------- -------
Net deferred tax (asset)/liability........ (526) 526 --
==== ======= =======
</TABLE>
F-51
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
26 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
Management believes that the available objective evidence creates sufficient
uncertainty regarding the realisation of deferred tax assets except to the
extent of deferred tax liabilities such that a full valuation allowance has
been recorded. The valuation allowance at December 31, 1995 was
(Pounds)24,728,000.
H) NET INCOME/(LOSS) PER ORDINARY SHARE
Historical net earnings/(loss) per share is not shown as the historical
arrangement is not indicative of the continuing capital structure.
I)IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Group, for US GAAP purposes, adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of long-lived assets and for long-lived assets
to be disposed Of", on January 1, 1996. This statement requires that long-
lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognised is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this statement did not
have a material impact on the Group's financial position, results of
operations, or liquidity.
J)FINANCIAL INSTRUMENTS
The fair values of cash, accounts receivable and accounts payable
approximate to book value due to the short term nature of these assets and
liabilities.
The Group's financial instruments are generally short-term in nature and in
the case of debt (except for the deep discounted bonds) bear variable interest
rates. Accordingly, the carrying value of such financial instruments
approximates their fair value. In the opinion of the directors the fair value
of the deep discounted bonds approximate book value. The fair value of foreign
exchange contracts is estimated by published market quotes and amounted to
(Pounds)16,482,000 and (Pounds)23,133,000 at December 31, 1997 and 1996,
respectively. The unrealized gain/(loss) on the foreign exchange contracts was
(Pounds)14,000 and (Pounds)439,000 at December 31, 1997 and 1996 respectively.
All gains or losses on foreign exchange contracts have been expensed rather
than deferred. Gains and losses arising on the translation of foreign currency
forward contracts to hedge commitments are recognized in the consolidated
profit and loss accounts in the same periods as the gains and losses on the
commitments.
K)SHARE OPTION SCHEMES
The Group adopted SFAS No. 123, "Accounting for Stock-Based Compensation",
on January 1, 1996 which permits entities to recognise as an expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro-forma net income/(loss) and
pro-forma earnings/(loss) per share disclosures for share option grants made
in 1995 and future years as if the fair-value based method defined in SFAS No.
123 had been applied. Management has elected to
F-52
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
26 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
continue to apply the provisions of APB Opinion No. 25 and provide the pro-
forma disclosure provisions of SFAS No. 123. Accordingly, compensation expense
is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. It was determined that on the
date of grant, the current market price was lower than the exercise price and
no compensation cost was recognized in the periods ended December 31, 1995 and
1996. It was determined that on the date of grant, the current market price
exceeded the exercised price by (Pounds)2.8 million. Compensation cost was
recognised in the year ended December 31, 1997.
The fair value of share options granted by the Group during 1997 was
estimated at (Pounds)2.8 million using the minimum value method with the
following weighted average assumptions: expected dividend yield of 0%, risk-
free rate of 6.2%, expected volatility of effectively zero and average
expected lives of 3 months. Accordingly, there would be no difference in
compensation cost for the share options, determined under the method
prescribed by SFAS No. 123.
L)EXTRAORDINARY ITEMS
Under UK GAAP refinancing costs associated with the extinguishment of old
debt are recorded as operating expenses. Under US GAAP such refinancing costs
are treated as an extraordinary item.
M)STATEMENT OF CASH FLOWS
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, capital investment
and financial investment, acquisitions and disposals and financing activities.
Under US GAAP, cash flow activities are reported as operating activities,
investing activities and financing activities. Cash flows from taxation and
returns on investments and servicing of finance would, with the exception of
dividends paid, be included as operating activities. The payment of dividends
and debt issue costs would be included under financing activities.
Set out below, is a summary combined statement of cash flows for the Group
under US GAAP.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
(Pounds)000 (Pounds)000
<S> <C> <C>
Net cash provided by/(used in) operating
activities......................................... 20,306 (2,325)
Net cash (used in)/provided by investing
activities......................................... (3,298) 6,092
Net cash provided by financing activities........... (17,499) (5,173)
------- ------
Net increase/(decrease) in cash and cash equivalent
under US GAAP...................................... (491) (1,406)
======= ======
</TABLE>
F-53
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
26 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
N)RECONCILIATIONS
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required if US GAAP had been applied
instead of UK GAAP.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
1996 1997
------------ ------------
(Pounds)000 (Pounds)000
<S> <C> <C>
Net loss in accordance with UK GAAP.................. (729) (4,318)
Adjustments to conform to US GAAP
United Texon Limited acquisition costs............. -- (500)
Gain on disposal of Machinery business............. -- (3,250)
Amortisation of goodwill........................... (4,486) (4,057)
Restructuring costs................................ (5,924) --
Pensions and other post-retirement benefits........ 333 1,210
Effect of differences on policy for recognition of
deferred tax costs and liabilities................ (626) 211
------- -------
Total net loss in accordance with US GAAP............ (11,432) (10,704)
======= =======
Net loss from continuing operations in accordance
with US GAAP........................................ (1,031) (5,654)
Net loss of discontinued operations in accordance
with US GAAP........................................ (10,401) (3,906)
Extraordinary item--debt extinguishment.............. -- (1,144)
------- -------
(11,432) (10,704)
Accretion/(waiver) costs of non-equity preference
shares.............................................. (3,767) 5,217
------- -------
Retained loss for the period for equity shareholders
in accordance with US GAAP.......................... (15,199) (5,487)
======= =======
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
(Pounds)000 (Pounds)000
<S> <C> <C>
Shareholders deficit in accordance with UK GAAP...... (66,066) (68,629)
Adjustments to conform to US GAAP:
Fair value adjustment arising upon United Texon
Limited acquisition............................... -- (1,257)
Goodwill........................................... 74,379 68,288
Pension and other post-retirement benefits......... (534) 22
Mandatorily redeemable preference shares........... (34,217) --
Taxation........................................... (526) (216)
------- -------
Shareholders' deficit in accordance with US GAAP..... (26,964) (1,792)
======= =======
</TABLE>
F-54
<PAGE>
TEXON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
26 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
O)NEW US ACCOUNTING STANDARDS
SFAS No. 130 "Reporting Comprehensive Income" was issued in June 1997 and is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes
is required. It requires that all items that are required to be recognised
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. It also requires that an enterprise (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. Texon International plc is currently
reviewing the likely impact on the classification of items included in
shareholders' deficit.
SFAS No. 131 "Disclosure about Segments of an Enterprise and Related
Information" was issued in June 1997 and is effective for fiscal years
beginning after December 15, 1997. In the initial year of application
comparative information for earlier years is to be restated. It requires that
companies disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports
revenues, and its major customers. Texon International plc is currently
reviewing the likely impact on the level of disclosure currently provided in
its consolidated financial statements.
F-55
<PAGE>
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 an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any offer or sale made
hereunder shall, under any circumstances, create an 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>
Presentation of Financial Information and Certain Definitions............ iii
Enforceability of Civil Liabilities...................................... iii
Summary.................................................................. 1
Risk Factors............................................................. 16
Use of Proceeds.......................................................... 24
Exchange Rate Information................................................ 24
Capitalization........................................................... 25
The Transactions......................................................... 26
Selected Historical and Unaudited Pro Forma Consolidated Financial
Information and Other Data.............................................. 28
Unaudited Pro Forma Consolidated Financial Information................... 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Business................................................................. 48
Management............................................................... 57
Principal Shareholders................................................... 60
The Exchange Offer....................................................... 63
Certain Transactions..................................................... 73
Description of Credit Facilities......................................... 76
Description of Notes..................................................... 77
Description of The Note Depositary Agreement............................. 110
Tax Considerations....................................................... 116
Plan of Distribution..................................................... 121
Legal Matters............................................................ 121
Experts.................................................................. 121
Available Information.................................................... 122
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
Until , 1998, all dealers effecting transactions in the Exchange Notes
offered hereby, whether or not participating in this distribution, 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.
Prospectus
DM 245,000,000
Texon International plc
Offer to Exchange its 10% Series A Senior Notes due 2008 for any and all of
its Outstanding 10% Senior Notes due 2008
[LOGO] TEXON
-------------
INTERNATIONAL
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Reference is made to Article 13.11 of the Articles of Association of the
Company, filed herewith as Exhibit 3.1 which, among other things, and subject
to certain conditions, authorize the Company to indemnify the directors and
officers of the Company out of the assets of the Company against all costs,
charges, losses, damages and liabilities incurred by him in the actual or
purported execution or discharge of his duties or exercise of his powers.
ITEM 21. EXHIBITS
(a) The following exhibits are filed as part of the Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement between the Company and the Initial Purchasers
dated January 27, 1998.*
3.1 Memorandum and Articles of Association of Texon International plc.*
4.1 Indenture, dated as of January 30, 1998, among Texon International plc
and The Chase Manhattan Bank as Trustee.*
4.2 Form of 10% Senior Notes due 2008 (included in Exhibit 4.1 hereto).*
4.3 Form of 10% Series A Senior Notes due 2008 (included in Exhibit 4.1
hereto).*
4.4 Exchange and Registration Rights Agreement between the Company and the
Initial Purchasers dated January 27, 1998.*
4.5 Note Depositary Agreement dated January 30, 1998 between Texon
International plc and The Bank of New York, as Book-Entry
Depositary.*
5.1 Opinion of Mayer, Brown & Platt as to the legality of the securities
being registered hereby.
5.2 Opinion of Dickson Minto W.S as to certain matters of English law.
8.1 Opinion of Mayer, Brown & Platt as to material U.S. federal income tax
matters.
8.2 Opinion of Dickson Minto W.S as to material U.K. tax matters (included
in Exhibit 5.2).
10.1 Shareholders Agreement dated December 23, 1997, between the Company
and the shareholders of the Company.P
10.2 Agreement for Sale of USM Group Limited, dated December 23, 1997.P
10.3 Agreement for Sale of United Texon Limited, dated December 23, 1997.P
10.4 Credit Agreement, dated January 29, 1998, among the Company, Chase
Manhattan plc, The Chase Manhattan Bank and the other Lenders party
thereto.P
10.5 Employment Agreement, dated January 30, 1998, between the Company and
Peter Selkirk.P
10.6 Employment Agreement, dated January 30, 1998, between the Company and
Neil Fleming.P
10.7 Employment Agreement, dated July 29, 1997, between the Company and
Kevin Cochrane.P
10.8 Employment Agreement, dated July 29, 1997, between the Company and
Neil Eastwood.P
10.9 Employment Agreement, dated as of September 2, 1997, between the
Company and Terry Pee.P
10.10 Employment Agreement, dated [ ] between the Company and David
Gamble.+
10.11 Option Agreement of Peter Selkirk relating to the A Shares dated
December 23, 1997.P
10.12 Option Agreement of Peter Selkirk and Neil Fleming relating to the B
Shares dated December 23, 1997.P
10.13 Business Acquisition Agreement between British United Shoe Machinery
Limited and DMWSL 189 Limited and related agreements dated July 29,
1997.P
10.14 Business Sale Agreement between Deutsche Vereinigte Schumaschinen GmbH
& Co. and DVSG Engineering und Patentverwaltungs GmbH dated July 29,
1997.P
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.15 Business Sale Agreement between DVSG Engineering und Patentverwaltungs
GmbH and DVSG Service GmbH dated July 29, 1997.P
10.16 Business Sale Agreement between USM Espana S.L. and Maquinaria USM
S.L. dated July 29, 1997.P
10.17 Business Acquisition Agreement between USM Taiwan Limited and Texon
Taiwan Limited dated December 1997.P
10.18 Bill of Sale, Assignment and Assumption Agreement between USM Texon
Materials Inc. and United Shoe Machinery Corporation and related
agreements dated July 29, 1997.P
10.19 Assets Sale Agreement between USM Asia Limited and Texon (H.K.)
Limited dated July 29, 1997.P
10.20 Share Purchase Agreement between DVSG Holding GmbH and DVSG
Beteiligungs und Verwaltungs GmbH dated July 29, 1997.P
10.21 Share Sale Agreement between USM Holding GmbH and Texon Verwaltungs
GmbH Gr. dated July 29, 1997.P
10.22 Share Sale Agreement between USM Texon Limited and Texon Verwaltungs
GmbH Gr. dated July 29, 1997.P
10.23 Share Sale Agreement between USM International Limited and DVSG
Administration GmbH relating to the entire issued share capital of
DVSG Service GmbH.P
10.24 Share Sale Agreement between USM International Limited and DVSG
Administration GmbH relating to the entire issued share capital of
DVSG Beteiligungs und Verwaltungs GmbH.P
10.25 Share Sale Agreement between USM Benelux B.V. and USM Texon Limited
relating to the entire issued share capital of USM Holding GmbH dated
December 23, 1997.P
10.26 Share Transfer Agreement between Texon France S.A. and USM
International Limited dated December 24, 1997 and related agreement.P
10.27 Share Purchase Agreement between USM Benelux B.V. and USM
International Limited relating to the entire issued share capital of
USM Asia Limited dated July 29, 1997.P
10.28 Share Transfer Agreement between USM Benelux B.V. and USM
International Limited relating to the entire issued share capital of
USM Taiwan Limited dated July 29, 1997.P
10.29 Share Transfer Agreement between USM Benelux B.V. and USM Texon
Limited dated December 23, 1997.P
10.30 Share Transfer Agreement between USM International Limited and Texon
Materiales S.L.P
10.31 Share Transfer Agreement between USM Texon Limited and El Manto de
Elias S.L.P
10.32 Share Transfer Agreement between Texon Overseas and USM International
Limited relating to the entire holding of Texon Overseas in USM Far
East Australia Pty Limited dated July 29, 1997.P
10.33 Share Transfer Agreement between United Texon plc and USM
International Limited relating to the entire issued share capital of
3138933 Canada Inc. dated July 29, 1997.P
10.34 Share Transfer Agreement between USM Texon Limited and USM
International Limited relating to the entire issued share capital of
Samco Strong Limited dated July 29, 1997.P
10.35 Share Transfer Agreement between United Texon plc and USM
International Limited relating to the entire issued share capital of
USM Corporation and related agreements dated July 29, 1997.P
10.36 Share Transfer Agreement between USM Benelux B.V. and United Texon plc
relating to the entire issued share capital of USM Corporation and
related agreements dated July 29, 1997.P
10.37 Share Transfer Agreement between Texon Overseas and USM International
Limited relating to the entire issued share capital of USM Korea
Limited dated July 29, 1997.P
10.38 Share Transfer Agreement between USM Benelux B.V. and USM
International Limited relating to the entire issued share capital of
USM Asia Limited dated July 29, 1997.P
10.39 Share Transfer Agreement between USM Benelux B.V. and USM
International Limited relating to the entire issued share capital of
USM do Brasil Industria e Comercio SA dated July 29, 1997.P
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.40 Exclusive Distributor Agreement between British United Shoe Machinery
Co. Limited and United Shoe Machinery of Australia Pty. Ltd dated
July 29, 1997.P
10.41 Exclusive Distributor Agreement between British United Shoe Machinery
Limited and USM Korea Limited dated July 29, 1997.P
10.42 Exclusive Distributor Agreement between Texon (H.K.) Limited and USM
Korea Limited.P
10.43 Exclusive Distributor Agreement between British United Shoe Machinery
Limited and United Shoe Machinery (Thailand) Co. Ltd. dated July 29,
1997.P
10.44 Non-Exclusive Distributor Agreement between USM Texon Materials Inc.
and USM Canada Ltd. dated August 8, 1997.P
10.45 Non-Exclusive Distributor Agreement between Texon France S.A. and USM
France S.A. dated July 29, 1977.P
10.46 Non-Exclusive Distributor Agreement between DVSG Engineering und
Patentverwaltungs GmbH and Deutsche Vereinigte Schumaschinen GmbH &
Co. dated July 29, 1997.P
10.47 Non-Exclusive Distributor Agreement between United Shoe Machinery
Corporation and USM Texon Mexico S.A.P
10.48 Non-Exclusive Distributor Agreement between Texon Materiales S.L. and
Maquinaria USM, S.L. dated July 29, 1997.P
10.49 Non-Exclusive Distributor Agreement between Samco Strong Limited and
United Shoe Machinery of Australia Pty. Ltd. dated July 29, 1997.P
10.50 Non-Exclusive Distributor Agreement between Texon Taiwan Limited and
USM Taiwan Limited.P
10.51 Sole Agency Agreement between Texon (H.K.) Limited and USM Far East
Australia (PTY) Limited dated July 29, 1997.P
10.52 Cost Sharing Agreement between Texon France S.A. and USM France S.A.P
10.53 Cost Sharing Agreement between USM Taiwan Limited and Texon Taiwan
Limited dated December 10, 1997.P
10.54 Services Agreement between USM Texon Oesterreich Gesellschaft M.b.H.
and USM Oesterreich Maschinenhandelsgesellschaft dated December 1,
1997.P
10.55 Service Agreement between DMWSL 189 and British United Shoe Machinery
Limited dated July 29, 1997.P
10.56 Services Agreement between DVSG Engineering und Patentverwaltungs GmbH
and Deutsche Vereinigte Schumaschinen GmbH & Co. relating to the
provision of services/premises at Pirmasens dated July 29, 1997.P
10.57 Services Agreement between Deutsche Vereinigte Schumaschinen GmbH &
Co. and DVSG Engineering und Patentverwaltungs GmbH relating to the
provision of services/premises at Frankfurt am Main dated July 29,
1997.P
10.58 Services Agreement between Texon Materiales S.L. and Maquinaria USM,
S.L. dated July 29, 1997.P
10.59 Services Agreement between USM Texon Materials Inc. and United Shoe
Machinery Corporation dated June 30, 1997.P
10.60 Computing Services Agreement between USM Texon Materials Inc. and
United Shoe Machinery Corporation dated June 30, 1997.P
10.61 Services Agreement between USM Asia Limited and Texon (H.K.) Limited.P
10.62 Services Agreement between USM Far East Australia Pty Ltd. and Texon
(H.K.) Limited.P
10.63 Sub-Lease Agreement between USM Texon Materials Inc. and USM
Corporation dated May 1, 1997.P
10.64 Contribution and Assumption Agreement between USM Corporation and USM
Texon Materials Inc. dated June 27, 1997.P
10.65 Joint Venture Contract between Foshan Arts & Crafts Industry
Corporation and USM (China Holdings) Ltd.P
10.66 Agreement between USM Texon Limited and British United Shoe Machinery
Co. Limited relating to the surrender of group relief, dated December
23, 1997.P
10.67 Agreement between USM Texon Limited and Samco Strong Limited relating
to the surrender of group relief dated December 23, 1997.P
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
21.1 List of Subsidiaries of the Registrant.*
23.1 Consents of counsel (included in Exhibits 5.1, 5.2, 8.1 and 8.2).+
23.2 Consent of KPMG.
24.1 Power of Attorney (see page II-6).
25.1 Statement of Eligibility of Trustee.+
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Clients.*
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.*
</TABLE>
- --------
*Previously filed.
+To be filed by amendment.
P Previously filed in paper format under cover of Form SE with the Commission.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(i) 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.
(ii) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
(b) 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 of 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 242(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offer.
(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 foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than
II-4
<PAGE>
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM F-4 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF LONDON, ENGLAND ON MAY 11, 1998.
Texon International plc
/s/ Neil Fleming
By___________________________________
Name: Neil Fleming
Title: Finance Director,
Director and Chief
Accounting Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter Selkirk, Neil Fleming or David Gamble,
his true and lawful attorney-in-fact and agent, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendment (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON MAY 11,
1998 IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Neil Fleming Director and Chief Executive Officer
____________________________________
BY NEIL FLEMING AS ATTORNEY-IN-FACT
FOR PETER SELKIRK
/s/ Neil Fleming Finance Director, Director and Chief
____________________________________ Accounting Officer
BY NEIL FLEMING
/s/ Neil Fleming Company Secretary
____________________________________
BY NEIL FLEMING AS ATTORNEY-IN-FACT
FOR DAVID GAMBLE
/s/ Neil Fleming Director
____________________________________
BY NEIL FLEMING AS ATTORNEY-IN-FACT
FOR TIMOTHY WRIGHT
/s/ Neil Fleming Director
____________________________________
BY NEIL FLEMING AS ATTORNEY-IN-FACT
FOR SHAHAN SOGHIKIAN
</TABLE>
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly signed this Registration Statement solely in its capacity
as agent for service of process in the United States, on May 11, 1998.
Agent for Service of Process in the
United States
/s/ CT Corporation Systems
By___________________________________
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1 Purchase Agreement between the Company and the Initial
Purchasers dated January 27, 1998.*
3.1 Memorandum and Articles of Association of Texon
International plc.*
4.1 Indenture, dated as of January 30, 1998, among Texon
International plc and The Chase Manhattan Bank as
Trustee.*
4.2 Form of 10% Senior Notes due 2008 (included in Exhibit
4.1 hereto).*
4.3 Form of 10% Series A Senior Notes due 2008 (included in
Exhibit 4.1 hereto).*
4.4 Exchange and Registration Rights Agreement between the
Company and the Initial Purchasers dated January 27,
1998.*
4.5 Note Depositary Agreement dated January 30, 1998
between Texon International plc and The Bank of New
York, as Book-Entry Depositary.*
5.1 Opinion of Mayer, Brown & Platt as to the legality of
the securities being registered hereby.
5.2 Opinion of Dickson Minto W.S as to certain matters of
English law.
8.1 Opinion of Mayer, Brown & Platt as to material U.S.
federal income tax matters.
8.2 Opinion of Dickson Minto W.S as to material U.K. tax
matters (included in Exhibit 5.2).
10.1 Shareholders Agreement dated December 23, 1997, between
the Company and the shareholders of the Company.P
10.2 Agreement for Sale of USM Group Limited, dated December
23, 1997.P
10.3 Agreement for Sale of United Texon Limited, dated
December 23, 1997.P
10.4 Credit Agreement, dated January 29, 1998, among the
Company, Chase Manhattan plc, The Chase Manhattan Bank
and the other Lenders party thereto.P
10.5 Employment Agreement, dated January 30, 1998, between
the Company and Peter Selkirk.P
10.6 Employment Agreement, dated January 30, 1998, between
the Company and Neil Fleming.P
10.7 Employment Agreement, dated July 29, 1997, between the
Company and Kevin Cochrane.P
10.8 Employment Agreement, dated July 29, 1997, between the
Company and Neil Eastwood.P
10.9 Employment Agreement, dated as of September 2, 1997,
between the Company and Terry Pee.P
10.10 Employment Agreement, dated [ ] between the Company
and David Gamble.+
10.11 Option Agreement of Peter Selkirk relating to the A
Shares dated December 23, 1997.P
10.12 Option Agreement of Peter Selkirk and Neil Fleming
relating to the B Shares dated December 23, 1997.P
10.13 Business Acquisition Agreement between British United
Shoe Machinery Limited and DMWSL 189 Limited and
related agreements dated July 29, 1997.P
10.14 Business Sale Agreement between Deutsche Vereinigte
Schumaschinen GmbH & Co. and DVSG Engineering und
Patentverwaltungs GmbH dated July 29, 1997.P
10.15 Business Sale Agreement between DVSG Engineering und
Patentverwaltungs GmbH and DVSG Service GmbH dated
July 29, 1997.P
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.16 Business Sale Agreement between USM Espana S.L. and
Maquinaria USM S.L. dated July 29, 1997.P
10.17 Business Acquisition Agreement between USM Taiwan
Limited and Texon Taiwan Limited dated December 1997.P
10.18 Bill of Sale, Assignment and Assumption Agreement
between USM Texon Materials Inc. and United Shoe
Machinery Corporation and related agreements dated
July 29, 1997.P
10.19 Assets Sale Agreement between USM Asia Limited and
Texon (H.K.) Limited dated July 29, 1997.P
10.20 Share Purchase Agreement between DVSG Holding GmbH and
DVSG Beteiligungs und Verwaltungs GmbH dated July 29,
1997.P
10.21 Share Sale Agreement between USM Holding GmbH and Texon
Verwaltungs GmbH Gr. dated July 29, 1997.P
10.22 Share Sale Agreement between USM Texon Limited and
Texon Verwaltungs GmbH Gr. dated July 29, 1997.P
10.23 Share Sale Agreement between USM International Limited
and DVSG Administration GmbH relating to the entire
issued share capital of DVSG Service GmbH.P
10.24 Share Sale Agreement between USM International Limited
and DVSG Administration GmbH relating to the entire
issued share capital of DVSG Beteiligungs und
Verwaltungs GmbH.P
10.25 Share Sale Agreement between USM Benelux B.V. and USM
Texon Limited relating to the entire issued share
capital of USM Holding GmbH dated December 23, 1997.P
10.26 Share Transfer Agreement between Texon France S.A. and
USM International Limited dated December 24, 1997 and
related agreement.P
10.27 Share Purchase Agreement between USM Benelux B.V. and
USM International Limited relating to the entire
issued share capital of USM Asia Limited dated July
29, 1997.P
10.28 Share Transfer Agreement between USM Benelux B.V. and
USM International Limited relating to the entire
issued share capital of USM Taiwan Limited dated July
29, 1997.P
10.29 Share Transfer Agreement between USM Benelux B.V. and
USM Texon Limited dated December 23, 1997.P
10.30 Share Transfer Agreement between USM International
Limited and Texon Materiales S.L.P
10.31 Share Transfer Agreement between USM Texon Limited and
El Manto de Elias S.L.P
10.32 Share Transfer Agreement between Texon Overseas and USM
International Limited relating to the entire holding
of Texon Overseas in USM Far East Australia Pty
Limited dated July 29, 1997.P
10.33 Share Transfer Agreement between United Texon plc and
USM International Limited relating to the entire
issued share capital of 3138933 Canada Inc. dated July
29, 1997.P
10.34 Share Transfer Agreement between USM Texon Limited and
USM International Limited relating to the entire
issued share capital of Samco Strong Limited dated
July 29, 1997.P
10.35 Share Transfer Agreement between United Texon plc and
USM International Limited relating to the entire
issued share capital of USM Corporation and related
agreements dated July 29, 1997.P
10.36 Share Transfer Agreement between USM Benelux B.V. and
United Texon plc relating to the entire issued share
capital of USM Corporation and related agreements
dated July 29, 1997.P
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.37 Share Transfer Agreement between Texon Overseas and USM
International Limited relating to the entire issued
share capital of USM Korea Limited dated July 29,
1997.P
10.38 Share Transfer Agreement between USM Benelux B.V. and
USM International Limited relating to the entire
issued share capital of USM Asia Limited dated July
29, 1997.P
10.39 Share Transfer Agreement between USM Benelux B.V. and
USM International Limited relating to the entire
issued share capital of USM do Brasil Industria e
Comercio SA dated July 29, 1997.P
10.40 Exclusive Distributor Agreement between British United
Shoe Machinery Co. Limited and United Shoe Machinery
of Australia Pty. Ltd dated July 29, 1997.P
10.41 Exclusive Distributor Agreement between British United
Shoe Machinery Limited and USM Korea Limited dated
July 29, 1997.P
10.42 Exclusive Distributor Agreement between Texon (H.K.)
Limited and USM Korea Limited.P
10.43 Exclusive Distributor Agreement between British United
Shoe Machinery Limited and United Shoe Machinery
(Thailand) Co. Ltd. dated July 29, 1997.P
10.44 Non-Exclusive Distributor Agreement between USM Texon
Materials Inc. and USM Canada Ltd. dated August 8,
1997.P
10.45 Non-Exclusive Distributor Agreement between Texon
France S.A. and USM France S.A. dated July 29, 1977.P
10.46 Non-Exclusive Distributor Agreement between DVSG
Engineering und Patentverwaltungs GmbH and Deutsche
Vereinigte Schumaschinen GmbH & Co. dated July 29,
1997.P
10.47 Non-Exclusive Distributor Agreement between United Shoe
Machinery Corporation and USM Texon Mexico S.A.P
10.48 Non-Exclusive Distributor Agreement between Texon
Materiales S.L. and Maquinaria USM, S.L. dated July
29, 1997.P
10.49 Non-Exclusive Distributor Agreement between Samco
Strong Limited and United Shoe Machinery of Australia
Pty. Ltd. dated July 29, 1997.P
10.50 Non-Exclusive Distributor Agreement between Texon
Taiwan Limited and USM Taiwan Limited.P
10.51 Sole Agency Agreement between Texon (H.K.) Limited and
USM Far East Australia (PTY) Limited dated July 29,
1997.P
10.52 Cost Sharing Agreement between Texon France S.A. and
USM France S.A.P
10.53 Cost Sharing Agreement between USM Taiwan Limited and
Texon Taiwan Limited dated December 10, 1997.P
10.54 Services Agreement between USM Texon Oesterreich
Gesellschaft M.b.H. and USM Oesterreich
Maschinenhandelsgesellschaft dated December 1, 1997.P
10.55 Service Agreement between DMWSL 189 and British United
Shoe Machinery Limited dated July 29, 1997.P
10.56 Services Agreement between DVSG Engineering und
Patentverwaltungs GmbH and Deutsche Vereinigte
Schumaschinen GmbH & Co. relating to the provision of
services/premises at Pirmasens dated July 29, 1997.P
10.57 Services Agreement between Deutsche Vereinigte
Schumaschinen GmbH & Co. and DVSG Engineering und
Patentverwaltungs GmbH relating to the provision of
services/premises at Frankfurt am Main dated July 29,
1997.P
10.58 Services Agreement between Texon Materiales S.L. and
Maquinaria USM, S.L. dated July 29, 1997.P
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.59 Services Agreement between USM Texon Materials Inc. and
United Shoe Machinery Corporation dated June 30,
1997.P
10.60 Computing Services Agreement between USM Texon
Materials Inc. and United Shoe Machinery Corporation
dated June 30, 1997.P
10.61 Services Agreement between USM Asia Limited and Texon
(H.K.) Limited.P
10.62 Services Agreement between USM Far East Australia Pty
Ltd. and Texon (H.K.) Limited.P
10.63 Sub-Lease Agreement between USM Texon Materials Inc.
and USM Corporation dated May 1, 1997.P
10.64 Contribution and Assumption Agreement between USM
Corporation and USM Texon Materials Inc. dated June
27, 1997.P
10.65 Joint Venture Contract between Foshan Arts & Crafts
Industry Corporation and USM (China Holdings) Ltd.P
10.66 Agreement between USM Texon Limited and British United
Shoe Machinery Co. Limited relating to the surrender
of group relief, dated December 23, 1997.P
10.67 Agreement between USM Texon Limited and Samco Strong
Limited relating to the surrender of group relief
dated December 23, 1997.P
21.1 List of Subsidiaries of the Registrant.*
23.1 Consents of counsel (included in Exhibits 5.1, 5.2, 8.1
and 8.2).
23.2 Consent of KPMG.
24.1 Power of Attorney (see page II-6).
25.1 Statement of Eligibility of Trustee.+
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Clients.*
99.4 Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.*
</TABLE>
- --------
*Previously filed.
+To be filed by amendment.
P Previously filed in paper format under cover of Form SE with the Commission.
<PAGE>
EXHIBIT 5.1
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019-5820
May 11, 1998
Texon International plc
Ross Walk, Belgrave
Leicester LE4 5BX
England
Ladies and Gentlemen:
We have acted as special United States counsel for Texon International p1c,
a corporation organized under the laws of England and Wales (the "Company ') in
-------
connection with the filing by the Company with the Securities and Exchange
Commission (the "Commission") of a registration statement (the "Registration
---------- ------------
Statement") on Form F-4 under the Securities Act of 1933, as amended, relating
- ---------
to the proposed issuance, in exchange for DM245,000,000 aggregate principal
amount of the Company's 10% Senior Notes due 2008 (the "Old Notes'), of up to DM
---------
245,000,000 aggregate principal amount of the Company's 10% Series A Senior
Notes due 2008 (the "Exchange Notes"). The Old Notes have been, and the Exchange
--------------
Notes will be, issued pursuant to an Indenture, dated January 30, 1998 (the
"Indenture"), between the Company and The Bank of New York.
---------
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for purposes of
this opinion, including the Indenture, the Exchange and Registration Rights
Agreement, dated January 27, 1998 (the "Registration Rights Agreement"), by and
-----------------------------
among the Company, Chase Manhattan International Limited, Chase Securities Inc.
and Chase Manhattan Bank AG, the form of the Exchange Notes and the Registration
Statement.
In rendering the opinions contained herein, we have assumed (a) the due
authorization, execution and delivery of each of the Indenture, the Registration
Rights Agreement and the Exchange Notes by each of the parties thereto, (b) that
each of such parties has the legal power to act in the respective capacity or
capacities in which it is to act thereunder, (c) the authenticity of all
documents submitted to us as originals, (d) the conformity to the original
documents of all documents submitted to us as copies and (e) the genuineness of
all signatures on all documents submitted to us.
<PAGE>
MAYER, BROWN & PLATT
Based on the foregoing, we are of the opinion that the Exchange Notes, when
duly issued and authenticated in accordance with the provisions of the Indenture
and delivered in exchange for the Old Notes in accordance with the terms of the
exchange offer described in the Registration Statement, will constitute valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms (subject in each case to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other similar
laws affecting creditors' rights generally from time to time in effect and to
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, regardless of whether
considered in a proceeding in equity or at law).
We are admitted to practice in the State of New York and we do not express
any opinion with respect to matters governed by any laws other than the laws of
the State of New York and the federal laws of the United States of America. To
the extent that the laws of the United Kingdom are relevant to the opinions
expressed herein, we have relied exclusively on the opinion of Dickson Minto
W.S., United Kingdom counsel for the Company, which is being delivered to you
and filed with the Commission as an exhibit to the Registration Statement.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters."
Very truly yours,
/s/ MAYER, BROWN & PLATT
2
<PAGE>
EXHIBIT 5.2
LETTERHEAD OF DICKSON MINTO W.S.
ROYAL LONDON HOUSE
22/25 FINSBURY SQUARE
LONDON EC2A 1DS
TELEPHONE 0171-628 4466
FACSIMILE 0171-628 0027
G4 FACSIMILE 0171-628 0006
DX NO. 33888 FINSBURY SQUARE
Our Ref: T069/001/BAH/SET/1144802.1
Your Ref:
Texon International plc
100 Ross Walk
Leicester
LE4 5BX
11th May 1998
Dear Sirs
TEXON INTERNATIONAL PLC (REGISTERED NO. 3447210) (THE "COMPANY")
1. We have acted as English legal advisers to the Company in connection
with the English law aspects of the offer to exchange (the "Exchange
Offer") an aggregate principal amount of up to DM 245 million of 10%
Series A Senior Notes due 2008 of the Company (the "Exchange Notes") for
a like principal amount of outstanding 10% Senior Notes due 2008 of the
Company (the "Old Notes") and in connection with the preparation of the
Registration Statement on Form F-4 of which we have seen a draft dated
11th May 1998 (the "Registration Statement") filed with the Securities
and Exchange Commission by the Company for the purpose of registration
under the Securities Act 1993, as amended (the "Act"). The Old Notes
have been, and the Exchange Notes will be, issued pursuant to an
indenture, dated 30th January 1997 (the "Indenture") between the Company
and the Bank of New York, as Trustee.
This opinion letter has been requested of us pursuant to the terms of
the Registration Statement.
2. Unless otherwise defined herein or unless the context otherwise
requires, words and expressions defined in the Registration Statement
shall bear the same meaning in this opinion.
3. In preparing this opinion we have examined originals or certified
copies of the following documents (the "Documents"):
<TABLE>
<S> <C> <C> <C> <C> <C>
ATASTAIR R. DICKSON W.S. BRUCE W. MINTO RODERICK L. BRUCE W.S. KEVIN MCDONALD MICHAEL J. BARRON DAVID O.C. MITCHELL W.S.
GRAHAM I. WHITE KEITH T. ANDERSON W.S. ANDREW G. TODD W.S PHILIP T. ANDERSON W.S. COLIN J. MCHALE W.S. MARTIN J. MCNAIR W.S.
</TABLE>
<PAGE>
(a) the memorandum and articles of association of the Company;
(b) the Indenture;
(c) the Registration Rights Agreement;
(d) the Depositary Agreement;
(e) a draft dated 11th May 1998 of the Registration Statement;
(f) a specimen certificate relating to the Old Notes and the
Exchange Notes; and
(g) the minutes of the board of directors of the Company dated 27th
January 1998;
and such other ancillary documents executed and delivered in connection
with the above.
In providing this opinion we have expressly relied upon the Documents
in respect of the accuracy of the matters referred to therein and
statements made in the Documents. We have not independently established
any of such matters and have assumed that all statements of fact are
correct.
4. On 11th May 1998 we carried out a company search in respect of the
Company at the Companies Registry and an oral inquiry of the Central
Registry of Winding Up Petitions but we have not conducted a further
search since that date and we have not conducted any other searches. We
have therefore assumed that a more recent search in the Companies
Registry would not reveal any circumstances which would require an
amendment to this opinion or affect our willingness to give this opinion
and that the searches reflected all maters which occurred on or prior to
such date and/or which required to be reflected in such company
searches. The search did not reveal the filing of any winding up order,
resolution or petition or the filing of any appointment of an
administrative receiver or administrator of the Company.
5. This opinion relates only to the law of England as it exists at the date
hereof and assumes:
(a) the genuineness of all signatures;
(b) the authenticity and completeness of all the Documents submitted
to us as originals;
(c) the conformity to originals of all documents supplied to us as
copies and the authenticity and completeness of the originals of
such Documents;
(d) that each of the Documents remains accurate and that there have
been no variations to any of the Documents;
2
<PAGE>
(e) the due authorisation, execution and delivery of the Documents
by all parties thereto other than the Company and the capacity,
power and authority of each of the parties to the Documents
(other than the Company) to enter into the Documents;
(f) that any provisions contained in the Companies Act 1985 (as
amended) or the articles of association of the Company relating
either to the declaration of directors' interests or the power
of interested directors to vote is or has been duly observed;
(g) that the execution and performance of the Indenture and the
Exchange Notes to be issued was in the best interests of the
Company;
(h) that under the law of the State of New York, the Exchange Notes
being issued, and the Exchange Notes themselves, are legal,
valid and binding on each of the parties thereto;
(i) that the Exchange Notes being issued have been duly executed by
each of the parties thereto in accordance with the law of the
State of New York; and
(j) that the resolutions of the Board of Directors referred to in
the Documents were each duly passed at properly convened
meetings and there has been no procedural irregularity at such
meetings, that a duly qualified quorum voted in favour of
approving the resolutions, and that the resolutions have not
been revoked or superseded and remain in full force and effect.
6. We express no opinion as to the reasonableness, accuracy or otherwise of
any of the foregoing assumptions. We have not investigated the laws of
any country other than England. We express no opinion as to matters of
fact.
7. Based upon and subject to the foregoing (and subject also as hereinafter
provided), we are of the opinion that, so far as the present law of
England is concerned:
(a) The Company has power and authority to execute and deliver the
Indenture and to perform its obligations thereunder and has
taken all necessary corporate action required by applicable law
or pursuant to its memorandum and articles of association to
authorise the execution and delivery of the Indenture and the
performance by it of its obligations thereunder.
(b) The Indenture has been duly authorised, executed and delivered
by the Company.
(c) The Company has power and authority to issue the Exchange Notes
and has taken all necessary corporate action required by
applicable law or pursuant to its memorandum and articles of
association to authorise the issue of the Exchange Notes and to
ensure that the obligations expressed ro be assumed
3
<PAGE>
by it in the Exchange Notes are legal, valid and binding on it in
accordance with their terms.
(d) The statements in the Registration Statement under the heading "Tax
Considerations - Material UK Tax Consequences" reflect the position
under the law of England and the practice of the U.K. Inland Revenue as
they exist at the date hereof and represent the opinion of this firm in
respect of those matters.
8. Notwithstanding the foregoing, the opinions set forth above are subject in
all respects to the following qualifications and limitations:
(a) the opinions given above are subject to certain rules of law which are
mandatory under English law including laws concerning administration,
receivership, bankruptcy, insolvency, winding up, liquidation,
administration, moratoria, dissolution, reorganisation, fraudulent
conveyance or preference or similar laws generally affecting the rights
of creditors and the application of equitable principles (including the
concepts of materiality, reasonableness and good faith) which the
English courts may be required to apply notwithstanding the express
choice of law governing the Documents.
(b) equitable remedies such as an order for specific performance or grant
of an injunction are available only at the discretion of the English
courts and no opinion is given as to how the English courts might
exercise that discretion;
(c) where obligations of any person are to be performed in any jurisdiction
outside England, such obligations may not be enforceable under English
law to the extent that such performance thereof would be illegal or
contrary to public policy under the laws of such jurisdiction;
(d) an English court may refuse to give effect to a purported contractual
obligation to pay costs imposed upon another party in respect of a suit
in an English court and an English court may not award by way of costs
all of the expenditure incurred by a successful litigant in
proceedings brought before the court; under English law, additional
interest imposed on the Company by way of default interest might be
held to be irrecoverable on the grounds that it is a penalty and thus
void;
(e) we do not express any opinion as to the various U.S. state and U.S.
federal laws regulating any of the Documents and the issue of the
Exchange Notes and the transactions contemplated thereby;
(f) we express no opinion with regard to the enforceability of the
following provisions in the Indenture;
(i) provisions purporting to waive rights to notice, damages or jury
trial; and
4
<PAGE>
(ii) provisions that decisions by a party are conclusive.
9. This opinion is given on the basis that it will be governed by and construed
in accordance with the law of England as at the date hereof, is solely for
your benefit and is not to be relied upon by any other person or for any
other purpose (other than Mayer Brown & Platt for the purposes of preparing
their legal opinion in connection with the Registration Statement), nor is
it to be quoted or made public in any way (unless such is requested by law)
without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of our name under the heading "Tax
Consideration - Material UK Tax Consequences" in the Registration Statement.
In giving such consent we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Act.
Yours faithfully
Dickson Minto, W.S.
5.
<PAGE>
EXHIBIT 8.1
MAYER BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019-5820
May 11, 1998
Texon International plc
Ross Walk, Belgrave
Leicester LE4 5BX
England
Ladies and Gentlemen:
We have acted as special United States tax counsel for Texon International
p1c, a corporation organized under the laws of England and Wales (the
"Company's ) in connection with the filing by the Company with the Securities
- -----------
and Exchange Commission of a registration statement (the "Registration
------------
Statement") on Form F-4 under the Securities Act of 1933, as amended, relating
- ----------
to the proposed issuance, in exchange for DM245,000,000 aggregate principal
amount of the Company's 10% Senior Notes due 2008 (the "Old Notes"), of up to
----------
DM245,000,000 aggregate principal amount of the Company's 10% Series A Senior
Notes due 2008 (the "Exchange Notes"). The Old Notes have been, and the Exchange
----------------
Notes will be, issued pursuant to an Indenture, dated January 30, 1998, between
the Company and The Bank of New York.
Based on the foregoing, we hereby confirm that the discussion set forth
under the subheading "United States Tax Considerations" to the heading "Tax
Considerations" in the prospectus (the "Prospectus') forming a part of the
-------------
Registration Statement represents our opinion as to the material U.S. federal
income consequences of the receipt, ownership and disposition of Exchange Notes
received in exchange for Old Notes, and we consent to the filing of this opinion
as an exhibit to the Registration Statement and to the references to us under
the headings "Legal Matters" in the Prospectus forming a part of the
Registration Statement.
Very truly yours,
/s/ MAYER, BROWN & PLATT
<PAGE>
EXHIBIT 23.2
The Board of Directors
Texon International plc:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG
/s/ KPMG
London
11 May 1998
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR TENDERS OF
DM 245,000,000 Aggregate Principal Amount of
10% Senior Notes due 2008
TEXON INTERNATIONAL PLC
Pursuant to the Prospectus
dated ________ __, 1998 of Texon International plc
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER
OF ________ __, 1998 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD
NOTES ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED
---------------
OLD SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE
OF THE EXCHANGE OFFER.
Deliver to: The Chase Manhattan Bank, Exchange Agent:
By Mail, by Overnight Courier
or by Hand:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
By Facsimile:
(212) 946-8177
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
The undersigned (the "Holder") acknowledges that he or she has
------
received the Prospectus, dated ________ __, 1998 (the "Prospectus"), of Texon
----------
International plc, a company incorporated under the laws of England and Wales
(the "Company"), and this Letter of Transmittal, which may be amended from time
-------
to time (this "Letter"), which together constitute the Company's offer (the
------
"Exchange Offer") to exchange an aggregate principal amount of up to DM
- ---------------
245,000,000 of its 10% Series A Senior Notes due 2008 (the "Exchange Notes"),
--------------
which have been registered under the Securities Act of 1933 (the "Securities
----------
Act"), pursuant to a Registration Statement of which the Prospectus constitutes
a part, for a like principal amount of the issued and outstanding 10% Senior
Notes due 2008 (the "Old Notes") of which DM 245,000,000 aggregate principal
---------
amount is outstanding the "Old Notes").
---------
For each Old Note accepted for exchange, the Holder of such Old Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. The Exchange Notes will bear interest from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid on the Old Notes, from January 30, 1998. Registered holders of
Exchange Notes on the relevant record date for the first interest payment date
following the consummation of the Exchange Offer will receive interest accruing
from the most recent date to which interest has been paid or, if no interest has
been paid, from January 30, 1998. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after consummation
of the Exchange Offer.
This Letter is to be used: (i) by all Holders who are not members of
the Automated Tender Offering Program ("ATOP") at the Depository Trust Company
----
("DTC"), (ii) by Holders who are ATOP members but choose not to use ATOP or
---
(iii) if the Old Securities are to be tendered in accordance with the guaranteed
delivery procedures set forth in "The Exchange Offer Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 2 hereto. Delivery of
this Letter to DTC does not constitute delivery to the Exchange Agent.
Notwithstanding anything to the contrary in the Exchange and
Registration Rights Agreement, dated January 27, 1998, among the Company and the
initial purchasers of Old Notes (the "Exchange and Registration Rights
--------------------------------
Agreement"), the Company will accept for exchange any and all Old Notes validly
tendered on or prior to 5:00 p.m., New York City time, on the earlier of
_________ __, 1998 (unless the Exchange Offer is extended by the Company) or the
date on which 100% of the Old Notes are validly tendered and not withdrawn (the
"Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to
---------------
5:00 p.m., New York City time, on the Expiration Date.
IMPORTANT: HOLDERS WHO WISH TO TENDER OLD SECURITIES IN THE EXCHANGE OFFER MUST
COMPLETE THIS LETTER OF TRANSMITTAL AND TENDER THE OLD SECURITIES TO THE
EXCHANGE AGENT AND NOT TO THE COMPANY.
The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered for exchange. The Exchange Offer is not
being made to, nor will tenders be accepted from or on behalf of, Holders of Old
Notes in any jurisdiction in which the making or acceptance of the Exchange
Offer would not be in compliance with the laws of such jurisdiction.
The instructions included with this Letter of Transmittal must be
followed in their entirety. Questions and request for assistance or for
additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address listed above.
2
<PAGE>
APPROPRIATE SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company the principal amount of
Old Notes indicated below under "Description of Old Notes," in accordance with
and upon the terms and subject to the conditions set forth in the Prospectus,
receipt of which is hereby acknowledged, and in this Letter of Transmittal, for
the purpose of exchanging each DM 1,000 principal amount of Old Notes designated
herein held by the undersigned and tendered hereby for DM 1,000 principal amount
of the Exchange Notes. Exchange Notes will be issued only in integral multiples
of DM 1,000 to each tendering Holder of Old Notes whose Old Notes are accepted
in the Exchange Offer. Holders may tender all or a portion of their Old Notes
pursuant to the Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered herewith in accordance with the terms of the Exchange Offer, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Company all right, title and interest in and to all such Old Notes that are
being tendered hereby and that are being accepted for exchange pursuant to the
Exchange Offer. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that the Exchange Agent also acts as the agent
of the Company), with respect to the Old Notes tendered hereby and accepted for
exchange pursuant to the Exchange Offer with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) to deliver the Old Notes tendered hereby to the Company (together with
all accompanying evidences of transfer and authenticity) for transfer or
cancellation by the Company.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned. Any tender of Old Notes hereunder
may be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter of Transmittal. See Instruction 4 hereto.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Company to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered.
The undersigned has read and agrees to all of the terms of the Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus and the instructions contained in this Letter of Transmittal.
See Instruction 4 hereto.
The name(s) and address(es) of the registered Holder(s) should be
printed herein under "Description of Old Notes" (unless a label setting forth
such information appears thereunder), exactly as they appear on the Old Notes
tendered hereby. The certificate number(s) and the principal amount of Old
Notes to which this Letter relates, together with the principal amount of such
Old Notes that the undersigned wishes to tender, should be indicated in the
appropriate boxes herein under "Description of Old Notes."
3
<PAGE>
The undersigned agrees that acceptance of any tendered Old Notes by
the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Exchange and Registration Rights Agreement and that, upon the issuance of the
Exchange Notes, the Company will have no further obligations or liabilities
thereunder.
The undersigned understands that the tender of Old Notes pursuant to
one of the procedures described in the Prospectus under "The Exchange Offer --
Exchange Offer Procedures" and the Instructions hereto will constitute the
tendering Holder's acceptance of the terms and the conditions of the Exchange
Offer. The undersigned hereby represents and warrants to the Company that the
Exchange Notes to be acquired by such Holder pursuant to the Exchange Offer are
being acquired in the ordinary course of such Holder's business, that such
Holder has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes. The Company's acceptance of Old Notes for
exchange tendered pursuant to the Exchange Offer will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT IT IS NOT ENGAGED
IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE EXCHANGE NOTES.
The undersigned also acknowledges that this Exchange Offer is being
made based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties in other transactions substantially similar to the Exchange Offer, which
lead the Company to believe that the New Notes issued in exchange for the Old
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by holders thereof (other than (i) any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (ii) an Initial Purchaser who acquired the Old Notes directly
from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act, or
(iii) a broker-dealer who acquired the Old Notes as a result of market making or
other trading activities), without further compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders are not participating and have no arrangement or understanding with any
person to participate in the distribution (within the meaning of the Securities
Act) of such New Notes. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. If any holder is an affiliate of
the Company or is engaged in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act, including the
requirement that any such secondary resale transaction be covered by an
effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the Securities Act. If
the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange of Old Notes, it represents that the Old Notes to be
exchanged for the New Notes were acquired by it as a result of market-making
activities or other trading activities and acknowledges that it will deliver a
prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of Section 2(11) of the
Securities Act.
The undersigned understands that the Exchange Notes issued in
consideration of Old Notes accepted for exchange, and/or any principal amount of
Old Notes not tendered or not accepted for exchange, will only be issued in the
name of the Holder(s) appearing herein under "Description of Old Notes." Unless
otherwise indicated under "Special Delivery Instructions," please mail the
Exchange Notes issued in consideration of Old Notes accepted for exchange,
and/or any principal amount of Old Notes not tendered or
4
<PAGE>
not accepted for exchange (and accompanying documents, as appropriate), to the
Holder(s) at the address(es) appearing herein under "Description of Old Notes."
In the event that the Special Delivery Instructions are completed, please mail
the Exchange Notes issued in consideration of Old Notes accepted for exchange,
and/or any Old Notes for any principal amount not tendered or not accepted for
exchange, in the name of the Holder(s) appearing herein under "Description of
Old Notes," and send such Exchange Notes and/or Old Notes to, the address(es) so
indicated. Any transfer of Old Notes to a different holder must be completed,
according to the provisions on transfer of Old Notes contained in the Indenture.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX BELOW.
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of
Transmittal or notice of withdrawal, as the case may be, must be guaranteed by
an institution which falls within the definition of "eligible guarantor
institution" contained in Rule 17Ad-15 as promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended
(hereinafter, an "Eligible Institution") unless (i) the Old Notes tendered
-------------------- ------
hereby are tendered by the Holder(s) of the Old Notes who has (have) not
completed the box entitled "Special Delivery Instructions" on this Letter of
Transmittal or (ii) the Old Securities are tendered for the account of an
Eligible Institution.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD SECURITIES;
GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be used: (i)
by all Holders who are not ATOP members, (ii) by Holders who are ATOP members
but choose not to use ATOP or (iii) if the Old Notes are to be tendered in
accordance with the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer -- Guaranteed Delivery Procedures." To validly tender
Old Notes, a Holder must physically deliver a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and all other required documents to the Exchange Agent at
its address set forth on the cover of this Letter of Transmittal prior to the
Expiration Date (as defined below) or the Holder must properly complete and duly
execute an ATOP ticket in accordance with DTC procedures. Otherwise, the Holder
must comply with the guaranteed delivery procedures set forth in the next
paragraph. Notwithstanding anything to the contrary in the Exchange and
Registration Rights Agreement, the term "Expiration Date" means 5:00 p.m., New
---------------
York City time, on the earlier of _________ __, 1998 (or such later date to
which the Company may, in its sole discretion, extend the Exchange Offer) or the
date on which 100% of the Old Notes are validly tendered and not withdrawn. If
this Exchange Offer is extended, the term "Expiration Date" shall mean the
---------------
latest time and date to which the Exchange Offer is extended. The Company
expressly reserves the right, at any time or from time to time, to extend the
period of time during which the Exchange Offer is open by giving oral (confirmed
in writing) or written notice of such extension to the Exchange Agent and by
making a public announcement of such extension prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
LETTERS OF TRANSMITTAL SHOULD NOT BE SENT TO THE COMPANY OR TO DTC.
If a Holder of the Old Notes desires to tender such Old Notes and time
will not permit such Holder's required documents to reach the Exchange Agent
before the Expiration Date, a tender may be effected if (a) the tender is made
through an Eligible Institution, (b) on or prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery (by telegram, facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange trading days
after the Expiration Date, any documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and (c)
all other documents required by the Letter of Transmittal are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date. See "The Exchange Offer -- Guaranteed Delivery Procedures" as
set forth in the Prospectus.
Only a Holder of Old Notes may tender Old Notes in the Exchange Offer.
The term "Holder" as used herein with respect to the Old Notes means any person
in whose name Old Notes are registered on the books of the Trustee. If the
Letter of Transmittal or any Old Notes are signed by trustees, executors,
6
<PAGE>
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be so submitted.
Any beneficial Holder whose Old Notes are registered in the name of
his broker, dealer, commercial bank, trust company or other nominee and who
wishes to validly surrender those Old Notes in the Exchange Offer should contact
such registered Holder promptly and instruct such registered Holder to tender on
his behalf. If such beneficial Holder wishes to tender on his own behalf, such
beneficial Holder must, prior to completing and executing the Letter of
Transmittal, make appropriate arrangements to register ownership of the Old
Notes in such beneficial holder's name. It is the responsibility of the
beneficial holder to register ownership in his own name if he chooses to do so.
The transfer of record ownership may take considerable time.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL (OR FACSIMILE
HEREOF) AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
EXCHANGING HOLDER, but, except as otherwise provided below, the delivery will be
deemed made only when actually received or confirmed by the Exchange Agent. If
sent by mail, registered mail with return receipt requested, properly insured,
is recommended. In all cases, sufficient time should be allowed to assure
timely delivery to the Exchange Agent before the Expiration Date. No Letters of
Transmittal or Old Notes should be sent to the Company.
No alternative, conditional or contingent tenders will be accepted.
All tendering Holders, by execution of this Letter of Transmittal (or facsimile
hereof), waive any right to receive notice of acceptance of their Old Notes for
exchange.
3. INADEQUATE SPACE. If the space provided herein is inadequate,
the certificate numbers and principal amount of the Old Notes to which this
Letter of Transmittal relates should be listed on a separate signed schedule
attached hereto.
4. WITHDRAWAL OF TENDER. 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 be effective, a written or facsimile transmission notice of
withdrawal must (i) be received by the Exchange Agent at the address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date, (ii)
specify the name of the person having tendered the Old Notes to be withdrawn,
(iii) identify the Old Notes to be withdrawn and (iv) be (a) 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 (b) accompanied by evidence satisfactory to the Company that the
Holder withdrawing such tender has succeeded to beneficial ownership of such Old
Notes. If Old Notes have been tendered pursuant to the ATOP procedure with DTC,
any notice of withdrawal must otherwise comply with the procedures of DTC. Old
Notes properly withdrawn will thereafter be deemed not validly tendered for
purposes of the Exchange Offer; provided, however, that withdrawn Old Notes may
-------- -------
be retendered by again following one of the procedures described herein at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. All
questions as to the validity, form and eligibility (including time of receipt)
of notice of withdrawal will be determined by the Company, whose determinations
will be final and binding on all parties. Neither the Company, the Exchange
Agent, nor any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. The Exchange Agent intends to use
reasonable efforts to give notification of such defects and irregularities.
5. PARTIAL TENDERS; PRO RATA EFFECT. Tenders of the Old Notes will
be accepted only in integral multiples of DM 1,000. If less than the entire
principal amount evidenced by any Old Notes is to be tendered, fill in the
principal amount that is to be tendered in the box entitled "Principal Amount
Tendered"
7
<PAGE>
below. The entire principal amount of all Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the registered
Holder(s) of the Old Notes tendered hereby, the signature must correspond with
the name as written on the face of the certificate representing such Old Notes
without alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Notes tendered hereby are registered in different
names, it will be necessary to complete, sign and submit as many separate copies
of this Letter of Transmittal and any necessary accompanying documents as there
are different registrations.
When this Letter of Transmittal is signed by the Holder(s) of Old
Notes listed and tendered hereby, no endorsements or separate bond powers are
required.
If this Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
7. SPECIAL DELIVERY INSTRUCTIONS. Tendering Holders should indicate
in the applicable box the name and address to which Exchange Notes issued in
consideration of Old Notes accepted for exchange, or Old Notes for principal
amounts not exchanged or not tendered, are to be sent, if different from the
name and address of the person signing this Letter of Transmittal.
8. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, Exchange Notes and/or substitute Old Securities for principal amounts
not exchanged are to be delivered to any person other than the Holder of the Old
Notes or if a transfer tax is imposed for any reason other than the exchange of
Old Securities pursuant to the Exchange Offer, the amount of any such transfer
taxes (whether imposed on the registered Holder or any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted, the amount of such transfer taxes
will be billed directly to such tendering Holder.
9. IRREGULARITIES. All questions as to validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be resolved by the Company, in its sole discretion, whose determination
shall be final and binding. The Company reserves the absolute right to reject
any or all tenders of any particular Old Notes that are not in proper form, or
the acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defect,
irregularity or condition of tender with regard to any particular Old Notes.
The Company's interpretation of the terms of, and conditions to, the Exchange
Offer (including the instructions herein) will be final and binding. Unless
waived, any defects or irregularities in connection with tenders must be cured
within such time as the Company shall determine. Neither the Company nor the
Exchange Agent shall be under any duty to give notification of defects in such
tenders or shall incur any liability for failure to give such notification. The
Exchange Agent intends to use reasonable efforts to give notification of such
defects and irregularities. Tenders of Old Notes will not be deemed to have
been made until all defects and irregularities have been cured or waived. Any
Old Notes received by the Exchange Agent that are not properly tendered and as
to which the irregularities have not been cured or waived will be returned by
the Exchange Agent to the
8
<PAGE>
tendering Holder, unless otherwise provided by this Letter of Transmittal, as
soon as practicable following the Expiration Date.
10. INTEREST ON EXCHANGED OLD NOTES. Holders whose Old Notes are
accepted for exchange will not receive accrued interest thereon on the date of
exchange. Instead, interest accruing from January 30, 1998 through the
Expiration Date will be payable on the Exchange Notes on August 1, 1998, in
accordance with the terms of the Exchange Securities. See "The Exchange Offer -
- - Interest on the Exchange Notes and "Description of Notes" sections of the
Prospectus.
11. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Holders whose
certificates for Old Securities have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), TOGETHER
WITH ALL REQUIRED DOCUMENTS, OR A NOTICE OF GUARANTEED DELIVERY, MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under Federal income tax laws, a registered Holder of Old Notes or
Exchange Notes is required to provide the Trustee (as payer) with such Holder's
correct TIN on Substitute Form W-9 below or otherwise establish a basis for
exemption from backup withholding. If such Holder is an individual, the TIN is
his social security number. If the Trustee is not provided with the correct
TIN, a $50 penalty may be imposed by the Internal Revenue Service, and payments
made to such Holder with respect to Old Securities or Exchange Securities may be
subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Trustee a properly completed Internal Revenue Service Form W-8, signed under
penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can
be obtained from the Trustee.
If backup withholding applies, the Trustee is required to withhold 31%
of any payments made to the Holder or other payee. Backup withholding is not an
additional Federal income tax. Rather, the Federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments made with respect to Old
Notes or Exchange Notes the Holder is required to provide the Trustee with: (i)
the Holder's correct TIN by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN) and that (A) such Holder is exempt from backup withholding, (B) the Holder
has not been notified by the Internal Revenue Service that the Holder is subject
to backup withholding as a result of failure to report all interest or dividends
or (C) the Internal Revenue Service has notified the Holder that the Holder is
no longer subject to backup withholding; and (ii) if applicable, an adequate
basis for exemption.
9
<PAGE>
<TABLE>
<CAPTION>
PAYER'S NAME: THE CHASE MANHATTAN BANK
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY Social Security Number
SIGNING AND DATING BELOW
FORM W-9
DEPARTMENT OF THE
TREASURY-INTERNAL OR______________________
REVENUE SERVICE Employer Identification
Number
- ------------------------------------------------------------------------------------------------------------------------------------
PART 2 - CERTIFICATION - UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
PAYEE'S REQUEST FOR (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a
TAXPAYER IDENTIFICATION number to be issued to me); and
NUMBER ("TIN") (2) I am not subject to backup withholding because (i) I am exempt from backup withholding, (ii) I
have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of failure to report all interest or dividends, or (iii) the IRS has
notified me that I am no longer subject to backup withholding.
CERTIFICATE INSTRUCTION -- You must cross out item (2) in Part 2 above if you have been notified
by the IRS that you are subject to backup withholding because of under reporting interest or
dividends on your tax return. However, if after being notified by the IRS that you were subject to
backup withholding you received another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
- ------------------------------------------------------------------------------------------------------------------------------------
Part 3
SIGNATURE..........................................DATE.................,
1998 Awaiting TIN [ ]
NAME (Please Print).....................................................
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (i) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (ii) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
Signature..................................................Date...............
Name (Please Print)............................................................
10
<PAGE>
- -------------------------------------------------------------------------------
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1 and 7)
To be completed ONLY if the Exchange Notes issued in consideration of Old Notes
exchanged, or certificates for Old Notes in a principal amount not surrendered
for exchange are to be mailed to someone other than the undersigned or to the
undersigned at an address other than that below.
Mail to:
Name:________________________________________________________________________
(Please Print)
Address:_____________________________________________________________________
(Zip Code)
- -----------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
(See Instructions 2 and 7)
<TABLE>
<CAPTION>
Name(s) and Address(es) of Certificate(s)
Registered Holder(s) (Attach additional signed list, if necessary)
(Please fill in, in blank)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Certificate Number(s)/*/ Aggregate Principal Amount Principal Amount of Old Notes
of Tendered/**/ (must be integral
Old Notes Evidenced by multiples of DM 1,000)
Certificate(s)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
/*/ Need not be completed if Old Notes are being tendered by book-entry
transfer.
/**/ Unless otherwise indicated, the entire principal amount of Old Notes
evidenced by any certificate will be deemed to have been tendered.
11
<PAGE>
(Boxes below to be checked by Eligible Institutions only)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------
DTC Account Number
-----------------------------------------------------
Transaction Code Number
------------------------------------------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
----------------------------------------
Window Ticket Number (if any)
-----------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------
Name of Institution which Guaranteed Delivery
--------------------------
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution
------------------------------------------
DTC Account Number
-----------------------------------------------------
Transaction Code Number
-----------------------------------------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name
---------------------------------------------------------------------------
Address
-----------------------------------------------------------------------
-----------------------------------------------------------------------
12
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
---------------------------------------------------
PLEASE SIGN HERE
WHETHER OR NOT OLD NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X
--------------------------- ----------
X
--------------------------- ----------
SIGNATURE(S) OF OWNER(S) DATED
OF AUTHORIZED SIGNATORY
Area Code and Telephone Number:
------------------------------------------------
This box must be signed by registered holder(s) of Old Notes as their name(s)
appear(s) on certificate(s) for Old Notes hereby tendered or on a security
position listing, or by any person(s) authorized to become registered holder(s)
by endorsement and documents transmitted with this Letter (including such
opinions of counsel, certifications and other information as may be required by
the Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-fact,
trustee, executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his or her
full title below.
Name(s)
------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
----------------------------------------------------------
Address
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Tax Identification or Social Security Number(s)
--------------------------------
- -------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 6 to determine if required)
Authorized Signature
----------------------------------------------------------
Name
---------------------------------------------------------------------------
Name of Firm
-------------------------------------------------------------------
Title
--------------------------------------------------------------------------
Address
------------------------------------------------------------------------
Area Code and Telephone Number
-------------------------------------------------
Dated
--------------------------------------------------------------------------
13
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
FOR THIS TYPE GIVE THE SOCIAL FOR THIS TYPE GIVE THE EMPLOYER
OF ACCOUNT: SECURITY NUMBER OF ACCOUNT: IDENTIFICATION
OF-- NUMBER OF--
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner/1/
- ------------------------------------------------------------------------------------------------------------------------------------
2. Two or more individuals The actual owner of the 7. A valid trust, estate, Legal entity/2/
(joint account) account or, if combined or pension trust
funds, the first
individual on the
account./2/
8. Corporate The corporation
3. Custodian account of a The minor/4/ 9. Association, club, The organization
minor (Uniform Gift to religious, charitable,
Minors Act) educational or other
tax-exempt organization
10. Partnership The partnership
4.a. The usual revocable The grantor-trustee 11. A broker or registered The broker or nominee
savings trust (grantor nominee
is also trustee)
b. So-called trust account The actual owner 12. Account with the The public entity
that is not a legal or Department of
valid trust under State Agriculture in the
law name of a public
5. Sole proprietorship The owner/1/ entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
/1/ You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your SSN or EIN.
/2/ List first and circle the name of the person whose number you furnish.
/3/ List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.)
/4/ Circle the minor's name and furnish the minor's social security number.
14
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers Act
of 1940 U.C. who regularly acts as a broker are exempt. Payments subject to
reporting under sections 6041 and 6041A are generally exempt from backup
withholding only if made to payees described in items (1) through (7), except a
corporation that provides medical and health care services or bills and collects
payments for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from
backup withholding for barter exchange transactions, patronage dividends, and
payments by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan or custodial account under section 403(b)(7).
(3) The United States or any agency or instrumentality thereof.
(4) A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
(5) A foreign government, a political subdivision of a foreign government, or an
agency or instrumentality thereof.
(6) An international organization or any agency or instrumentality thereof.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times under the Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc. Nominee List.
(15) An exempt charitable remainder trust, or a non-exempt trust described in
section 4947.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends not paid in money.
. Payments made by certain foreign organizations.
NOTE: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, royalties, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
15
