<PAGE> 1
REGISTRATION STATEMENT NO. 333-70011
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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GEO SPECIALTY CHEMICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
OHIO 2819 34-1708689
(State or Other Jurisdiction of 3295 (I.R.S. Employer
Incorporation or Organization) (Primary Standard Industrial Identification Number)
Classification Code Number)
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GEORGE P. AHEARN
GEO SPECIALTY CHEMICALS, INC.
28601 CHAGRIN BOULEVARD, SUITE 210
CLEVELAND, OHIO 44122
(216) 464-5564
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Principal Executive Offices and Agent For Service)
Copies to:
CRAIG R. MARTAHUS, ESQ.
THOMPSON HINE & FLORY LLP
3900 KEY CENTER
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
(216) 566-5500
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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Subject to completion, dated April 2, 1999
PROSPECTUS
GEO SPECIALTY CHEMICALS
EXCHANGE OFFER FOR
$120,000,000
10 1/8% SENIOR SUBORDINATED
NOTES DUE 2008
GEO Specialty Chemicals, Inc. is offering to exchange 10 1/8% senior
subordinated notes due 2008 for its outstanding 10 1/8% senior subordinated
notes due 2008. The offered notes are identical to the outstanding notes, except
that the offered notes have been registered under the federal securities laws
and will not bear any legend restricting their transfer. The offered notes will
represent the same debt as the outstanding notes and will be issued under the
same indenture. The principal features of the exchange offer are as follows:
- - Expires 12:00 midnight, Eastern Standard Time, on , 1999,
unless extended
- - All outstanding notes that are validly tendered and not validly withdrawn will
be accepted for exchange
- - Tenders must be made through the enclosed letter of transmittal or as
otherwise specified in this prospectus
- - Subject to sole condition that the exchange offer not violate applicable law
or any Securities and Exchange Commission position
- - Tenders may be withdrawn at any time before the expiration of the exchange
offer
- - GEO will not receive any proceeds from the exchange offer, but is making the
exchange offer to comply with contractual obligations
- - The exchange of notes in the exchange offer should be a tax-free event for
United States federal tax purposes
- - The offered notes will not be listed on any securities exchange or automated
quotation system
Broker-dealers receiving offered notes in exchange for outstanding notes
acquired for their own account through market-making or other trading activities
must deliver a prospectus in any resale of the offered notes. For 60 days after
the expiration of the exchange offer, GEO will make this prospectus available to
broker-dealers for use in such resales.
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AN INVESTMENT IN THE OFFERED NOTES INVOLVES A HIGH DEGREE OF RISK. RISK
FACTORS BEGIN ON PAGE 9.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 1999
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PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus contains a more complete description of the offered notes, as well as
detailed financial data and information regarding GEO's business. You should
read this prospectus in its entirety before deciding whether to make an
investment in the offered notes.
SUMMARY OF THE EXCHANGE OFFER
THE EXCHANGE OFFER
Offer by GEO to exchange 10 1/8% senior subordinated notes for its
currently outstanding 10 1/8% senior subordinated notes, in $1,000 increments.
As of the date of this prospectus, $120.0 million aggregate principal amount of
notes are outstanding. The terms of the offered notes are substantially
identical to the terms of the outstanding notes, except that the offered notes
have been registered under the federal securities laws and will not bear any
legend restricting their transfer. The offered notes will represent the same
debt as the outstanding notes and will be issued under the same indenture.
REGISTRATION RIGHTS AGREEMENT
GEO sold the outstanding notes on July 31, 1998 in a private placement in
reliance upon Section 4(2) of the Securities Act of 1933, and the initial
purchaser immediately resold the notes in reliance upon Rule 144A under the
Securities Act of 1933. In connection with the private placement, GEO entered
into a registration rights agreement with the initial purchaser of the
outstanding notes which requires GEO to effect the exchange offer.
The registration rights agreement requires GEO to:
- file a registration statement for the exchange offer and the offered
notes on or before March 13, 1999;
- cause the registration statement filed for the exchange offer and the
offered notes to be declared effective by the SEC on or before April 27,
1999; and
- complete the exchange offer on or before May 27, 1999.
These obligations will be satisfied when the exchange offer is completed.
However, if GEO fails to meet any of these requirements, it will be required to
pay additional interest on the outstanding notes until the applicable
requirement has been met.
TRANSFERABILITY OF THE
OFFERED NOTES
Based on an SEC interpretation of the federal securities laws, GEO believes
that you may transfer the offered notes without compliance with the registration
and prospectus delivery requirements of the Securities Act of 1933, provided
that:
- you acquire the offered notes in the ordinary course of your business;
- you are not participating in and do not intend to participate in any
distribution of the offered notes;
- you have no arrangement or understanding with any person to participate
in any distribution of the offered notes; and
- you are not an "affiliate" of GEO.
If GEO's belief is inaccurate and you transfer any offered note without
delivering a prospectus meeting the requirements of the Securities Act of 1933
or without an exemption from such requirements, you may incur liability under
the Securities Act of 1933. GEO is not indemnifying you against any such
liability.
Broker-dealers receiving offered notes in exchange for outstanding notes
acquired for their own account through market-making or other trading activities
must acknowledge that they will deliver a prospectus in connection with any
resale of the offered notes. For 60 days after the expiration of the exchange
offer, GEO will make this prospectus available to broker-dealers for use in such
resales.
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EFFECT OF NOT TENDERING
Any outstanding notes that are not tendered or that are tendered but not
accepted will continue to be subject to the existing restrictions upon transfer.
Since the outstanding notes have not been registered under the federal
securities laws, they bear a legend restricting their transfer absent
registration or the availability of a specific exemption from registration. Upon
the completion of the exchange offer, GEO will have no further obligation to
provide for the registration of the outstanding notes under the federal
securities laws.
EXPIRATION DATE
The exchange offer will expire at 12:00 midnight, Eastern Standard Time, on
, 1999, unless it is extended by GEO.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES
To accept the exchange offer, you must complete the letter of transmittal
which accompanies this prospectus in accordance with the instructions contained
therein and in this prospectus. You should then mail or otherwise deliver the
letter of transmittal, together with any other documents required by the letter
of transmittal, to The Chase Manhattan Bank, the exchange agent, at one of the
addresses provided in this prospectus on page 57. IF YOU HOLD YOUR NOTES THROUGH
THE DEPOSITORY TRUST COMPANY, YOU MAY ACCEPT THE EXCHANGE OFFER THROUGH THE
DEPOSITORY TRUST COMPANY'S AUTOMATED TENDER OFFER PROGRAM, BY WHICH YOU WILL
AGREE TO BE BOUND BY THE LETTER OF TRANSMITTAL.
By executing or agreeing to be bound by the letter of transmittal, you will
represent to GEO that:
- you are acquiring the offered notes in the ordinary course of your
business;
- you are not participating in and do not intend to participate in any
distribution of the offered notes;
- you have no arrangement or understanding with any person to participate
in any distribution of the offered notes;
- you are not an "affiliate" of GEO; and
- you are not acting on behalf of any person or entity who could not
truthfully make the foregoing representations.
WITHDRAWAL RIGHTS
You may withdraw tendered notes any time before the expiration of the
exchange offer. Any notes not accepted for exchange for any reason will be
returned without expense to you promptly after the expiration of the exchange
offer.
INTEREST ON THE OFFERED NOTES
AND THE OUTSTANDING NOTES
Interest on the offered notes will accrue from the date of the last
periodic payment of interest on the outstanding notes. No additional interest
will be paid on any of the outstanding notes tendered and accepted for exchange.
CONDITIONS TO THE EXCHANGE OFFER
GEO will not be required to complete the exchange offer, and may terminate
or amend it, if at any time before GEO accepts any tendered notes for exchange,
GEO determines that the exchange offer violates any applicable law,
interpretation of the SEC or order of any governmental agency or court.
ACCEPTANCE OF TENDERED NOTES AND
DELIVERY OF THE OFFERED NOTES
GEO will accept for exchange any of its outstanding notes which are validly
tendered and not validly withdrawn before 12:00 midnight, Eastern Standard Time,
on , 1999. GEO will deliver the offered notes promptly
following the expiration of the exchange offer.
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FEDERAL INCOME TAX
CONSIDERATIONS
The exchange of notes in the exchange offer should be a tax-free event for
federal income tax purposes. You should, however, consult your own tax advisor
as to the particular consequences to you of exchanging your notes for offered
notes, including the applicability and effect of any state, local or foreign tax
laws.
EXCHANGE AGENT
The Chase Manhattan Bank is serving as the exchange agent for the exchange
offer. You should make all tenders to the exchange agent at one of the addresses
listed in this prospectus on page 57, unless you accept the exchange offer
through the Depository Trust Company's Automated Tender Offer Program.
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SUMMARY OF THE OFFERED NOTES
THE OFFERED NOTES
$120.0 million aggregate principal amount of 10 1/8% senior subordinated
notes maturing on August 1, 2008.
INTEREST PAYMENT DATES
Interest on the offered notes will be payable in cash semi-annually in arrears
on February 1 and August 1 of each year, commencing on
, 1999.
OPTIONAL REDEMPTION
GEO may redeem the offered notes on or after August 1, 2003, at the
redemption prices listed in this prospectus, plus accrued and unpaid interest to
the date of redemption. In addition, at any time on or before August 1, 2001,
GEO may redeem up to 35% of the aggregate principal amount of the offered notes
with the proceeds of one or more public offerings of its equity, at a redemption
price equal to 110.125% of the principal amount of the notes, plus accrued and
unpaid interest to the date of redemption. However, GEO may effect such a
redemption only if at least 65% of the principal amount of the offered notes
originally issued remain outstanding immediately after such redemption.
RANKING
The offered notes will be unsecured senior subordinated obligations of GEO.
The offered notes will be subordinated in right of payment to all existing and
future senior debt of GEO. The offered notes will rank on an equal basis with
any future senior subordinated indebtedness of GEO and will rank senior in right
of payment to any future subordinated indebtedness of GEO. The offered notes
will also be effectively subordinated to all obligations of any future
subsidiaries of GEO.
The indenture that will govern the offered notes prohibits GEO from
incurring any indebtedness that is both senior to the offered notes and
subordinate to any of its other indebtedness. The indenture does not prohibit
GEO's incurrence of debt that is either senior to the offered notes or on an
equal basis with the offered notes. However, the indenture limits the amount of
debt that GEO may incur to:
- amounts under its $25.0 million senior credit facility;
- amounts that would allow it to maintain a fixed charged coverage ratio
greater than 2.0 to 1.0;
- capital lease and purchase money obligations of $5.0 million or less; and
- other debt not to exceed $10.0 million at any time outstanding.
As of December 31, 1998, GEO had outstanding:
- no senior debt, excluding the unused
availability of $25.0 million under its
senior credit facility;
- no senior subordinated debt, other than the outstanding notes; and
- $760,000 of debt, incurred in the 1994 acquisition of the assets of
Courtney Industries, Inc., that is subordinate to the senior credit
facility but on an equal basis with the outstanding notes.
CHANGE OF CONTROL
Upon a change of control of GEO, each noteholder will have the right to
require GEO to repurchase the noteholder's notes at a price equal to 101% of the
principal amount of such notes, plus accrued and unpaid interest to the date of
repurchase. A change of control of GEO will occur if:
- GEO sells or transfers all or substantially all of its assets other than
to an existing shareholder;
- a person or entity, other than an existing shareholder, acquires more
than 50% of the voting power of GEO's equity;
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- more than a majority of GEO's board members, in any two year period, are
replaced and the replacements are not approved by GEO's current board
members then still in office; or
- GEO's shareholders adopt a plan for the liquidation or dissolution of
GEO.
COVENANTS RESTRICTING
GEO'S BUSINESS AND OPERATIONS
The indenture that will govern the offered notes contains covenants that
limit the ability of GEO to:
- incur additional indebtedness;
- pay dividends;
- make investments and debt payments;
- sell assets;
- incur liens;
- merge or consolidate with any other entity;
- sell or otherwise dispose of all or substantially all of its assets; or
- enter into transactions with its affiliates.
In addition, GEO must offer to repurchase some of the offered notes for
100% of the principal amount of the notes, plus accrued and unpaid interest to
the date of repurchase, with the proceeds of asset sales made outside the
ordinary course of business.
PROCEEDS FROM THE OFFERING OF THE OUTSTANDING NOTES
GEO will not receive any cash proceeds from the exchange offer. GEO used
the net cash proceeds of approximately $115.0 million from the offering of the
outstanding notes, along with other funds, to:
- complete the July 31, 1998 acquisition of substantially all of the assets
of the TRIMET Technical Products Division of Mallinckrodt Inc. for
approximately $61.1 million; and
- refinance approximately $62.2 million of indebtedness, incurred by GEO
primarily in its March 25, 1997 acquisition of the paper, construction
and process chemicals business of Henkel Corporation and Henkel Canada
Limited.
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GEO'S BUSINESS
GEO develops, manufactures and markets a wide variety of specialty
chemicals. Through the implementation of a "buy and build" strategy, GEO has
successfully positioned itself as a leading supplier of a broad variety of niche
products sold to a diverse customer and market base. GEO manufactures over 300
products sold to major industrial customers for such diverse end-use
applications as water treatment, pulp and paper processing, oil and gas
production, coatings and construction. GEO believes that it has a significant
operating advantage due to its extensive network of plants and ability to
produce a broad range of products. For the year ended December 31, 1998, on a
pro forma basis GEO generated net sales of $144.6 million.
GEO manages its products within two primary operating groups: process
additives and performance chemicals. Process additives are primarily chemical
components that improve the properties of customers' products. GEO is a leading
U.S. producer of a number of process additives that are used in a variety of
construction, oil field and coating applications. Process additives represented
approximately 44% of GEO's total net sales on a pro forma basis for the year
ended December 31, 1998.
Performance chemicals are primarily products used by customers to enhance
the productivity of their operations and decrease their operating costs. GEO's
performance chemicals consist principally of chemicals used in the water
treatment and pulp and paper processing markets. GEO is a leading U.S. producer
and marketer of several performance chemicals sold in these markets. Performance
chemicals represented approximately 45% of GEO's total net sales on a pro forma
basis for the year ended December 31, 1998.
In addition to process additives and performance chemicals, GEO
manufactures and supplies numerous raw materials and intermediates under a
long-term reciprocal supply agreement with Henkel Corporation. GEO also produces
by-products, which it sells in the merchant market, and raw materials for
internal consumption. These activities represented approximately 11% of GEO's
total net sales on a pro forma basis for the year ended December 31, 1998.
GEO'S EXECUTIVE OFFICES
GEO's principal executive offices are located at 28601 Chagrin Boulevard,
Suite 210, Cleveland, Ohio 44122 and its telephone number there is (216)
464-5564.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The table shown on the next page includes the following summary financial
data of GEO:
- historical operating, balance sheet and other data of GEO's predecessor
for the year ended December 31, 1996;
- historical operating, balance sheet and other data of GEO's predecessor
for the period from January 1, 1997 through March 24, 1997 and of GEO for
the period from March 25, 1997 through December 31, 1997;
- historical operating, balance sheet and other data of GEO for the year
ended December 31, 1998; and
- pro forma operating and other data of GEO for the year ended December 31,
1998 as if the acquisition of TRIMET, the issuance of $120.0 million of
notes and the refinancing of GEO's senior credit facility each occurred
on January 1, 1998.
GEO is referred to as the "predecessor" for the period from February 8,
1993, the date of its inception, through March 24, 1997. GEO is referred to as
the "successor" for the period from March 25, 1997 through December 31, 1998.
This reflects the purchase of a 79% interest in GEO by Charter Oak Partners on
March 25, 1997, which was accounted for as a purchase of GEO to the extent of
the ownership change.
The period-to-period comparability of the summary financial data shown
below is materially affected by the acquisitions that GEO has completed since
the beginning of 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- GEO's History."
The pro forma data for the year ended December 31, 1998 does not represent
what the results of operations of GEO would have been had the acquisition of
TRIMET, the issuance of $120.0 million of notes and the refinancing of GEO's
senior credit facility actually occurred on January 1, 1998. The pro forma data
also does not project the results of operations of GEO for the current year or
any future period.
All of the summary financial data shown below has been derived from the
financial statements of GEO and its predecessor or the unaudited pro forma
financial data of GEO, which are included later in this prospectus on pages 16
and F-1 through F-48.
You should read the summary financial data presented below along with the
financial statements of GEO and its predecessor and the following sections of
this prospectus: "Unaudited Pro Forma Financial Data," "Selected Historical
Financial Data," and "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
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PREDECESSOR (SUCCESSOR)
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JANUARY 1 MARCH 25 HISTORICAL PRO FORMA
YEAR ENDED THROUGH THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 24, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998 1998(1)
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OPERATING DATA:
Net sales............................................ $23,869 $ 9,109 $91,727 $126,560 $144,649
Gross profit......................................... 3,220 567 19,101 24,922 30,175
Operating income (loss).............................. 1,029 (241) 8,023 10,830 14,976
Net interest expense................................. 1,118 420 5,004 9,097 13,111
Net income (loss).................................... (66) (676) 1,489 (548) 1,047
OTHER FINANCIAL DATA:
EBITDA (2)........................................... $ 1,846 $ 107 $11,783 $ 18,077 $ 24,516
Capital expenditures................................. 559 127 3,177 6,755 6,755
Depreciation, depletion and amortization............. 1,022 363 4,334 7,905 9,571
Ratio of earnings to fixed charges (3)............... 1.0x -- 1.6x 1.2x 1.1x
Ratio of EBITDA to net interest expense (3).......... -- 2.3x 2.1x 2.0x
BALANCE SHEET DATA:
Working capital...................................... $(2,198) $ 8,781 $ 16,810
Total assets......................................... 25,458 98,312 164,525
Total debt........................................... 16,053 62,374 120,760
Shareholders' equity................................. 1,377 16,390 21,842
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(1) The pro forma combined year ended December 31, 1998 reflects the historical
year ended December 31, 1998 as adjusted for the same pro forma items and
dollar amounts described in the Unaudited Pro Forma Financial Data below
beginning at page 16.
(2) EBITDA represents income (loss) before income taxes, net interest expense,
depreciation, depletion, amortization and other non-recurring items such as
gains or losses on sales of property, extraordinary items, acquisition
purchase price adjustments and professional fees incurred for failed or
aborted acquisitions. EBITDA does not represent net income or cash flows
from operations as those terms are defined by generally accepted accounting
principles and does not necessarily indicate whether cash flows will be
sufficient to fund cash needs. GEO's measure of EBITDA may not be comparable
to those reported by other companies.
(3) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes plus fixed charges. Fixed
charges consist of net interest expense and the portion of operating rental
expense which management believes is representative of the interest
component of rent expense, less amounts that represent amortization of
deferred financing fees and debt issuance costs. For the period January 1
through March 24, 1997, the deficiency in the amount of earnings as compared
to fixed charges was $676 and the deficiency in the amount of EBITDA as
compared to net interest expense was $298.
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RISK FACTORS
You should consider carefully the following factors in addition to the
other information and financial data included in this prospectus before making
an investment in the offered notes.
LIMITS IMPOSED ON GEO'S BUSINESS BY ITS SUBSTANTIAL LEVERAGE AND DEBT SERVICE
OBLIGATIONS
GEO's outstanding indebtedness is substantial in relation to the book value
of its shareholders' equity. As of December 31, 1998, GEO had total indebtedness
of $120.8 million and shareholders' equity of $21.8 million. The significant
borrowings of GEO has several important consequences for both GEO and the
holders of the offered notes, including that:
- a substantial portion of GEO's cash flow from operations must be
dedicated to debt service and will be unavailable for other
purposes;
- GEO's ability to obtain additional financing in the future for
working capital,
acquisitions, capital expenditures or to refinance the offered
notes may be
significantly impaired; and
- GEO may be more vulnerable to economic downturns and less able
to withstand competitive pressures or to take advantage of
business opportunities.
See "Unaudited Pro Forma Financial Data" and "Selected Historical Financial
Data."
GEO's ability to make cash payments on the offered notes and to satisfy its
other debt obligations will depend on its future operating performance. As of
December 31, 1998, GEO had $25.0 million available for borrowing under its
senior credit facility, which is subject to compliance with the conditions
contained in the credit agreement. GEO's business may not continue to generate
cash flow at or above current levels and estimated cost savings or anticipated
growth may not be achieved. If GEO is unable to service its indebtedness, it
will be forced to adopt an alternative strategy that may include actions such
as:
- reducing or delaying capital or research and development expenditures;
- selling assets;
- restructuring or refinancing its indebtedness; or
- seeking additional equity capital.
GEO can provide no assurance that any of these strategies could be effected on
satisfactory terms, if at all.
GEO's senior credit facility matures before the offered notes. If GEO
cannot refinance its senior credit facility at maturity or repay the facility
with cash on hand or through asset sales, equity sales or otherwise, its ability
to repay the principal and interest on the offered notes could be adversely
affected. In addition, because GEO's obligations under its senior credit
facility will bear interest at floating rates, an increase in interest rates
could adversely affect the ability of GEO to meet its debt service obligations.
POTENTIAL DIFFICULTIES IN GEO'S INTEGRATION OF THE TRIMET BUSINESS
To achieve the full benefits from the combination of GEO and TRIMET and
capture potential efficiencies and growth, GEO must integrate product lines,
coordinate sales efforts and implement appropriate operational, financial and
managerial systems and controls. Additionally, to achieve such benefits, GEO
must integrate some of the manufacturing, engineering, administrative, finance
and sales and marketing organizations of TRIMET. GEO can provide no assurance
that it will be able to integrate the operations of TRIMET successfully.
Business, competitive, financial, general economic and other factors, many of
which are beyond the control of management, will affect the timing and ultimate
success of the
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integration of TRIMET and the realization of any benefits from the acquisition.
The diversion of management's attention from day-to-day operations to the
integration of TRIMET, as well as any other difficulties which may be
encountered in the integration process, could adversely affect GEO's business or
financial condition.
Although GEO has sold specialty chemicals in Europe before the acquisition
of TRIMET, GEO may not be able to successfully maintain or achieve an increase
in the level of overseas sales made by the TRIMET business. Completion of the
acquisition of TRIMET will present GEO with other business challenges generally
associated with acquisitions, including the management of a larger enterprise.
If GEO's management is unable to manage growth effectively, the quality of GEO's
products and its overall business could be adversely affected.
LIMITS IMPOSED ON GEO'S ACQUISITION STRATEGY BY THE INDENTURE AND SENIOR CREDIT
FACILITY
GEO's senior credit facility and the indenture that will govern the offered
notes limit GEO's ability to make acquisitions and to incur indebtedness in
connection with acquisitions. The senior credit facility provides that GEO may
not make acquisitions in excess of $10.0 million in value during the term of the
credit agreement. The senior credit facility allows GEO to incur only permitted
indebtedness, which includes the offered notes, up to $5.0 million pursuant to
GEO's requirements under its shareholders agreement, and up to $10.0 million of
additional general indebtedness. The indenture limits the amount of acquisition
debt that GEO may incur to: $25.0 million under its senior credit facility;
amounts that would allow it to maintain a fixed charge coverage ratio greater
than 2.0 to 1.0; and other debt not to exceed $10.0 million at any time
outstanding. The senior credit facility and indenture also restrict GEO's
ability to:
- acquire businesses different than GEO's existing business;
- merge or consolidate with other entities;
- enter into transactions with its affiliates;
- create or incur liens on its assets; and
- make investments.
POTENTIAL DIFFICULTY IN IDENTIFYING AND INTEGRATING ACQUISITIONS
GEO's growth strategy includes making acquisitions, but suitable
acquisition candidates may not continue to be available to GEO. In addition,
acquisitions that GEO may make will involve risks, including the successful
integration and management of acquired operations, personnel and technology. The
integration of acquired businesses may also lead to the loss of key employees of
the acquired companies and diversion of management's attention from ongoing
business concerns. GEO can provide no assurance that any additional acquisitions
will be made, that it will be able to obtain the financing necessary to effect
such transactions or that any acquisition made will be successful.
LIMITS IMPOSED ON GEO BY INTEREST COVERAGE AND MAXIMUM LEVERAGE REQUIREMENTS IN
ITS SENIOR CREDIT FACILITY
GEO's senior credit facility requires it to maintain a minimum interest
coverage ratio and a maximum leverage ratio. The interest coverage ratio is the
ratio of adjusted earnings to adjusted interest expense for GEO's most recent
quarterly period. The interest coverage ratio that GEO is required to maintain
increases every six months until March 31, 2000. The required ratio is currently
1.75 to 1.00 and will rise to 2.00 to 1.00 on September 30, 1999 and 2.25 to
1.00 on March 31, 2000. The leverage ratio is the ratio of adjusted indebtedness
to adjusted earnings for GEO's most recent quarterly period. The leverage ratio
that
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GEO may not exceed is lowered every six months until September 30, 2000. The
required ratio is currently 5.50 to 1.00 and will fall to 5.25 to 1.00 on
September 30, 1999, 5.00 to 1.00 on March 31, 2000 and 4.75 to 1.00 on September
30, 2000. After December 31, 2000, the required ratio will be 4.50 to 1.00.
GEO's failure to maintain these financial ratios could result in a default
under its senior credit facility. Such a default would permit the lenders to
declare all amounts outstanding under the senior credit facility to be
immediately due and payable and terminate any commitments to extend additional
credit. In addition, GEO's compliance with these ratios could prevent it from
making acquisitions and capital improvements. GEO's ability to comply with such
ratios and tests may be affected by events beyond its control, including
prevailing economic, financial and industry conditions.
SUBORDINATION OF THE OFFERED NOTES TO THE PRIOR PAYMENT OF GEO'S SENIOR DEBT
The payment of all amounts on the offered notes will be subordinated to the
prior payment in full of all existing and future senior debt of GEO, including
all amounts owed under its senior credit facility. In the event of a bankruptcy,
liquidation or reorganization of GEO, GEO's assets will be available to pay
obligations on the offered notes only after all senior debt of GEO has been paid
in full. In such an event, there may be insufficient assets remaining to pay
amounts due on any of the offered notes. In addition, any amounts remaining
after payment in full of GEO's senior debt would be divided equally among GEO's
senior subordinated debt holders.
The offered notes will not be secured by any of GEO's assets. The indenture
permits GEO to incur certain secured indebtedness, including indebtedness under
its senior credit facility, which is secured by liens against all tangible and
intangible assets of GEO. Should GEO default on its senior credit facility or
other secured indebtedness or enter bankruptcy, liquidation or reorganization,
these assets will be available to satisfy the secured obligations before any
payment will be made on the offered notes. The offered notes will also be
structurally subordinated to all indebtedness and other liabilities of any
future subsidiaries of GEO. Should any of GEO's future subsidiaries default on
any indebtedness or enter bankruptcy, liquidation or reorganization, the assets
of any such subsidiary would be available to satisfy obligations on its
indebtedness before any payment would be made on the offered notes. As of
December 31, 1998, GEO had outstanding:
- no senior debt, excluding the unused availability of $25.0
million under its senior credit facility;
- no senior subordinated debt, other than the outstanding notes;
and
- $760,000 of debt, incurred in the 1994 acquisition of the assets
of Courtney Industries, Inc., that is subordinate to the senior
credit facility but on an equal basis with the outstanding
notes.
FACTORS THAT MAY PREVENT GEO FROM ACHIEVING ANTICIPATED EFFICIENCIES OR
REVENUE GROWTH
The statements concerning potential efficiencies and revenue growth
contained in this prospectus are forward-looking statements that are based on
estimates and assumptions made by GEO. However, results are difficult to predict
and such statements are therefore inherently uncertain. You should not place
undue reliance upon such statements. The following important factors, and the
risk factors described in this section
11
<PAGE> 14
of the prospectus, could cause GEO to not achieve the results contemplated in
this prospectus or otherwise cause GEO's business to be adversely affected in
the future:
- loss of key customers or increased competitive pressures;
- changes in customer spending levels;
- increases in interest rates or GEO's cost of borrowing or a
default under any material debt agreement;
- unavailability of funds for capital expenditures or research and
development;
- changes in governmental, environmental or other regulations; or
- changes in general economic conditions.
EFFECT OF A CHANGE OF CONTROL ON GEO'S OBLIGATIONS UNDER THE SENIOR CREDIT
FACILITY AND INDENTURE
The occurrence of certain events that would constitute a "change of
control" of GEO under its senior credit facility or the indenture may result in
a default or require repayment of indebtedness under these agreements. In
addition, GEO's senior credit facility prohibits the repayment of the offered
notes by GEO upon such a change of control, unless and until GEO's senior credit
facility is repaid in full. GEO's failure to make such repayments upon a change
of control would result in a default under both its senior credit facility and
the indenture. In the event of a change of control, GEO may not have sufficient
assets to satisfy all of its obligations under its senior credit facility or the
indenture. Future indebtedness of GEO may also contain restrictions or repayment
requirements upon a change of control of GEO. See "Description of the Offered
Notes -- Change of Control" and "Description of GEO's Senior Credit Facility."
GEO'S POTENTIAL INABILITY TO PASS ON TO CUSTOMERS INCREASES IN THE COST OF RAW
MATERIALS
GEO uses a variety of specialty and commodity chemicals as raw materials in
its manufacturing processes. Certain of these raw materials could become subject
to significant movements in price. Although it has historically passed on price
increases to its customers within 90 to 120 days, GEO can provide no assurance
that it will be able to do so in the future. If material price increases could
not be passed on to customers in a reasonable period of time, GEO's financial
condition could be adversely affected. In particular, GEO's maintenance of the
financial ratios required by its senior credit facility could be placed in
jeopardy.
THE CHALLENGE FACED BY GEO IN RESPONDING TO CHANGES IN TECHNOLOGY AND MARKET
DEMAND
The market for GEO's products is characterized by changing technology and
continuing process development. GEO's future success will be influenced by its
ability to:
- maintain and enhance its technological capabilities;
- develop and market products that meet changing customer needs; and
- anticipate or respond to technological changes on a cost-effective and
timely basis.
Failure by GEO in any of these areas could have an adverse impact on its sales
volume and overall financial condition. GEO can provide no assurance that it
will effectively respond to market demand or technological changes in its market
segments.
12
<PAGE> 15
GEO'S POTENTIAL EXPOSURE TO PRODUCT LIABILITY CLAIMS
Because many of GEO's products provide critical performance attributes to
its customers' products, the sale by GEO of such products includes the potential
risk of product liability claims. A successful product liability claim, or
series of claims, against GEO in excess of its insurance coverage could
adversely affect GEO's business or financial condition.
FINANCIAL, TECHNOLOGICAL AND MANUFACTURING STRENGTH OF GEO'S COMPETITORS
GEO competes with a variety of specialty chemical manufacturers. Certain of
GEO's principal competitors are less highly leveraged and have greater financial
resources than GEO. As a result, these competitors may be better able to
withstand volatility within the industry or the economy as a whole while
maintaining greater operating and financial flexibility than GEO. This advantage
could allow these competitors to invest more resources than GEO in technological
and product development, sales and marketing and other areas and, therefore, to
gain market share against GEO. In addition, a number of GEO's product
applications are customized or sold into specialized markets. These specialized
markets might attract additional competitors with greater financial,
technological or manufacturing resources than GEO. Any entrants into these
specialized markets could take market share from GEO.
GEO'S DEPENDENCE ON GEORGE P. AHEARN, WILLIAM P. ECKMAN AND OTHER KEY PERSONNEL
The success of GEO's business is dependent upon the continued services of
George P. Ahearn, its President and Chief Executive Officer, William P. Eckman,
its Executive Vice President and Chief Financial Officer, and other key officers
and employees. The loss of Messrs. Ahearn or Eckman or such other key personnel
due to death, disability or termination of employment could adversely affect
GEO's business, financial condition or results of operations.
POTENTIAL FOR INTERESTS OF CONTROLLING SHAREHOLDERS AND HOLDERS OF OFFERED NOTES
TO CONFLICT
Approximately 78.7% of the capital stock of GEO is owned by Charter Oak
Partners and its affiliate, Charter Oak Capital Partners, L.P. As a result,
Charter Oak Partners is able to direct the election of a majority of the members
of GEO's Board of Directors and the management and policies of GEO. In addition,
approximately 20.72% of the capital stock of GEO is owned by George P. Ahearn
and William P. Eckman, either directly or through GEO Chemicals, Ltd., an Ohio
limited liability company, the sole members of which are Messrs. Ahearn and
Eckman. The interests of Charter Oak Partners and Messrs. Ahearn and Eckman may
differ from the interests of the holders of the offered notes. See
"Shareholders."
EFFECT OF ENVIRONMENTAL LAWS ON GEO'S REAL PROPERTY AND MANUFACTURING OPERATIONS
GEO is subject to extensive federal, state and local laws relating to:
- the discharge of materials into the environment;
- the handling and disposal of solid and hazardous wastes;
- the remediation of contamination and protection of the environment; and
- employee health and safety.
As a result, GEO's operations and the environmental condition of its real
property could give rise to liabilities under applicable environmental laws.
Material costs may be incurred by GEO in connection with these laws, and its
current and former real properties may require environmental remediation in the
future. Environmental laws are constantly changing and if they become more
stringent in the future, GEO's cost of
13
<PAGE> 16
compliance could increase. If GEO cannot pass on future costs to its customers,
any increases could adversely affect GEO's financial condition. See "GEO's
Business -- Environmental Matters."
EFFECT OF GOVERNMENTAL REGULATION AND PERMITS ON GEO'S MANUFACTURING OPERATIONS
GEO is subject to extensive federal, state and local laws relating to its
manufacturing operations and employee health and safety. GEO is required to
obtain certain permits for the operation of its business, and such permits are
subject to renewal, modification and, in certain circumstances, revocation by
governmental agencies. The loss of such permits could adversely affect GEO's
manufacturing operations. GEO expects to incur ongoing capital, operating and
administrative expenses to maintain compliance with its permits and with
applicable laws. GEO cannot predict the laws that may be enacted in the future
or how existing or future laws will be administered or interpreted. GEO could,
in the future, incur increased costs in connection with the enactment of new
laws or the more vigorous enforcement or stricter interpretation of existing
laws. Such costs could be material to GEO.
POTENTIAL SYSTEM FAILURES AND DISRUPTION OF OPERATIONS UPON THE "YEAR 2000"
The "Year 2000" issue concerns the ability of information systems and
equipment controlled by computer chips to properly recognize and process
date-sensitive information on and after January 1, 2000. Any faulty recognition
in any information systems or other computer equipment of GEO or its customers,
vendors or service providers could result in system failures or inaccurate
information or calculations. As a result, GEO's operations and its ability to
serve its customers could be adversely affected. Any such "Year 2000"
difficulties could prevent customers from accepting deliveries from GEO or
processing payments for amounts due to GEO. GEO's suppliers could also be
prevented from producing and supplying goods or services essential to GEO's
business. GEO does not have control over whether its vendors or customers will
make any appropriate modifications on a timely basis. If such modifications are
not made in a timely manner, GEO's ability to conduct business and serve its
customers could be adversely affected.
POTENTIAL LACK OF LIQUIDITY OF THE OFFERED NOTES DUE TO ABSENCE OF PUBLIC MARKET
There has been no public market for the outstanding notes before the
exchange offer. There is currently no established market for the offered notes,
and GEO does not intend to apply for a listing of the offered notes on any
securities exchange or automated dealer quotation system. GEO can provide no
assurance as to the liquidity of any market that may develop for the offered
notes, the ability of any holder of the offered notes to sell any of the notes
or the prices at which such notes could be sold. If any market for the offered
notes were to exist, the offered notes could trade at prices lower than their
initial market value, depending upon many factors, including prevailing interest
rates. The liquidity of, and trading market for, the offered notes could also be
adversely affected by general declines in the market for similar securities.
Such a decline could adversely affect the liquidity of, and trading market for,
the offered notes independent of the financial performance and business
prospects of GEO.
UNCERTAINTIES UNDERLYING GEO'S FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS
Certain statements contained in this prospectus, including statements
containing the words "believes," "anticipates," "intends," "expect," "should,"
"may," "will," "continue" and "estimate," and similar words, constitute
"forward-looking statements" under the federal securities laws. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
GEO or its industry to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Important factors that could cause actual results to differ
materially from GEO's expectations are disclosed in this section and elsewhere
in this prospectus, including in conjunction with the forward-looking
statements. Given these uncertainties, you should not place undue reliance upon
such forward-looking statements.
14
<PAGE> 17
PROCEEDS FROM THE OFFERING OF THE OUTSTANDING NOTES
GEO will not receive any cash proceeds from the exchange offer. GEO is
effecting the exchange offer to comply with its obligations under the
registration rights agreement entered into with the initial purchaser of the
outstanding notes. GEO used the proceeds of $120.0 million from the July 31,
1998 offering of the outstanding notes, along with approximately $2.4 million
obtained from its senior credit facility and $6.0 million in equity
contributions from its shareholders, to:
- complete the July 31, 1998 acquisition of substantially all of the
assets of the TRIMET Technical Products Division of Mallinckrodt
Inc. for approximately $61.1 million;
- refinance approximately $62.2 million of indebtedness, incurred by
GEO primarily in its March 25, 1997 acquisition of the paper,
construction and process chemicals business of Henkel Corporation
and Henkel Canada Limited; and
- pay the fees and expenses of approximately $5.1 million incurred in
connection with the issuance of the outstanding notes, the TRIMET
acquisition and the execution of the senior credit facility.
The credit facility refinanced by GEO was with Bankers Trust Company and
various other financial institutions and consisted of Tranche A and Tranche B
loans and a revolving line of credit. The Tranche A loan was set to mature in
September 2002 and bore interest, at GEO's option, at either:
- 1.5% above the higher of an adjusted certificate of deposit rate
plus 0.5% or the prime lending rate of Bankers Trust Company; or
- 2.75% above an adjusted Eurodollar rate.
The Tranche B loan was set to mature upon payment in full and bore interest, at
GEO's option, at either:
- 2.0% above the higher of an adjusted certificate of deposit rate
plus 0.5% or the prime lending rate of Bankers Trust Company; or
- 3.25% above an adjusted Eurodollar rate.
The revolving line of credit was set to expire in September 2002 and bore
interest according to the same formula as the Tranche A loan. As of July 31,
1998, the interest rate on the Tranche A loan was 8.625%, the interest rate on
the Tranche B loan was 9.125%, and the interest rate on amounts outstanding
under the revolving line of credit ranged from 8.4375% to 8.75%.
15
<PAGE> 18
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed combined statement of
operations for the twelve months ended December 31, 1998 illustrates the effects
of the following transactions as if each had occurred on January 1, 1998:
- the acquisition of substantially all of the assets of the TRIMET
Technical Products Division of Mallinckrodt Inc.; and
- the issuance of the outstanding notes and the related refinancing of
GEO's senior debt.
The TRIMET acquisition was accounted for as a purchase, with the assets
acquired and the liabilities assumed being recorded at estimated fair market
value.
The unaudited pro forma condensed combined statement of operations is not
necessarily indicative of the results that would have occurred if the TRIMET
acquisition actually occurred on January 1, 1998 or that will occur in the
current year or any future period.
The unaudited pro forma condensed combined statement of operations should
be read in conjunction with the historical financial statements of GEO, TRIMET
and the paper, construction and process additive chemicals business of Henkel
Corporation and Henkel Canada Limited, which are included later in this
prospectus beginning at page F-1.
16
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GEO TRIMET
HISTORICAL HISTORICAL
JAN. 1, 1998 JAN. 1, 1998
THROUGH THROUGH PRO FORMA PRO FORMA
DEC. 31, 1998 JULY 31, 1998(1) ADJUSTMENTS COMBINED
------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.............................. $126,560 $18,089 $ 0 $144,649
Cost of sales.......................... 101,638 11,166 1,670(2) 114,474
-------- ------- ------- --------
Gross profit........................... 24,922 6,923 (1,670) 30,175
(442)(3)
Selling, general and administrative
expenses............................. 14,092 2,482 (933)(4) 15,199
-------- ------- ------- --------
Income from operations................. 10,830 4,441 (295) 14,976
Other expense
Interest expense..................... (9,097) 0 (4,014)(5) (13,111)
Other................................ (118) (30) 0 (148)
-------- ------- ------- --------
Total other expense................ (9,215) (30) (4,014) (13,259)
-------- ------- ------- --------
Income before taxes and extraordinary
items................................ 1,615 4,411 (4,309) 1,717
Provision for income taxes............. 667 1,791 (1,788)(6) 670
-------- ------- ------- --------
Income before extraordinary loss....... 948 2,620 (2,521) 1,047
Extraordinary loss on early
extinguishment of debt, net.......... (1,496) 0 1,496(7) --
-------- ------- ------- --------
Net income (loss)...................... $ (548) $ 2,620 $(1,025) $ 1,047
======== ======= ======= ========
</TABLE>
(1) GEO acquired the TRIMET Technical Products Division of Mallinckrodt Inc. on
July 31, 1998. The acquisition was accounted for as a purchase.
(2) Reflects depreciation and amortization for assets purchased in conjunction
with the TRIMET acquisition. The purchase price of $61.1 million consisted
of $24.5 million of property and equipment, $4.7 million of current assets
net of assumed current liabilities, and $0.2 million of other assets,
resulting in excess of cost over fair value of assets acquired of $31.7
million. Additional depreciation and amortization for the period from
January 1, 1998 through July 31, 1998 (assuming the TRIMET acquisition was
consummated on January 1, 1998) for the TRIMET assets is calculated as
follows:
<TABLE>
<CAPTION>
DEPRECIATION/
YEARS COST AMORTIZATION
----- ------- -------------
(IN THOUSANDS)
------------------------
<S> <C> <C> <C>
Building.................................................... 40 $ 1,590 $ 23
Land........................................................ N/A 1,150 --
Land Improvements........................................... 20 460 14
Machinery and equipment..................................... 12 21,041 1,023
Office furniture and equipment.............................. 6-10 256 23
Excess cost over fair value................................. 15 31,721 1,241
------
2,324
Less: Depreciation and amortization included in historical
TRIMET financial statements............................... (654)
------
Pro forma adjustment for depreciation and amortization...... $1,670
======
</TABLE>
(3) Reflects the reduction of corporate cost transfers from Mallinckrodt Inc. to
TRIMET for allocated research and development expenses, strategic planning,
internal audit services, aviation, information systems, finance services,
communications, science and technology, site services and other general
corporate overhead. These costs were allocated from Mallinckrodt Inc. to
TRIMET and no personnel were added by GEO subsequent to the acquisition in
any of the above noted areas. As a result, these allocated costs, which are
not deemed to be reasonable by GEO's management, were eliminated.
(4) Reflects the reduction of selling, general and administrative expense
related to environmental remediation costs incurred by TRIMET. GEO did not
purchase any of the land with known groundwater and soil contamination and
Mallinckrodt has indemnified GEO for remediation costs with respect to the
TRIMET property which arise out of acts that occurred prior to the closing.
17
<PAGE> 20
(5) Reflects interest expense on a pro forma basis for (a) interest costs
associated with the issuance of $120.0 million of notes; (b) interest costs
associated with draws outstanding under GEO's $25.0 million senior credit
facility; (c) interest costs associated with an existing $0.8 million
subordinated note payable; and (d) amortization of $5.1 million deferred
financing costs related to the offering of the outstanding notes.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Interest expense on the notes............................... $12,150
Interest expense on senior credit facility................ 52
Interest expense on subordinated note payable............. 78
Amortization of debt issuance costs and senior credit
facility fees........................................... 631
Bank fees related to the notes and senior credit
facility................................................ 200
-------
Pro forma interest expense................................ $13,111
=======
</TABLE>
Interest on the notes is based on the rate of 10.125% per annum. The senior
credit facility has a floating rate which was 7.3125% at December 31, 1998.
Interest on the subordinated note payable is 2% above the prime lending rate,
which was 9.75% at December 31, 1998. The debt issuance costs are amortized
over the ten year term of the notes, and the financing fees related to the
senior credit facility are amortized over the five year term of the facility.
(6) Reflects the tax effect of the pro forma adjustments as well as the effect
of the combined companies effective tax rate of 39%.
(7) Reflects the elimination of the extraordinary loss on early extinguishment
of debt, net of tax.
18
<PAGE> 21
SELECTED HISTORICAL FINANCIAL DATA
The table shown on the next page includes the following summary financial
data of GEO:
- historical operating and other data of GEO's predecessor for the years
ended December 31, 1994, 1995 and 1996;
- historical operating and other data of GEO's predecessor for the period
from January 1, 1997 through March 24, 1997 and of GEO for the period
from March 25, 1997 through December 31, 1997;
- historical operating and other data of GEO for the year ended December
31, 1998; and
- balance sheet data as of December 31, 1994, 1995, 1996, 1997 and 1998.
GEO is referred to as the "predecessor" for the period from January 1, 1994
through March 24, 1997. GEO is referred to as the "successor" for the period
from March 25, 1997 through December 31, 1998. This reflects the purchase of a
79% interest in GEO by Charter Oak Partners on March 25, 1997, which was
accounted for as a purchase of GEO to the extent of the ownership change.
The period-to-period comparability of the summary financial data shown
below is materially affected by the five acquisitions that GEO has completed
since its inception in 1993. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- GEO's History."
The summary financial data shown below for the year ended December 31,
1996, the period from January 1, 1997 through March 24, 1997, the period from
March 25, 1997 through December 31, 1997 and the year ended December 31, 1998
and as of December 31, 1997 and 1998 has been derived from the financial
statements of GEO and its predecessor, which are included later in this
prospectus beginning at page F-1. The summary financial data for the years ended
December 31, 1994 and 1995 and as of December 31, 1994, 1995 and 1996 has been
derived from the financial statements of GEO and its predecessor which are not
included in this prospectus.
You should read the summary financial data presented below along with the
financial statements of GEO and its predecessor and "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
19
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------------------- --------------------
JANUARY 1 MARCH 25 YEAR
YEARS ENDED DEC. 31, THROUGH THROUGH ENDED
--------------------------- MARCH 24, DEC. 31, DEC. 31,
1994 1995 1996 1997 1997 1998
------- ------- ------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................................... $14,852 $21,187 $23,869 $ 9,109 $91,727 $126,560
Cost of sales............................................... 12,429 18,112 20,649 8,542 72,626 101,638
------- ------- ------- -------- -------- --------
Gross profit................................................ 2,423 3,075 3,220 567 19,101 24,922
Selling, general and administrative expenses................ 1,842 2,071 2,191 808 11,078 14,092
------- ------- ------- -------- -------- --------
Income (loss) from operations............................... 581 1,004 1,029 (241) 8,023 10,830
Other income (expense):
Net interest expense........................................ (852) (1,164) (1,118) (420) (5,004) (9,097)
Other....................................................... (12) 369 136 (15) (26) (118)
------- ------- ------- -------- -------- --------
(864) (795) (982) (435) (5,030) (9,215)
Income (loss) before taxes and extraordinary loss........... (283) 209 47 (676) 2,993 1,615
Provision for income taxes.................................. -- -- -- -- 999 667
------- ------- ------- -------- -------- --------
Income (loss) before extraordinary loss..................... (283) 209 47 (676) 1,994 948
Extraordinary loss on early extinguishment of debt, net..... -- -- (113) -- (505) (1,496)
------- ------- ------- -------- -------- --------
Net income (loss)........................................... $ (283) $ 209 $ (66) $ (676) $ 1,489 $ (548)
======= ======= ======= ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(1)................................................... $ 1,032 $ 1,630 $ 1,846 $ 107 $11,783 $ 18,077
Capital expenditures........................................ 756 531 559 127 3,177 6,755
Net cash from operating activities.......................... 521 788 1,410 (1,515) 5,629 9,606
Net cash from investing activities.......................... (4,031) (187) (8,103) (127) (57,387) (67,861)
Net cash from financing activities.......................... 3,510 (601) 6,693 1,642 52,454 59,204
Depreciation, depletion and amortization.................... 732 792 1,022 363 4,334 7,905
Ratio of earnings to fixed charges(2)....................... -- 1.2x 1.0x -- 1.6x 1.2x
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------- --------------------
AS OF DEC. 31, AS OF DEC. 31,
--------------------------- --------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ -- $ -- $ -- $ 696 $ 1,645
Total assets.......................................... 11,968 14,484 25,458 98,312 164,525
Total debt, excluding current portion................. 4,507 5,801 13,456 58,814 120,000
Shareholders' equity.................................. 1,234 1,443 1,377 16,390 21,842
</TABLE>
- ---------------
(1) EBITDA represents income (loss) before income taxes, net interest expense,
depreciation, depletion, amortization and other non-recurring items such as
gains or losses on sales of property, extraordinary items, acquisition
purchase price adjustments and professional fees incurred for failed or
aborted acquisitions. EBITDA does not represent net income or cash flows
from operations as those terms are defined by generally accepted accounting
principles and does not necessarily indicate whether cash flows will be
sufficient to fund cash needs. GEO's measure of EBITDA may not be comparable
to those reported by other companies.
20
<PAGE> 23
Components of GEO's EBITDA are as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------ -------------------------------------
JANUARY 1, 1997 MARCH 25, 1997
YEARS ENDED DECEMBER 31, THROUGH THROUGH YEAR ENDED
1994 1995 1996 MARCH 24, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998
------ ------ ------ --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss)............................ $ (283) $ 209 $ (66) $(676) $ 1,489 $ (548)
Net interest expense......................... 852 1,164 1,118 420 5,004 9,097
Taxes........................................ -- -- -- -- 999 667
Depreciation, depletion and amortization
expense.................................... 552 592 817 363 3,786 7,247
Other non-recurring items
Extraordinary losses due to write off of
financing fees........................... -- -- 113 -- 505 1,496
Acquisition purchase price adjustments..... -- -- (136) -- -- --
Professional fees incurred for failed or
aborted acquisitions..................... -- -- -- -- -- 118
Loss (gain) on sale of fixed assets........ (89) (335) -- -- -- --
------ ------ ------ ----- ------- -------
EBITDA....................................... $1,032 $1,630 $1,846 $ 107 $11,783 $18,077
====== ====== ====== ===== ======= =======
</TABLE>
(2) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes plus fixed charges. Fixed
charges consist of net interest expense and the portion of operating rental
expense which management believes is representative of the interest
component of rent expense, less amounts that represent amortization of
deferred financing fees and debt issuance costs. The deficiency in the
amount of earnings compared to fixed charges was $283 for the period ended
December 31, 1994 and $676 for the period ended March 24, 1997.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion along with the financial
statements of GEO which appear later in this prospectus beginning at page F-1.
GEO'S HISTORY
GEO was formed by George P. Ahearn and William P. Eckman to build,
primarily through acquisitions, a specialty chemical business targeted in
strategic market segments. GEO's initial acquisition occurred on February 3,
1993 with the purchase of Rhone-Poulenc, Inc.'s Gulf Coast aluminum sulfate
business, a manufacturer and supplier of paper processing chemicals and
processed clays located in the Southeastern United States, for $3.6 million. On
July 15, 1994, GEO acquired the assets of Courtney Industries, Inc., a
manufacturer of aluminum-based chemicals used in water treatment and industrial
applications, for $5.1 million. The acquisition of Courtney Industries also
provided GEO with complementary products to its existing aluminum sulfate
business. On June 30, 1995, GEO purchased the customer list relating to the dry
aluminum sulfate business of Rhone-Poulenc, Inc. for an aggregate $375,000. GEO
acquired seven plants comprising the business and assets of the aluminum sulfate
business of Cytec Industries Inc. on December 5, 1996 for $7.3 million. The
acquisition of Cytec Industries further improved GEO's position in the aluminum
sulfate market and expanded its network of strategically located plants in the
Southeastern United States.
On March 25, 1997, GEO purchased from Henkel Corporation two modern ISO
9002 certified manufacturing plants located in the United States and involved in
the development, manufacture and supply of specialty paper chemicals and
construction and process additive chemicals, for $54.2 million. Through the
Henkel acquisition, GEO became one of the most diversified specialty chemical
suppliers to the paper industry with over 200 products. The Henkel acquisition
also provided GEO with over 100 products sold to the construction, oil and gas,
and ceramic industries. Concurrently with the Henkel acquisition, Charter Oak
Partners recapitalized GEO with $14.7 million of new common equity and became a
partner and source of strategic capital for GEO. Founded in 1976, Charter Oak
Partners is a private investment partnership based in Westport, Connecticut
which invests in both private and publicly owned companies. Charter Oak Partners
focuses on making private equity investments in management buyouts, acquisitions
and recapitalizations.
On July 31, 1998, GEO acquired substantially all of the assets of the
TRIMET Technical Products Division of Mallinckrodt Inc., for approximately $61.1
million. As a result of the acquisition of TRIMET, GEO became the leading global
supplier of dimethylolpropionic acid, marketed under the brand name DMPA(R), and
trimethylolethane, marketed under the brand name TRIMET(R), specialty chemicals
used primarily in the production of specialty paints and coatings. In connection
with the acquisition of TRIMET, GEO issued the outstanding notes.
SALES AND COST OF SALES
GEO's fiscal 1998 net sales were generated by a mix of sales to various
industries, including:
- pulp and paper processing (39%);
- construction-related applications (14%);
- water treatment (12%);
- oil and gas production (7%);
- coatings (8%); and
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<PAGE> 25
- miscellaneous (20%), which includes sales pursuant to GEO's
reciprocal supply agreement with Henkel Corporation (8%).
Generally, the demand for the type of products supplied by GEO exceeds the
basic growth rate for the industries it supplies due to the increasing use of
specialty chemicals. In several applications, such as papermaking and water
treatment, tighter environmental restrictions have prompted greater use of the
types of products supplied by GEO.
GEO's cost of sales is primarily comprised of:
- the cost of raw materials (61%);
- freight (9%);
- depreciation (5%); and
- normal operating expenses (25%), which include personnel
costs, ongoing maintenance materials and services, utilities,
operating supplies, property and casualty insurance, property
taxes and leasing expenses.
The raw materials required to produce GEO's products are generally
available from several suppliers and are typically purchased under agreements
negotiated annually with two or more vendors per raw material. The raw materials
which comprise a majority of these purchases include sulfuric acid, naphthalene,
formaldehyde, paraffin oils, glycols, aluminum/aluminas, fatty acids, methanol
and propionic acid. Additionally, GEO has an agreement with Henkel to purchase
various products previously purchased by the acquired business from Henkel
plants which were excluded from the acquisition. Purchases under the supply
agreement, depending upon the particular product, are made at market prices or
at prices tied to standard costs as of December 1996. The duration of the supply
agreement, depending upon the classification of the product, is three or five
years from March 25, 1997. Purchases under this agreement were approximately 10%
of GEO's total raw material costs in fiscal 1998.
GEO's selling, general and administrative expenses include all operating
costs unrelated to plant operations. Approximately 50% of these expenses are
incurred by the pulp and paper chemicals business, which includes approximately
40 sales, marketing and technical support employees. These expenses also include
typical expenses such as office rent, general management, finance and
accounting, information systems, human resources, legal, purchasing, certain
types of corporate liability insurance and amortization of deferred charges.
RESULTS OF OPERATIONS
The following table shows certain income statement data for GEO expressed
in millions of dollars and as a percentage of net sales. Fiscal 1997 data
includes the predecessor for the period January 1, 1997 through March 24, 1997
and the successor for the period March 25, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
1996 1997 1998
------------- -------------- --------------
$ % $ % $ %
----- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net Sales.................................. $23.9 100.0% $100.8 100.0% $126.6 100.0%
Cost of Sales.............................. 20.7 86.6 81.1 80.5 101.7 80.3
Gross Profit............................... 3.2 13.4 19.7 19.5 24.9 19.7
SG&A Expenses.............................. 2.2 9.2 11.9 11.8 14.1 11.1
EBITDA..................................... 1.8 7.5 11.9 11.8 18.1 14.3
</TABLE>
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<PAGE> 26
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales. Net sales for fiscal 1998 were $126.6 million, representing a
$25.8 million or 25.6% increase over fiscal 1997. The increase in net sales was
primarily attributable to the impact of the Henkel and TRIMET acquisitions. The
additional three month impact of the March 25, 1997 Henkel acquisition
contributed $18.2 million of the increase. The July 31, 1998 TRIMET acquisition
contributed $12.2 million of the increase. Excluding the impact of these
acquisitions, GEO's Aluminum Products group experienced a $1.2 million increase
in net sales due to increases in both volume, particularly clay products sold to
the oil and gas industry, and price. Offsetting this increase was a $5.2 million
decline in sales to the paper industry due largely to the discontinuance of
certain products acquired from Henkel and reduced demand in the paper industry
in the last half of 1998.
Cost of Sales. Cost of sales was $101.7 million in fiscal 1998,
representing a $20.6 million or 25.4% increase over fiscal 1997. As a percentage
of net sales, cost of sales decreased from 80.5% in fiscal 1997 to 80.3% in
fiscal 1998. The additional three month impact of the Henkel acquisition
contributed $14.5 million of the increase in cost of sales. The TRIMET
acquisition contributed $7.7 million of the increase. Excluding the impact of
these acquisitions, cost of sales declined by $1.7 million. This decline was due
largely to the decrease in sales to the paper industry.
Gross Profit. Gross profit for fiscal 1998 was $24.9 million, representing
a $5.2 million or a 26.4% increase over fiscal 1997. As a percentage of net
sales, gross profit increased from 19.5% in fiscal 1997 to 19.7% in fiscal 1998.
The increase in gross profit was primarily attributable to the Henkel and TRIMET
acquisitions. The increase in gross profit as a percent of net sales reflects
the effect of lower raw material costs, especially in the fourth quarter of
1998, and the favorable gross margins on TRIMET products.
Selling, General and Administrative Expenses. SG&A expenses for fiscal 1998
were $14.1 million, representing a $2.2 million or 18.5% increase over fiscal
1997. As a percentage of net sales, SG&A expenses decreased from 11.8% in fiscal
1997 to 11.1% in fiscal 1998. The increase in SG&A expenses was attributable
entirely to the Henkel and TRIMET acquisitions. The Henkel acquisition
contributed $1.7 million of the increase. The TRIMET acquisition contributed
$0.5 million of the increase.
EBITDA. EBITDA for fiscal 1998 was $18.1 million, representing a $6.2
million or 52.1% increase over fiscal 1997. As a percentage of net sales, EBITDA
increased from 11.8% in fiscal 1997 to 14.3% in fiscal 1998. The additional
three month impact of the Henkel acquisition contributed $1.9 million of the
increase in EBITDA. The TRIMET acquisition contributed $4.7 million of the
increase. Excluding the impact of these acquisitions, EBITDA declined slightly
by $0.4 million due in part to the decrease in sales to the paper industry.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales. Net sales for fiscal 1997 were $100.8 million, representing a
$76.9 million or 321.8% increase over fiscal 1996. The Henkel acquisition
contributed $61.0 million of the increase. Excluding the Henkel acquisition, net
sales were $39.8 million, representing a $15.9 million or 66.5% increase over
fiscal 1996. This increase in net sales was primarily attributable to the Cytec
acquisition which was completed in December 1996.
Cost of Sales. Cost of sales was $81.1 million, representing a $60.4
million or 291.8% increase over fiscal 1996. As a percentage of net sales, cost
of sales decreased from 86.6% in fiscal 1996 to 80.5% in fiscal 1997. Excluding
the Henkel acquisition, cost of sales for fiscal 1997 was $36.5 million,
representing a $15.8 million or 76.3% increase over fiscal 1996. As a percentage
of net sales, cost of sales increased to 91.7% in fiscal 1997 from 86.6% in
fiscal 1996. The Cytec acquisition accounted for essentially all of the
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<PAGE> 27
increase in cost of sales and caused cost of sales as percent of net sales to
increase due to the product mix associated with the Cytec acquisition.
Gross Profit. Gross profit for fiscal 1997 was $19.7 million, representing
a $16.5 million or 515.6% increase over fiscal 1996. As a percentage of net
sales, gross profit improved from 13.4% in fiscal 1996 to 19.5% in fiscal 1997.
Excluding the Henkel acquisition, gross profit for fiscal 1997 was $3.3 million,
representing a $0.1 million or 3.1% increase over fiscal 1996. As a percentage
of net sales, gross profit decreased to 8.3% in fiscal 1997 from 13.4% in fiscal
1996. This decrease was related to the product mix associated with the Cytec
acquisition.
Selling, General and Administrative Expenses. SG&A expenses for fiscal 1997
were $11.9 million, representing a $9.7 million or a 440.9% increase over fiscal
1996. As a percentage of net sales, SG&A expenses increased to 11.8% in fiscal
1997 from 9.2% in fiscal 1996. This increase was primarily related to increased
sales commissions, sales discounts and freight allowances associated with the
Henkel acquisition. Excluding the Henkel acquisition, SG&A expenses were $2.6
million, representing a $0.4 million or 18.2% increase over fiscal 1996. As a
percentage of net sales, SG&A expense decreased to 6.5% in fiscal 1997 from 9.2%
in fiscal 1996 due to the Cytec acquisition which added relatively low operating
expenses.
EBITDA. EBITDA for fiscal 1997 was $11.9 million, representing a $10.1
million or 561.1% increase over fiscal 1996. As a percentage of net sales,
EBITDA increased to 11.8% in fiscal 1997 from 7.5% in fiscal 1996. Excluding the
Henkel acquisition, EBITDA was $2.8 million, representing a $1.0 million or
55.6% increase over fiscal 1996. As a percentage of net sales, EBITDA decreased
to 7.0% in fiscal 1997 from 7.5% in fiscal 1996. The percentage of sales
decrease resulted from the lower margin mix of sales and the overall magnitude
of sales associated with the Cytec acquisition. The Cytec acquisition
approximately doubled GEO's annual sales with a portfolio of relatively lower
margin products.
LIQUIDITY AND CAPITAL RESOURCES
GEO's primary cash needs are working capital, capital expenditures and debt
service. GEO has financed, and intends to continue to finance, these needs from
internally generated cash flow, in addition to periodic draws on its senior
credit facility. Net cash from operations for the year ended December 31, 1998
was $9.6 million, for the period ended December 31, 1997 was $5.6 million, for
the period ended March 24, 1997 was ($1.5) million, and for the year ended
December 31, 1996 was $1.4 million.
Net cash used in investing activities for the year ended December 31, 1998
was $67.9 million, for the period ended December 31, 1997 was $57.4 million, for
the period ended March 24, 1997 was $0.1 million, and for the year ended
December 31, 1996 was $8.1 million. Capital expenditures for the same periods
were $6.8 million, $3.2 million, $0.1 million and $0.6 million. GEO currently
has no material commitments for capital expenditures.
GEO completed the TRIMET acquisition in 1998 for a purchase price of
approximately $61.1 million, the Henkel acquisition in 1997 for a purchase price
of $54.2 million, and the Cytec acquisition in 1996 for a purchase price of $7.3
million.
The acquisitions by GEO have been financed through a combination of bank
borrowings and equity contributions. The Cytec acquisition in 1996 was funded
through the refinancing of GEO's credit facility. The new credit facility
consisted of a $7.0 million revolving line of credit and two term loans totaling
$14.0 million. The remaining $0.1 million of deferred financing costs that
pertained to the previous agreement were charged off as an extraordinary item.
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<PAGE> 28
The 1996 credit facility was refinanced in 1997 at the time of the Henkel
acquisition, through the issuance of two $30.0 million tranche loans, a new
$15.0 million revolving line of credit and proceeds of $14.7 million from the
issuance of common stock to Charter Oak Partners. GEO wrote off as an
extraordinary item the remaining net deferred financing costs of $0.5 million
which related to the 1996 credit agreement. In addition to the Henkel
acquisition, the bank and stock issuance proceeds were utilized to redeem all of
the common stock owned by Key Equity Capital Corporation and Key Equity
Partners. The total consideration paid to the Key entities was $5.8 million.
In connection with the TRIMET acquisition in 1998, GEO refinanced its
existing senior debt by issuing $120.0 million of 10 1/8% senior subordinated
notes due 2008 and amending its credit facility to include $25.0 million of
available borrowings under a new revolving senior credit facility. Net deferred
financing costs of $1.5 million related to the 1997 credit facilities were
charged off as an extraordinary item. Additional proceeds came from an equity
contribution of $6.0 million from GEO's shareholders. Interest on the notes is
due semi-annually in arrears on February 1 and August 1 of each year, commencing
in 1999. The new $25.0 million senior credit facility has a five year duration
and no interim amortization requirements. As of December 31, 1998, GEO had $25.0
million available for borrowing under the senior credit facility. Borrowings
under the senior credit facility bear interest, at GEO's option, at:
- 1.25% above the higher of an adjusted certificate of deposit
rate plus 0.5% or the prime lending rate of Bankers Trust
Company; or
- an adjusted Eurodollar rate plus 2.25%.
As of December 31, 1998, GEO's interest rate under the senior credit
facility would have equaled 7.3125%, had any amounts been outstanding. The
senior credit facility contains customary covenants which include the
maintenance of certain financial ratios. For a more complete description of the
senior credit facility, see "Description of GEO's Senior Credit Facility" below.
Net interest expense for the year ended December 31, 1998 was $9.1 million,
for the period ended December 31, 1997 was $5.0 million, for the period ended
March 24, 1997 was $0.4 million, and for the year ended December 31, 1996 was
$1.1 million. Cash paid for interest for the same periods was $4.3 million, $3.1
million, $1.1 million and $1.0 million. The accrued interest for the notes was
$5.1 million at December 31, 1998.
Cash paid for income taxes for the year ended December 31, 1998 was $0.4
million and for the period ended December 31, 1997 was $0.2 million.
GEO believes that cash generated from operations, together with amounts
available under its senior credit facility, will be adequate to meet its debt
service requirements, capital expenditures and working capital needs for the
foreseeable future, although no assurance can be given in this regard.
The overall effects of inflation on GEO's business during the periods
discussed have not been significant. GEO monitors the prices it charges for its
products on an ongoing basis and believes that it will be able to adjust those
prices to take into account any future changes in the rate of inflation.
MARKET RISK EXPOSURE
The fair value of GEO's fixed rate long-term notes is sensitive to changes
in interest rates. Interest rate changes would result in gains/losses in the
fair value of the notes due to differences between the market interest rates and
rates at the date of the note's issuance. Based on a hypothetical immediate 100
basis point increase in interest rates at December 31, 1998, the fair value of
GEO's fixed rate long-term notes would be impacted by a net decrease of $10.6
million. Conversely, a 100 basis point decrease in interest
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<PAGE> 29
rates would result in a net increase in the fair value of GEO's fixed rate
long-term notes at December 31, 1998 of $11.6 million.
GEO is subject to foreign currency exchange rate risk relating to receipts
from customers in foreign currencies. Less than 2% of receipts are contracted
with foreign currencies, and GEO does not consider the market risk exposure
relating to currency exchange to be material.
GEO is subject to commodity price risk relative to the purchase of
commodity chemicals as raw materials in its manufacturing processes. These raw
materials are generally available from several suppliers and are purchased under
agreements negotiated annually with two or more vendors per raw material.
Historically, GEO has been able to pass on price increases to its customers
within 90 to 120 days. Based upon the agreements with multiple vendors and GEO's
ability to pass along future price increases, the exposure to commodity price
risk is not considered to be material.
"YEAR 2000" COMPLIANCE
In May 1997, GEO initiated a program to upgrade its information technology
systems. The major components of this program include enterprise level
integrated applications software, communications software and wide area network
and server computers. These components were acquired from leading vendors,
including Digital Equipment Corporation, Oracle Corporation, International
Business Machines Corporation, Ross Systems, Inc. and MCI Communications
Corporation. Each purchased component was represented as being "Year 2000"
compliant. GEO currently plans to complete its information technology systems
upgrade by the middle of 1999 and will conduct further testing and validation in
late 1999. Since "Year 2000" compliance was a selection criteria for all newly
purchased information systems, GEO believes that its financial, manufacturing
and distribution, labeling and quality control systems are compliant. GEO has
initiated a program to upgrade auxiliary systems, including its invoicing and
bar coding systems, by the third quarter of 1999. Although GEO plans to complete
its information technology systems upgrade according to this schedule, it can
provide no assurance that the process will occur without unexpected difficulty,
delay or expense. GEO believes it has upgraded and tested approximately 75% of
its information technology as of April 1, 1999.
GEO's "Year 2000" initiative also addresses administrative/business
applications, technical infrastructure, manufacturing and warehousing equipment
and environmental systems and the "Year 2000" readiness of business providers
and customers. GEO is focusing on various technological components, including
hardware, software, personal computers, operating systems and databases. GEO
believes that its administrative/business applications are "Year 2000"
compliant. In light of its current business/administrative project to upgrade
selected non-"Year 2000" compliant computers and convert all office automation
tools to a Microsoft Office 97 platform, GEO believes that it will be "Year
2000" compliant in the area of office automation by the middle of April 1999.
Approximately 40 personal computers purchased during 1997 require software
upgrades. GEO will accomplish these upgrades by the middle of April 1999 as part
of the office automation conversion project. Sixty computers will also be
replaced as a part of this project.
All of GEO's servers and associated operating systems are relatively new
and, therefore, believed to be "Year 2000" compliant. GEO anticipates that its
remaining systems will require ROM upgrades only. GEO has engaged Compaq
Computer Corporation to perform "Year 2000" compliance assessments on all of its
Compaq and Digital Equipment Corporation servers during April of 1999. GEO plans
to complete these upgrades by the end of the second quarter of 1999.
GEO's communication infrastructure is comprised of wide and local area
networks which connect 19 locations. GEO is currently contacting local and wide
area network service providers and hardware vendors to determine any "Year 2000"
issues. GEO has received preliminary responses indicating that all wide
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<PAGE> 30
area network equipment and services will be compliant by the end of 1999 or
present no significant problem. GEO is in the process of contacting all local
telephone service providers to determine their "Year 2000" readiness and expects
to complete this process by the end of the third quarter of 1999.
GEO's top 30 raw materials, by volume, are purchased from 40 suppliers.
Most of these suppliers have responded positively to verbal questions regarding
their "Year 2000" readiness. The major chemical suppliers have either recently
converted to enterprise business software that is certified to be compliant or
are in the process of doing so. GEO is currently in the process of soliciting
responses from all suppliers of products and transportation services. GEO will
evaluate these responses early in the third quarter of 1999 and will arrange
alternative suppliers if necessary.
GEO has extensively reviewed all of its manufacturing facilities for "Year
2000" readiness. GEO has engaged an outside consultant to evaluate the "Year
2000" compliance status of its Cedartown, Allentown and Harrison facilities,
since these facilities have the most significant financial impact on GEO. GEO
expects these evaluations to be completed by the end of April of 1999. GEO
believes that its manufacturing sites are 85-90% "Year 2000" compliant and that
such facilities will be 100% compliant by June of 1999.
GEO's worst case scenario with respect to "Year 2000" issues is the loss of
utility service at its manufacturing facilities. GEO could adjust its inventory
levels to compensate for any manufacturing interruption at all facilities except
Allentown. The risk at Allentown is that alternate manufacturers or
manufacturing sites and/or capacity increase projects may not be in place in
time. Interruption of utility service is a concern of GEO but, based upon the
"Year 2000" preparedness efforts of the utility companies that serve GEO, is not
considered a significant risk.
GEO's total "Year 2000" expenditures are projected to be $0.2 million.
Approximately $0.1 million has been spent through February of 1999, and the
remaining $0.1 million is projected to be spent during the remainder of 1999.
The majority of these expenditures have been in the form of upgrades to existing
systems which were not "Year 2000" compliant.
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<PAGE> 31
GEO'S BUSINESS
COMPETITIVE STRENGTHS
GEO believes that its market leadership positions and significant
opportunities for continued growth and increased profitability are primarily
attributable to the following strengths:
Leader in Targeted Markets. GEO is a market leader in a number of
specialty chemicals sold to targeted markets. GEO is the U.S. market leader in
liquid calcium stearate used in paper coating, which it markets under the brand
name NOPCOTE(R). GEO is also a U.S. market leader in the production of
naphthalene sulfonate condensates used as additives in the production of
concrete and plaster board, which it markets under the brand name LOMAR(R). As a
result of the acquisition of TRIMET, GEO is also the leading global supplier of
dimethylolpropionic acid, marketed under the brand name DMPA(R), and
trimethylolethane, marketed under the brand name TRIMET(R), specialty chemicals
used primarily in the production of specialty paints and coatings.
Broad Product Portfolio and Strong Customer Base. GEO manufactures over
300 products used in a wide variety of applications, and sells these products to
approximately 1,000 customers. For the year ended December 31, 1998 on a pro
forma basis, excluding sales under GEO's supply agreement with Henkel
Corporation, GEO's top ten customers accounted for approximately 28% of its net
sales and no single customer accounted for more than 5% of its net sales. GEO
sells its products to a base of large multinational companies with which it has
a longstanding relationship, including International Paper Company, Georgia-
Pacific Corporation, Eastman Kodak Company, Master Builders, Inc., United States
Gypsum Company, Zeneca Inc., PPG Industries, Inc., Baker Hughes Incorporated and
Westvaco Corporation. GEO believes that the diversity of its customer base,
products and end markets provides it with a broad base to grow sales, expand
customer relationships and minimize exposure to any particular customer or
economic cycle.
Strong Manufacturing Capability. GEO's major manufacturing facilities have
the ability to produce and formulate multiple products, allowing it to meet
changing customer requirements for customized products. In addition, GEO has
strategically acquired nine small plants located in the Southeast in close
proximity to the major U.S. paper mills. The location of these plants provides
GEO with key supply points for its pulp and paper chemicals customers and other
major industrial accounts. GEO believes that this network decreases its
customers' shipping and warehouse costs and provides GEO with a distinct
advantage over other suppliers.
Proven Acquisition Expertise. GEO's senior management has developed
significant expertise in identifying and effecting acquisitions within targeted
markets. Since GEO's formation in 1993, management has successfully completed
five acquisitions. Through these acquisitions, GEO has gained significant
experience in integrating acquired companies' plants, personnel and customers
into its business. Management believes that its acquisition expertise will allow
it to continue to successfully acquire and integrate businesses within targeted
markets of the specialty chemicals industry.
Experienced Management Team. GEO's senior management led by George P.
Ahearn and William P. Eckman has an average of 25 years of operating experience
in the chemical industry, primarily in specialty chemicals. In addition, GEO has
assembled a strong and experienced management team as a result of its
acquisitions and has actively worked at developing a unified culture of
participative management. Senior management owns approximately 20.72% of GEO's
equity.
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<PAGE> 32
BUSINESS STRATEGY
GEO's management has developed a business strategy designed to increase
GEO's sales, profitability and share within targeted markets. The key components
of GEO's business strategy include:
Continue Focus on Innovative Products. Consistent with its history, GEO
will continue to focus on manufacturing or acquiring businesses which produce
innovative products for targeted markets. In particular, GEO will continue to
work with its customers to develop specialized products. For example, GEO has
established the leading position in the manufacture of proppant intermediates to
the oil and gas industry by working closely with the two leading suppliers of
proppants. In addition, GEO supplies "prototype" products to several major
construction companies due to its broad product range and technological
expertise, as well as its cooperative marketing efforts with these key
customers. Based upon its historical accomplishments, GEO believes that it will
continue to be successful in developing innovative products for targeted
markets.
Utilize Strong Manufacturing Capability. GEO's plants are strategically
located near key customers and have the ability to produce a broad range of
products. GEO intends to use this network of plants to capitalize on a growing
trend among the major suppliers to the water treatment, pulp and paper and oil
field markets to outsource part of their manufacturing. This trend is being
driven in part by the efforts of these suppliers to focus greater resources on
their product development, technical, and sales and servicing businesses as
opposed to their manufacturing operations. GEO intends to focus part of its
marketing and sales efforts on these suppliers.
Pursue Strategic Acquisitions. GEO has successfully grown through
acquisitions and intends to pursue additional strategic acquisitions that will
allow it to further improve its market position in targeted markets. GEO also
intends to pursue acquisitions in other high growth specialty chemicals markets.
GEO will evaluate potential acquisition candidates based upon the ability of GEO
to:
- expand its product offerings;
- gain access to complementary raw materials, customers and markets;
- enhance its manufacturing capabilities; and
- extend its geographic reach both domestically and internationally.
Maximize Operating Efficiencies. GEO has historically been successful in
optimizing operating costs with each of its acquisitions. GEO believes that it
can continue to achieve operating efficiencies which result in reduced raw
material and manufacturing costs and improved cash flow by:
- cross-selling its expanded product line across a broader distribution and
customer network;
- consolidating raw material purchases to increase purchasing efficiency;
- leveraging expenses over a broader revenue base; and
- consolidating manufacturing and distribution operations.
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<PAGE> 33
PRODUCTS AND MARKETS OVERVIEW
The following table shows on a pro forma basis GEO's principal operating
groups by product line, primary end-markets and as a percentage of sales for the
years 1996, 1997 and 1998.
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
--------------------
OPERATING GROUP PRODUCT LINE PRIMARY END-MARKETS 1996 1997 1998
- --------------- ------------ ------------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Performance Chemicals Aluminum Products Pulp & Paper, Water 25 24 25%
Treatment
Formulated Products Pulp & Paper 19 18 15
Stearates Pulp & Paper 7 5 5
---- ---- ----
Total Performance Chemicals................................ 51 47 45
Process Additives Naphthalene Sulfonate Construction, Oil 25 24 23
Condensates/Other field
Chemicals
Polyols Coatings 13 15 17
Clay Products Oil field 3 3 4
---- ---- ----
Total Process Additives.................................... 41 42 44
Other(1) 8 11 11
---- ---- ----
Total...................................................... 100% 100% 100%
</TABLE>
- ---------------
(1) Comprised of formaldehyde, calcium formate and sales pursuant to GEO's
reciprocal supply agreement with Henkel Corporation.
PERFORMANCE CHEMICALS
Pulp & Paper. The United States produces approximately one-third of the
world's pulp and paper, using approximately $5.1 billion of commodity and
specialty chemicals in 1996. Specialty pulp and paper chemicals include a wide
range of chemicals, most of which are proprietary formulations that require
extensive customer support. Unlike commodity pulp and paper chemicals that are
sold on the basis of a specification and are the same for every manufacturer,
specialty pulp and paper chemicals are unique products made to accomplish a
specific application. In addition, some pulp and paper chemicals are classified
as specialty chemicals because of the targeted markets they serve and the high
barriers of entry in those markets. Specialty pulp and paper chemicals are
generally sold based upon performance considerations. In particular, their value
in the marketplace stems from the degree to which the products are tailored to
meet the needs of the customer.
Specialty pulp and paper chemicals are used to increase the strength of
printed paper, improve paper printability and enhance the manufacturing process.
Major purchasers of pulp and paper specialty chemicals include International
Paper Company, Champion International Corporation, Kimberly-Clark Corporation,
Consolidated Papers, Inc., Fort James Co., The Mead Corporation, Inland
Container Corporation, Stone Container Corporation and Weyerhaeuser Corporation.
Sales of specialty pulp and paper chemicals were estimated to be $2.8 billion in
1996 and are projected to grow 2% to 3% per year through 2001. The pulp and
paper specialty chemical market is primarily driven by:
- the overall growth of the pulp and paper industry;
- trends to improve paper mill efficiencies;
- developments in paper production technology; and
- environmental regulations and mandated paper recycling.
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Within the pulp and paper specialty chemical industry, GEO markets over 200
products in the following major areas: defoamers, coatings and lubricants,
flocculants and coagulants, and other specialty pulp and paper chemicals.
Defoamers. GEO's defoamers are used to prevent excess foaming in equipment
and to eliminate air bubbles during various stages of the papermaking process.
The product type and amount used vary by paper mill depending on the type of
pulp used and operating conditions. GEO markets approximately 80 defoamers and
maintains an approximate 13% market share. GEO's large product line and its
sales and marketing strategy of supplying Tier I suppliers as well as paper
mills directly has resulted in significant sales and market share. GEO competes
primarily with Callaway Chemical Company, a chemical company of Vulcan Materials
Company, Nalco Chemical Company, Vinings Industries, Inc. and Betz-Dearborn
Incorporated in this segment of the pulp and paper industry.
Coatings/Lubricants. GEO's specialty pulp and paper chemicals are also
used in the coating and lubricating aspects of the papermaking process,
primarily to improve the efficiency and performance of the manufacturing
process. GEO markets approximately 40 products which provide enhanced
printability, surface smoothness, glossing ease and processing efficiency.
Within this segment, GEO has focused on calcium stearate lubricants, which it
markets under the trade name NOPCOTE(R). GEO is the market leader for this
product, maintaining an approximate 40% market share. GEO's brand recognition
and its reputation for quality has created strong customer relationships and a
resulting strong market share in this segment. GEO competes primarily with BASF
Corporation and Sequa Corporation in this segment of the pulp and paper
industry.
Flocculants/Coagulants. GEO's flocculants and coagulants are used in the
paper formation process and the treatment of pulp and paper mill wastewater. GEO
believes it is a leading seller of these products, including polyaluminum
chloride and aluminum sulfate, to the U.S. pulp and paper industry, providing
approximately 10 products and maintaining an approximate 35% market share. GEO
competes primarily with General Chemical Corporation, Gulbrandsen Co., Inc. and
Southern Ionics, Inc. in this segment of the pulp and paper industry.
Other. GEO also supplies sizing agents, cleaners, dry and wet strength
resins, wetting and re-wetting agents, and deposit control agents to the
specialty pulp and paper chemical market. These products have such diverse
applications as maintaining the integrity of paper fibers, improving the ability
of paper to withstand various temperature conditions, and ensuring an efficient
manufacturing process. GEO markets approximately 75 of these products and
competes with various companies, including Huntsman Corporation, Hercules
Incorporated and Buckman Laboratories International Inc.
Water Treatment. The U.S. specialty chemical water treatment market is
approximately $2.7 billion in size. This market is comprised of two segments:
(a) industrial water treatment, which represents approximately $2.5 billion; and
(b) municipal water treatment, which represents approximately $0.2 billion. The
industrial water treatment segment uses specialty chemicals primarily to purify
water for manufacturing processes, since the use of untreated water results in
low product quality and accelerated equipment degradation. The industrial
segment is also required by environmental regulations to treat its wastewater.
Demand in this segment is therefore driven by both the level of industrial
production and environmental regulations.
The municipal water treatment segment uses specialty chemicals primarily to
purify water sources into a consumable form. Municipalities must also comply
with environmental regulations. Currently, the Environmental Protection Agency,
to comply with the 1996 amendments to the Safe Drinking Water Act, has
regulations pending which will tighten the requirements of municipalities. These
pending regulations
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will contribute to the increased use of the specialty chemicals that GEO sells
in this market. The following factors are expected to result in continued growth
for specialty water treatment chemicals:
- increased industrial production;
- more stringent environmental regulations;
- increased scarcity of consumable water; and
- population growth.
Within the specialty chemical water treatment industry, GEO markets
products in the following major areas: flocculants and coagulants.
Flocculants/Coagulants. Flocculants and coagulants remove suspended matter
from water and are essential to the treatment of industrial processing water,
wastewater and drinking water. Coagulants are used to achieve primary separation
of fine particles. Flocculants are added after the primary coagulant to cause
the separated particles to clump together and settle out more rapidly. GEO is a
leading U.S. manufacturer of several flocculants and coagulants, including
aluminum sulfate which is used as both a flocculant and coagulant for the
treatment of water in the industrial and municipal markets. GEO markets over 70
products in this segment and maintains an approximate 30% market share.
GEO derives its strong market position from the strategic location of its
plants and its status as a low cost producer. The close proximity of GEO's nine
small plants to its customer base, most notably its pulp and paper customers,
provides GEO with a distinct advantage over its competitors, allowing it to
deliver its products in a more timely and cost effective manner. GEO's source of
kaolin clay, which is used in the production of aluminum sulfate, provides a
strategic raw material enabling GEO to be a low cost supplier in the market.
These factors along with the high turbidity of water in the Southeastern U.S.,
where GEO primarily operates, has resulted in strong market share and revenue
and profit growth. In this segment, GEO competes with General Chemical
Corporation, Gulbrandsen Co., Inc., Summit Research Labs, Kemwater North America
Company, a subsidiary of Pioneer Companies, Inc., and Delta Chemical Corp.
PROCESS ADDITIVES
Construction. GEO competes primarily in two segments of the construction
industry: concrete additives and plaster board.
Concrete Additives. GEO's napthalene sulfonate condensates and the other
specialty chemicals that it sells in this segment of the construction market are
used as additives to increase the strength and workability of concrete. These
products also improve the ability of concrete to withstand deterioration due to
temperature variations and corrosive agents. Major markets for these products
include roadway construction and repair and residential and commercial
construction. GEO markets approximately 30 products in this market and maintains
an approximate 40% market share. GEO competes in this segment with the Hampshire
Division of The Dow Chemical Company and Handy Chemicals Ltd., a subsidiary of
Rutgers Organics GmbH.
Plaster Board. GEO's napthalene sulfonate condensates and the other
specialty chemicals that it sells in this segment of the construction market are
used to shorten the drying time and expedite the manufacture of plaster board.
Demand for GEO's products in this market is primarily a function of the level of
residential and commercial construction. GEO is the leading U.S. manufacturer of
napthalene sulfonate condensates to the plaster board market. GEO markets
approximately 10 products for plaster board use and maintains an approximate 65%
market share. GEO developed the application of napthalene sulfonate condensates
in this market and is considered to be the technology leader. GEO is also a
leading manufacturer of foaming agents and defoamers to the plaster board
industry. Major customers include the
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<PAGE> 36
four leading plaster board producers: United States Gypsum Company,
Georgia-Pacific Corporation, National Gypsum and James Hardie. GEO competes
primarily with the Hampshire Division of The Dow Chemical Company and Handy
Chemicals Ltd., a subsidiary of Rutgers Organics GmbH.
Coatings. The global market for paint and coating chemicals was over $54
billion in 1996. Primarily concentrated in the United States, Western Europe and
Japan, this market is split primarily into two applications: construction,
primarily new home construction, and consumer durables, including motor
vehicles, home furnishings, outdoor equipment and household appliances. Demand
for paint and coating chemicals is largely a function of construction
expenditures, motor vehicle production and general consumer spending.
In addition, environmental concerns have resulted in increased demand for
more environmentally-friendly water-based paints and coatings and the specialty
chemicals used in their production. This increase has been most pronounced in
the construction industry, where most household paints now use water-based paint
and coatings. In the 1990s, the shift towards water-based paints and coatings
spread to the consumer durables sector and other industrial sectors as well,
resulting in continued growth in the paint and coating chemicals market.
Within the specialty paint and coating chemicals market, GEO manufacturers
and supplies two products: DMPA(R) and TRIMET(R).
DMPA(R). GEO's DMPA(R) is used in the production of such products as wood
varnishes, leather coatings, adhesives and automotive parts. GEO believes that
its DMPA(R) product, with its environmentally-friendly profile and superior
performance, will benefit from the worldwide trend towards more stringent
environmental standards for many paint and coating products. GEO is the only
producer of DMPA(R) in the world and supplies such major manufacturers as Zeneca
Corp., PPG Industries, Inc. and Reichhold Chemicals, Inc.
TRIMET(R). GEO's TRIMET(R) product is used in the production of such
products as: automotive finishes, where it improves gloss and hardness; outdoor
equipment, where ultra-violet resistance is enhanced; and decorative finishes
for home furnishings, where it improves water resistance. TRIMET(R) is also used
as a surface treatment in the production of can coatings and architectural
paints. GEO believes that its TRIMET(R) product, with its
environmentally-friendly profile and superior properties, will also benefit from
the worldwide trend towards more stringent environmental standards for many
paint and coating products. GEO has no direct competition for its TRIMET(R)
product and supplies such major manufacturers as McWorter Corporation, Reichhold
Chemicals, Inc., Cook Composites Company and Kerr-McGee Chemical Corporation.
Oilfield. The North American oilfield chemical market was approximately
$3.3 billion in 1996. The oilfield industry uses many specialty chemicals for
cementing, stimulation and production. Demand for oilfield specialty chemicals
is a function of exploration expenditures, oil and gas production and crude oil
and gas prices. The increased exploration efforts in the Gulf of Mexico,
particularly at deeper depths, and increased oil production in Canada and Mexico
will drive demand in North America for oilfield specialty chemicals.
Within the oilfield specialty chemicals market, GEO markets approximately
25 products in the following major areas: cementing, stimulation and production.
Cementing. In the approximately $740 million cementing market, GEO's
napthalene sulfonate condensates are used to enhance the physical properties of
cement used for well casings. GEO's napthalene sulfonate condensates allow for
improved handling of cement, resulting in reduced energy requirements for
pumping at greater depths. In this market, GEO competes with the Hampshire
Division of The Dow Chemical Company and several alternative specialty
chemicals. B.J. Services is a major customer of GEO.
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Stimulation. GEO manufactures calcined clay and bauxite used as an
intermediate in the manufacturing of clay proppants. Clay proppants are used in
the stimulation of oil and natural gas wells. GEO markets 12 products and
maintains an approximate 40% market share in this segment. GEO's major customers
include Carbo Ceramics, Inc. and Norton-Alcoa Proppants. GEO competes primarily
with CE Minerals, Inc.
Production. GEO also manufactures its napthalene sulfonate condensates for
oil production. These products are used primarily to facilitate the de-watering
of crude-oil. GEO competes primarily with Witco Corporation in this market.
SALES AND MARKETING
GEO markets its products through a variety of strategies, depending upon
the nature of the product being sold. Performance chemicals are generally
marketed through direct, on-site visits to process industry manufacturers, such
as pulp and paper manufacturers. These on-site visits typically include trial
applications and demonstrations of the cost-effectiveness of the performance
chemicals and involve follow-up on-site visits and ongoing technical assistance.
In these direct, on-site marketing efforts GEO succeeds by demonstrating the
superior performance of its product.
Process additives are generally marketed through a cooperative effort with
customers at the research and development phase of the manufacturing process.
Representatives of GEO work with customers in developing a desired product by
providing up-front technical assistance. This marketing method involves GEO's
process additives being included in the customers' formulations, thereby
allowing GEO to establish long-term relationships with customers in this product
segment.
GEO also relies upon more traditional methods of marketing for a number of
its products. GEO markets to distributors through purchasing agents for the sale
of many products in its aluminum flocculants line. GEO also sells numerous
products to indirect suppliers and distributors, including such products as
aluminum chlorhydrate, aluminum chloride solutions and liquid and dry aluminum
sulfate. The use of purchasing agents, indirect suppliers and distributors has
enabled GEO to market its products on a wide geographic scale, including the
West Coast and other locations where GEO has no regional sales coverage, and
into smaller markets that are not economically feasible for GEO to target
directly.
GEO markets certain products by participating in formal bid procedures,
most commonly in connection with the supply of specialty chemicals to
municipalities that operate water treatment, recirculation and effluent
treatment facilities and manufacturers in the pulp and paper industry.
GEO is able to market a number of its products through brand recognition
and industry leadership. GEO is the largest domestic producer of calcium
stearate, which it sells under its trade name NOPCOTE(R), and naphthalene
sulfonate condensates products, which are used as dispersants in the concrete,
plaster board, oilfield and other industries and are sold by GEO under its trade
name LOMAR(R). GEO is also the second largest domestic producer and technical
marketer of aluminum sulfate, a leader in the market for aluminum-based
flocculants and coagulants used in the treatment of water, sold by GEO under the
trade name ULTRAFLOC(R), and a recognized leader in the manufacture of defoamers
used in papermaking, sold by GEO under the trade name GEO FM(TM).
GEO's TRIMET products are marketed through several sales representatives
and one distributor that were retained as part of the TRIMET acquisition. The
TRIMET sales representatives include a manager and two direct salesmen located
in the United States and a direct salesman located in Europe. GEO plans to
improve the marketing of TRIMET products through the addition of customer
service and technical support personnel dedicated to the TRIMET customer base.
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RECIPROCAL SUPPLY AGREEMENTS WITH HENKEL CORPORATION
In the Henkel acquisition, GEO entered into reciprocal supply agreements
with Henkel. Under these agreements, Henkel supplies GEO with various raw
materials, intermediates and toll products and GEO supplies Henkel with numerous
products made by Henkel prior to the acquisition. The agreements require GEO and
Henkel to purchase all of their requirements for the covered products from the
other party. However, GEO and Henkel are not required to supply products
exceeding 110% of the volume supplied under the agreements during the previous
year. The prices charged by GEO, or by Henkel for toll products, may be
increased quarterly, but only to the extent of changes in the price of raw
materials or overhead costs. Henkel may adjust its prices on non-toll products
quarterly based on market prices. The term of the supply agreements is three or
five years, depending on the product supplied.
The aggregate price of products purchased by GEO from Henkel under the
supply agreements for the year ended December 31, 1998 was approximately $9.85
million, of which $3.3 million was for toll products and $6.55 million was for
raw materials and intermediates. The aggregate price of products purchased by
Henkel from GEO for the same period was approximately $10.3 million. More than
1,000 product formulations are subject to the terms of the supply agreements.
The primary products supplied by GEO to Henkel include defoamers, softeners and
napthalene sulfonate condensates. The primary products supplied by Henkel to GEO
include fatty acids used as raw materials and toll products such as wet strength
resins and polyacrylates.
RAW MATERIALS
GEO uses a variety of specialty and commodity chemicals in its
manufacturing processes. These raw materials are generally available from
several suppliers and are purchased by GEO under agreements negotiated annually
with two or more vendors per raw material. GEO currently has in place multiple
long-term supply contracts ranging in duration from 3 to 6 years for key raw
materials, including fatty acids, kaolin and bauxite clay and propoxylated
butanols. GEO is vertically integrated with its own source of kaolin clay used
in the manufacture of certain of its aluminum and clay products and formaldehyde
used in the manufacture of DMPA(R) and TRIMET(R).
INTELLECTUAL PROPERTY
GEO believes that trademarks are important competitive factors in a number
of the markets in which it competes. The use of trademarks often represents
quality and performance as well as industry leadership. A number of GEO's
principal products are sold under registered trademarks, including liquid
calcium stearate used as coatings and lubricants in the papermaking process
(NOPCOTE(R)), trimethylolethane (TRIMET(R)) and dimethylolpropionic acid
(DMPA(R)) used in the coatings and resins markets, napthalene sulfonate
condensates used as dispersants in the concrete, plaster board, oilfield and
other industries (LOMAR(R)), aluminum-based flocculants and coagulants used in
the treatment of water (ULTRAFLOC(R)), and defoamers used in papermaking (GEO
FM(TM)). GEO's trademarks should remain protected under federal law as long as
they are commercially used by GEO.
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FACILITIES
GEO's manufacturing operations are conducted at the facilities described
below.
<TABLE>
<CAPTION>
APPROXIMATE
CAPACITY
LOCATION PRODUCTS MANUFACTURED TONS/YEAR OWNED/LEASED
- -------- --------------------- ----------- ------------
<S> <C> <C> <C>
Baltimore, Maryland aluminum chlorhydrate, aluminum variable Owned
chloride solutions and
polyaluminum chloride
Bastrop, Louisiana aluminum sulfate -- liquid, dry 60,500 Owned
and anhydrous, aluminum chloride
and polyaluminum chloride
Chattanooga, Tennessee aluminum sulfate 25,000 Owned
Coosa Pines, Alabama aluminum sulfate 40,000 Owned(1)
Counce, Tennessee aluminum sulfate blended products 20,000 Owned
Demopolis, Alabama aluminum sulfate 21,000 Owned
DeRidder, Louisiana aluminum sulfate 45,000 Owned(2)
Georgetown, South Carolina aluminum sulfate 45,000 Owned
Little Rock, Arkansas calcined bauxite and kaolin 100,000 Owned(3)
Monticello, Mississippi aluminum sulfate 32,000 Owned
Naheola, Alabama aluminum sulfate 24,000 Owned(2)
Plymouth, North Carolina aluminum sulfate 38,000 Owned
Allentown, Pennsylvania DMPA(R), TRIMET(R), formaldehyde 69,500 Owned(4)
and calcium formate
Cedartown, Georgia over 200 formulated products 66,500 Owned
Harrison, New Jersey calcium stearate and defoamers 18,000 Owned
</TABLE>
- ---------------
(1) The Coosa Pines plant is held 4.9 acres in fee and 15.8 acres in leasehold.
(2) The DeRidder and Naheola plants are located on leased land.
(3) The Little Rock facility is held 512 acres in fee and 29.9 acres under land
contract.
(4) Although GEO owns the Allentown facility, it holds the underlying 95.56
acres under a lease agreement that extends for up to 29 years and 11 months.
GEO will take title in fee simple to the 95.56 acres when it is subdivided
from an adjacent 290.28 acre parcel. GEO also leases a warehouse and a
sludge processing facility on the adjacent parcel, apart from the real
property on which it is located.
GEO's executive offices are located in Cleveland, Ohio. GEO maintains sales
offices in Little Rock, Arkansas; Baltimore, Maryland; Charlotte, North
Carolina; and Horsham, Pennsylvania. GEO also has financial and treasury staff
located in Lafayette, Indiana and administrative and technical support
facilities located in Horsham, Pennsylvania and Charlotte, North Carolina. GEO
believes that its facilities are in good operating condition and adequate to
meet anticipated requirements in the near future.
EMPLOYEES
As of December 31, 1998, GEO employed approximately 424 persons, the
majority of whom are involved in production and operations, with the balance
engaged in administration, research and development, sales, customer service and
clerical work. Approximately 71 employees located at the Cedartown, Georgia
facility, 59 employees at the Allentown, Pennsylvania facility, 19 employees at
the Bastrop, Louisiana facility, 9 employees at the Baltimore, Maryland
facility, 4 employees at the Georgetown, South Carolina facility, and 2
employees at the Chattanooga, Tennessee facility are unionized and covered by
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collective bargaining agreements. These collective bargaining agreements have
expiration dates ranging between July 1999 and March 2002. The unionized
employees of GEO located at the Allentown, Bastrop and Baltimore facilities are
represented by the International Chemical and Atomic Workers, those located at
the Cedartown facility by the United Food Workers, those located at the
Georgetown facility by the United Paper Workers, and those located at the
Chattanooga facility by the United Steel Workers. GEO believes that its
relationship with its employees is good. GEO has experienced no work stoppages
at any of its facilities since its inception in 1993.
LITIGATION
In the ordinary course of business, GEO is periodically named as a
defendant in a variety of lawsuits. Currently, GEO is one of 102 named
defendants in a toxic tort lawsuit commenced in Harrison County, Texas. The
plaintiffs in the action are employees, former employees and the families of
such employees of the Monarch Tile Company tile plant in Marshall, Texas. The
plaintiffs allege that they were exposed to hazardous substances in the course
of their employment at the Monarch plant and that GEO or its predecessor was a
manufacturer of one of those substances. GEO intends to vigorously defend this
action and disputes that its substances are hazardous or responsible for the
plaintiffs' alleged injuries. GEO believes that its pending cases will not have
a material adverse effect on its business or financial condition.
ENVIRONMENTAL MATTERS
GEO believes that it is in substantial compliance with the environmental
laws applicable to its facilities. GEO has no reason to believe that the
discovery of presently unknown environmental conditions or changes in the scope,
interpretation or enforcement of any environmental laws will have a material
adverse effect on GEO's business or financial condition. See "Risk
Factors -- Effect of Environmental Laws on GEO's Real Property and Manufacturing
Operations."
Aluminum Sulfate Facilities. Six of GEO's facilities use aluminum-bearing
clay as the basic raw material in the manufacture of aluminum sulfate. These
facilities generate a by-product known as process silica. GEO has historically
managed this by-product in on-site impounds. These impounds have impacted
groundwater quality by affecting the level and flow of groundwater, and by
producing elevated levels of aluminum, sulfates and acidity in the groundwater.
GEO currently operates seven of these impounds and is addressing the groundwater
issues at each of these facilities. Most of these facilities are working with
their respective state environmental protection agencies to address the
potential groundwater contamination through periodic monitoring.
The cost of closing these impounds varies by facility, depending on state
requirements, the size and age of the facilities, the extent of the
contamination, and whether impounded water must be transported off-site.
Estimates for the closure of an impound range from $300,000 to $700,000.
Monitoring and reporting typically would be required for twenty to fifty years
following closure, and the associated costs range from $10,000 to $25,000
annually per facility. As of March 31, 1999, GEO had completed the closure of
one such impound, at a cost of $674,000.
On February 10, 1998, GEO's Bastrop, Louisiana facility received a
compliance order from the Louisiana Department of Environmental Quality
regarding the design and capacity of its five acre impound. The state agency
directed the facility to improve the structure of the impound to enable the
impound to withstand significant rainfalls without breaching or spilling over
the dikes. The facility was not fined in connection with this order. On March
10, 1999, the state agency issued a compliance order and notice of potential
penalty for alleged violations of the facility's water pollution permit in
response to events occurring in December 1998 and January 1999. The state agency
alleged the unauthorized discharge of wastewater from the impound and storm
water contamination. The state agency directed GEO to file a new
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water pollution permit application, develop a new storm water pollution
prevention plan, comply with interim water pollution requirements, and file a
written report regarding the causes of the alleged incidents and GEO's proposed
solutions. The state agency also advised GEO that it may impose civil penalties
at a later date for the alleged violations. As of March 31, 1999, GEO had
incurred approximately $150,000 in clean-up and improvement costs for the
Bastrop impound.
Former Henkel Facilities. GEO's Harrison, New Jersey facility is subject to
a 1994 declaration of environmental restrictions. This deed restriction relates
to a portion of the facility that has been capped due to contamination from
prior operations. As of March 31, 1999, GEO had not incurred any material costs
in connection with this matter.
Former operators of GEO's Cedartown, Georgia facility buried at the
facility approximately 1,500 gallons of tall oil and 700 drums of obsolete
products and raw materials. As a result, in 1990 a portion of the Cedartown
facility was listed as a "Superfund" site on the National Priorities List
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980. Henkel Corporation and the U.S. Environmental Protection Agency
entered an administrative order on consent related to the Superfund site. On
behalf of Henkel, GEO conducts all groundwater and surface water monitoring and
complies with the reporting obligations under the administrative order. Under
the asset purchase agreement between the parties, Henkel is responsible for
paying, and must indemnify GEO for, all such compliance costs. Pursuant to its
indemnification obligation, Henkel had either paid or reimbursed GEO for all
expenses arising from the Cedartown's status as a Superfund site as of March 31,
1999.
GEO's Cedartown, Georgia facility is also subject to a 1993 corrective
action consent order between Henkel and the Georgia Department of Natural
Resources. The consent order relates to the remediation of surface and
groundwater contamination from prior operations at the facility. The facility is
listed in the State of Georgia Master Sites List for Hazardous Waste Sites. On
behalf of Henkel, GEO conducts the groundwater and surface water remediation and
also complies with the monitoring and reporting requirements under the consent
order. Under the asset purchase agreement between the parties, Henkel is
responsible for paying, and must indemnify GEO for, these compliance costs.
Pursuant to its indemnification obligation, Henkel had either paid or reimbursed
GEO for all such compliance costs as of March 31, 1999.
Little Rock Mining Facility. Upon completion of mining activities at GEO's
Little Rock, Arkansas facility, two impounded pits must be reclaimed. GEO will
comply with all reclamation requirements, but does not anticipate that it will
incur material costs in connection with these requirements.
TRIMET Properties. In the acquisition of TRIMET, GEO acquired approximately
95 acres of an approximately 385 acre site. Mallinckrodt Inc. continues to own
the larger site, of which GEO will lease a very small portion, consisting of a
warehouse and wastewater treatment system. There is groundwater and soil
contamination on the larger site from former explosive manufacturing operations.
The larger site has at times been the subject of federal and state
investigations. The site that GEO will own is subject to extensive air, water,
solid waste and hazardous substance regulations. Prior to the acquisition,
Mallinckrodt installed modern pollution control equipment throughout the smaller
site to comply with these requirements. Mallinckrodt will indemnify GEO for all
pre-closing environmental liabilities associated with the larger site. Subject
to deductibles and cost-sharing methods outlined in the asset purchase agreement
between the parties, Mallinckrodt will also indemnify GEO for all pre-closing
liabilities associated with the smaller site. Pursuant to its indemnification
obligation, Mallinckrodt has either paid or reimbursed GEO for all expenses
incurred as of March 31, 1999 at these sites.
Environmental Reserves. At December 31, 1997, GEO had reserves of
$3,015,000 for environmental liabilities. At December 31, 1998, GEO had
environmental reserves of $2,052,000.
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MANAGEMENT
DIRECTORS, OFFICERS AND OPERATING MANAGEMENT
The following table shows certain information regarding each of GEO's
directors, officers and operating management.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George P. Ahearn 63 President, Chief Executive Officer and Director
William P. Eckman 47 Executive Vice President, Chief Financial Officer and
Director
Dennis S. Grandle 49 Vice President/General Manager, Aluminum Products
David B. Heller, Jr. 45 Vice President/General Manager, Process Industries
Michael B. Linscott 44 Vice President/General Manager, Performance Chemicals
Robert S. Zacker 41 Vice President/General Manager, TRIMET Products
Jorge J. Tena 52 Vice President, Manufacturing
Donald D. Smith 64 Manufacturing Manager, Aluminum Products
Anatole G. Penchuk 45 Director
George W. Rapp, Jr. 67 Director
A. Elliott Archer 55 Director
</TABLE>
- ---------------
George P. Ahearn has been President, Chief Executive Officer and Director
of GEO since its inception in 1993. Prior to that time, Mr. Ahearn was President
and Chief Operating Officer of Hall Chemical Company, a maker of specialty
metal-based chemicals. Prior to that, Mr. Ahearn was employed for 28 years by
Exxon Corporation and Exxon Chemical, holding various executive positions
including Division Manager of Exxon Chemical's Energy Chemicals Business and
Worldwide Manager of Exxon Chemical's Specialty Chemicals Technology
Organization. Mr. Ahearn was also a founder, owner and director of
Pharmaceutical Fine Chemicals, S.A., a Luxembourg fine chemicals company built
through acquisition. Mr. Ahearn divested his interest in Pharmaceutical Fine
Chemicals, S.A. when the business was sold to DLJ Merchant Banking Fund Group,
an affiliate of Donaldson Lufkin & Jenrette Securities Corporation, in September
1997. Mr. Ahearn was formerly a director of Chemtech Industries of St. Louis,
Missouri and President of SSC Industries of Atlanta, Georgia. Since 1995 Mr.
Ahearn has been a director of The Flood Company of Hudson, Ohio, a
privately-held company in the coatings and wood stains and preservatives
business. Mr. Ahearn received his B.A. in chemistry from the City University of
New York and M.S. and Ph.D. in chemistry from Rutgers University.
William P. Eckman has been Executive Vice President, Chief Financial
Officer and Director of GEO since its inception in 1993. Prior to that time, Mr.
Eckman was involved in acquisitions, joint venture development, product
management and strategic planning for Exxon Chemical's specialty chemical
business in Latin America and Mexico. Mr. Eckman was also a corporate treasurer
for Exxon Chemical Americas with responsibility for Latin America. Mr. Eckman
also served in the Controller's department at Exxon Chemical's Baton Rouge,
Louisiana plant. Mr. Eckman was a founder and owner of Pharmaceutical Fine
Chemicals, S.A. and a director of certain of its affiliates. Mr. Eckman divested
his interest to DLJ Merchant Banking Fund Group in September 1997. Mr. Eckman
received his B.A. in business administration from Marian College and M.B.A. and
economics degrees from New York University. Mr. Eckman also pursued studies in
international economics at the University of Paris.
Dennis S. Grandle has been Vice President/General Manager, Aluminum
Products of GEO since 1996. Mr. Grandle has over 25 years of experience in the
chemical and oil industries, primarily at Exxon Chemical, where he worked in the
specialty chemicals area in sales and product management, both in the
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United States and overseas. Mr. Grandle also has considerable overseas
experience with ARAMCO in oil field chemicals. Mr. Grandle received his B.S. in
chemistry from the University of California.
David B. Heller, Jr. has been Vice President/General Manager, Process
Industries of GEO since 1997. With more than 20 years of experience in the
chemicals industry, Mr. Heller has held various management positions at Henkel
Corporation, D.B. Western, Melamine Chemicals, W.R. Grace and Johnson Matthey.
Mr. Heller received his B.S. in chemistry from Bucknell University and his
M.B.A. from the University of Pennsylvania.
Michael B. Linscott joined GEO as Vice President/General Manager,
Performance Chemicals in August 1998. Prior to joining GEO, Mr. Linscott was
Director of Marketing and Sales for National Starch and Chemical's Papermaking
Chemicals business, after a career with them in the paper chemicals area of more
than 20 years during which he held a variety of marketing, sales and technical
management positions within the United States and Europe. Mr. Linscott received
his B.S. in chemical engineering from the University of Maine-Orono.
Robert S. Zacker has been Vice President/General Manager, TRIMET Products
of GEO since July 1998 and General Manager of the TRIMET facility in Allentown,
Pennsylvania since 1996. From 1981 to 1996, Mr. Zacker held various positions
with Mallinckrodt Chemical, Inc., including Process Engineer, Regional Sales
Representative, Senior Product Engineer, Production Supervisor and Plant
Manager. Mr. Zacker received his B.S. in chemical engineering from Clemson
University.
Jorge J. Tena has held various positions with Henkel Corporation and
Diamond Shamrock since 1974. Mr. Tena has served as Process Engineer, Group
Leader and Production Manager, as well as Manager of the Harrison, New Jersey
plant. Mr. Tena has also been a management team member for the Paper Coatings
business, which has involved extensive travel to Central and South America. Mr.
Tena received his B.S. in chemical engineering from New York University.
Donald D. Smith has been Manufacturing Manager, Aluminum Products of GEO
since 1996. From 1994 to 1996, Mr. Smith served GEO in various positions,
including Plant Manager of GEO's Baltimore, Maryland facility and Manager of the
Gulf Coast alum plants and the Cytec plants. With 30 years of experience in
chemical manufacturing management, Mr. Smith has also served as district
manufacturing manager at General Chemical Corporation's northern district
aluminum sulfate plants. Mr. Smith received his B.S. from Penn State University.
Anatole G. Penchuk has been a Director of GEO since August 1998. Mr.
Penchuk is currently the Managing Director of Charter Oak Partners, a
Connecticut partnership and the majority shareholder of GEO, and has served in
that position since April 1998. Prior to joining Charter Oak Partners, Mr.
Penchuk held various positions from 1992 to 1998 with The CIT Group, including
Team Leader and Vice President of the Chemicals, Plastics and Forestry Products
Group in its Industrial Finance-Corporate Lending Group, Vice President and
Industry Specialist to the chemicals and plastics industries in its Capital
Equipment Finance Group, and Vice President in its Business Credit Group. Prior
to that, Mr. Penchuk held various management and technical positions with the
Climax Specialty Chemicals and Climax Metals Divisions of Amax, Inc. and the
National Starch and Chemical Division of Unilever Corporation. Mr. Penchuk
received his B.S. in chemistry from the Stevens Institute of Technology, his
M.S. in chemistry from the University of Illinois, and his M.B.A. from Columbia
University.
George W. Rapp, Jr. has been a Director of GEO since 1997. Mr. Rapp is
currently Chairman of the Board of ITM Corporation and a member of the
Management Committee of Metal Power Products, LLC. In the past, Mr. Rapp has
held such positions as Vice President of Marketing & Sales of Brinly Hardy
Company, Advanced Process Systems and Anaconda Aluminum, Senior Vice President
of Arco Metals,
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President of American Brass and Vice Chairman of the Board of Simcala, Inc. Mr.
Rapp received his B.S. in industrial administration from Yale University and his
M.B.A. from the University of Louisville.
A. Elliott Archer has been a Director of GEO since 1997. Mr. Archer is
currently the President and Chief Executive Officer of Metal Powder Products,
LLC and the President and Chief Executive Officer of Archer Industries Group, a
company formed by him to provide equity capital to businesses. In the past, Mr.
Archer held such positions as President of the Chemicals Division of Church and
Dwight Company, Inc., Manager of Strategic Planning for Mobil Chemical Company,
General Manager of the Styrenics business of United States Steel Corp. and
Analytical Chemist for Mobay Chemical Company. Mr. Archer received his B.S. in
chemistry from Marshall University and in 1986 completed the executive program
at Stanford University.
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<PAGE> 45
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows certain information concerning the compensation
paid by GEO during the last three fiscal years to its Chief Executive Officer
and its four other most highly compensated executive officers and managers whose
annual salary and bonus for the fiscal year ended December 31, 1998 exceeded
$100,000.
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- -------- ------- ---------------
<S> <C> <C> <C> <C>
George P. Ahearn 1998 $264,062 $87,500 $25,593
President and Chief 1997 231,286 50,000 22,956
Executive Officer 1996 125,000 -- 12,810
William P. Eckman 1998 $205,969 $66,500 $18,421
Executive Vice President 1997 179,399 38,250 13,523
and Chief Financial Officer 1996 95,000 -- 5,807
Dennis S. Grandle (2) 1998 $137,833 $14,784 $10,239
Vice President/General 1997 115,000 -- 8,725
Manager, Aluminum Products 1996 71,875 -- 3,594
Jorge J. Tena (3) 1998 $103,500 $ -- $ 8,645
Vice President, Manufacturing 1997 68,972 4,553 2,069
1996 -- -- --
David B. Heller, Jr. (4) 1998 $ 99,156 $ 7,369 $ 8,816
Vice President/General 1997 68,571 27,158 2,057
Manager, Process Industries 1996 -- -- --
</TABLE>
- ---------------
(1) Includes contributions made by GEO to its 401(k) retirement plan and defined
contribution retirement plan and, in the case of Messrs. Ahearn and Eckman,
life insurance premiums paid by GEO on behalf of each executive officer.
(2) Mr. Grandle joined GEO as Vice President/General Manager, Aluminum Products
on May 15, 1996.
(3) Mr. Tena joined GEO as Vice President, Manufacturing on March 25, 1997.
(4) Mr. Heller joined GEO as Vice President/General Manager, Process Industries
on March 25, 1997.
EMPLOYMENT AGREEMENTS
GEO has entered into employment agreements with George P. Ahearn, the
President and Chief Executive Officer of GEO, and William P. Eckman, the
Executive Vice President and Chief Financial Officer of GEO. Each of these
agreements was executed on March 25, 1997, extends for a period of five years
from that date and, unless notice is provided by GEO or the employee to the
other party, will be automatically extended for additional one year periods
after the initial term. The respective employment agreements provide that Mr.
Ahearn will be the Chairman, and Mr. Eckman will be a member, of the Board of
Directors of GEO.
Mr. Ahearn's employment agreement entitles him to a base salary of $250,000
per year, which is subject to annual increase based upon the review of the Board
of Directors, bonus compensation, in the first year of the employment term based
on the earnings of GEO and thereafter to be determined by the Board of
Directors, and certain other benefits, including medical and life insurance and
participation in GEO's standard retirement plans. For 1998, Mr. Ahearn received
bonus compensation in the amount of $87,500. If Mr. Ahearn is terminated by GEO
other than for "cause," he is entitled to receive his annual base salary and
benefits for the remainder of the employment term or one year, whichever period
is greater. Mr. Ahearn is prohibited by certain non-competition provisions, for
the duration of the employment term or
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<PAGE> 46
one year after termination of his employment, whichever period is greater, from
either soliciting business from or competing with GEO for the business of any
customer of GEO or becoming involved in any business that competes with GEO.
The terms of Mr. Eckman's employment agreement are substantially identical
to the terms of Mr. Ahearn's employment agreement, except that Mr. Eckman is
entitled to receive an initial base salary of $190,000 per year. Pursuant to the
terms of his employment agreement, for 1998 Mr. Eckman received bonus
compensation in the amount of $66,500.
GEO has also entered into an employment agreement with Dennis S. Grandle,
the Vice President/ General Manager, Aluminum Products of GEO. Mr. Grandle's
employment agreement was executed on May 20, 1996, extended for an initial two
year term from such date and was automatically renewed thereafter for an
indefinite period, subject to either party's right to terminate the agreement
upon thirty days notice. Mr. Grandle's employment agreement entitles him to a
base salary of $115,000 per year, bonus compensation in an amount determined
annually in accordance with GEO's Management Incentive Program and the right to
participate in the general employee benefit programs of GEO. If Mr. Grandle is
terminated by GEO without "cause," he is entitled to receive three months base
salary and certain moving benefits as severance pay. Mr. Grandle is prohibited
by certain proprietary information and non-competition provisions from
disclosing any confidential information of GEO during the employment term and
within five years thereafter and from competing with GEO or soliciting GEO's
customers or employees for a period of one year after termination of the
employment term.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE AND MANAGEMENT COMPENSATION
The Board of Directors of GEO determined the 1998 compensation of Mr.
George P. Ahearn, Mr. William P. Eckman and the operating management of GEO. The
Board of Directors is responsible for the following compensation matters:
- determination of the compensation and bonus arrangements of Messrs.
Ahearn and Eckman;
- approval of the compensation policies and programs for the operating
management and other employees of GEO; and
- administration of the benefit plans in which the executive officers,
operating management and other employees of GEO participate.
The Board of Directors believes that GEO's compensation program should
support the goals and objectives of GEO. These goals and objectives seek to
balance the importance of annual financial performance with long-term growth and
profitability. The Board believes that executive compensation should be strongly
correlated with the overall performance of GEO as well as the compensation paid
by comparable companies. The Board currently uses salary, bonus and various
benefit plans to compensate and motivate its executive officers. The manner of
application of these compensation tools by the Board for individual executive
officers and operating management is based upon the nature and scope of the
particular employee's responsibilities.
The 1998 compensation arrangements of Messrs. Ahearn and Eckman were
governed by employment agreements approved by the Board of Directors in 1997.
These employment agreements provide for (a) annual base salary for Mr. Ahearn in
the amount of $250,000 and for Mr. Eckman in the amount of $190,000, subject in
each case to annual increase based upon the review of the Board, and (b) bonus
compensation for Messrs. Ahearn and Eckman in amounts established annually by
the Board. During 1998, the Board increased Mr. Ahearn's annual base salary to
$268,750 and Mr. Eckman's annual base salary to $209,625. For 1998, Mr. Ahearn
was paid $87,500 and Mr. Eckman was paid $66,500 in bonus
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<PAGE> 47
compensation. In setting these bonus amounts, the Board took into account GEO's
1998 earnings, which on a pro forma basis exceeded both 1997 earnings and the
1998 budget, the individual contributions of Messrs. Ahearn and Eckman to those
earnings and the overall performance of the officers.
The base salary and bonus compensation arrangements of Messrs. Ahearn and
Eckman were determined based upon the compensation history of these employees,
their expected individual contribution to GEO and the compensation paid to the
executive officers of similar companies. The compensation arrangements of the
operating management of GEO for 1998 were determined by GEO in accordance with
these same factors.
The bonus compensation payable to the operating management of GEO is
determined in accordance with GEO's Management Incentive Program. The Management
Incentive Program provides for the payment of certain ranges of bonus
compensation depending upon corporate, business unit and individual performance
levels during the applicable year. GEO awards bonuses when the pre-tax earnings
of GEO and an individual manager's business unit exceed the prior year's pre-tax
earnings. The size of the manager's award is determined by the manager's
contribution to corporate and business unit earnings and achievement of specific
position requirements. The contributions and achievements of GEO's managers, for
purposes of the Management Incentive Program, are determined by the President
and Executive Vice President of GEO based upon the recommendations of each
manager's immediate supervisor. Under the Management Incentive Program, the
managers of GEO are eligible to receive bonus compensation in ranges from 5%-10%
to as high as 10%-30% of base salary. The aggregate amount of bonus compensation
paid to GEO's managers for 1998 under the Management Incentive Program was
$74,119.
The Board administers a number of other benefit plans for its executive
officers and operating management, including a 401(k) retirement plan and
defined contribution retirement plan, and monitors the benefits provided to its
officers and managers under these plans in order to further the goals and
objectives of GEO's compensation program.
Members of the Board of Directors:
George P. Ahearn
William P. Eckman
Anatole G. Penchuk
George W. Rapp, Jr.
A. Elliott Archer
March 23, 1999
INDEMNIFICATION OF DIRECTORS AND OFFICERS
GEO's Code of Regulations requires GEO to indemnify its directors and
officers against expenses, judgments, fines and amounts paid in settlement in
connection with any proceeding, whether civil, criminal, administrative or
investigative, arising by reason of the fact that such person is or was a
director or officer of GEO. These indemnification provisions apply only where
the director or officer acted in good faith and in a manner that the director or
officer reasonably believed to be in or not opposed to GEO's best interests.
Indemnification is not required if the actions of the director or officer were
taken with intent to cause injury to GEO. Indemnification is also not required
if there is a finding of negligence or misconduct on the part of the director or
officer. In criminal actions, indemnification is required only if the director
or officer had no reasonable cause to believe his conduct was unlawful.
GEO's Code of Regulations further provides that GEO will pay in advance of
the final determination of any such proceeding any expenses incurred by the
director or officer in their defense. However, upon any such advance the
director or officer must provide an undertaking to GEO that such director or
officer will
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<PAGE> 48
repay the amount of the advance if it is ultimately determined that the director
or officer is not entitled to be indemnified by GEO. GEO's Code of Regulations
also allows GEO to purchase liability insurance covering any liability that
might be asserted against any director or officer of GEO as a result of their
status as such. Accordingly, GEO maintains director's and officer's liability
insurance in favor of each of the directors and officers of GEO.
KEY PERSON LIFE INSURANCE
GEO currently maintains two term life insurance policies on the life of
George P. Ahearn in the aggregate amount of $2,000,000, and one term life
insurance policy on the life of William P. Eckman in the amount of $600,000. GEO
is the sole beneficiary under each of these insurance policies.
COMPENSATION OF DIRECTORS
GEO pays directors who are not employees of GEO or Charter Oak Partners,
which currently includes George W. Rapp, Jr. and A. Elliott Archer, a fee of
$10,000 per year for service on the Board of Directors. GEO reimburses each of
its directors for reasonable out-of-pocket expenses incurred in connection with
their travel to and attendance at meetings of the Board of Directors.
BOARD OF DIRECTOR INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of GEO determines the salaries and bonus
compensation of GEO's executive officers. George P. Ahearn, the President and
Chief Executive Officer of GEO, and William P. Eckman, the Executive Vice
President and Chief Financial Officer of GEO, are members of the Board of
Directors and participate in the deliberations concerning executive
compensation. However, Messrs. Ahearn and Eckman do not vote with respect to the
determination of their own compensation.
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<PAGE> 49
SHAREHOLDERS
BENEFICIAL OWNERSHIP OF GEO'S COMMON SHARES
The following table shows the number and percent of GEO's common shares
beneficially owned by each shareholder of GEO as of the date of this prospectus.
GEO believes that the persons and entities listed in the table have sole voting
and investment power as to all common shares shown as beneficially owned by
them, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF GEO'S COMMON
SHARES
--------------------
NAME AND ADDRESS NUMBER OF
OF BENEFICIAL OWNER SHARES PERCENT
------------------- --------- -------
<S> <C> <C>
Charter Oak Partners (1).................................... 85.431 62.89%
Building B, 10 Wright Street
Westport, Connecticut 06880
Charter Oak Capital Partners, L.P. (2)...................... 21.478 15.81%
Building B, 10 Wright Street
Westport, Connecticut 06880
GEO Chemicals, Ltd. (3)..................................... 25.994 19.14%
28601 Chagrin Boulevard
Cleveland, Ohio 44122
George P. Ahearn............................................ 2.146 1.58%
28601 Chagrin Boulevard
Cleveland, Ohio 44122
George W. Rapp, Jr.......................................... 0.608 0.45%
Building B, 10 Wright Street
Westport, Connecticut 06880
A. Elliott Archer........................................... 0.178 0.13%
Building B, 10 Wright Street
Westport, Connecticut 06880
Directors and executive officers as a group (4 persons)
(4)....................................................... 28.926 21.30%
</TABLE>
- ---------------
(1) Charter Oak Partners is a Connecticut partnership with four partners, each
of which is an individual. Mr. Jerrold N. Fine is the Managing Partner of
and holds a majority interest in Charter Oak Partners. Mr. Fine's business
address is Building B, 10 Wright Street, Westport, Connecticut 06880.
(2) Charter Oak Capital Partners, L.P. is a Delaware limited partnership with 42
partners, including its general partner, North Fairfield LLC, which has two
members. Mr. Jerrold N. Fine is the Managing Member of and holds a majority
interest in North Fairfield LLC. Mr. Fine's business address is Building B,
10 Wright Street, Westport, Connecticut 06880.
(3) George P. Ahearn and William P. Eckman are the sole members of GEO
Chemicals, Ltd., which is an Ohio limited liability company. Mr. Ahearn
holds a percentage interest in GEO Chemicals, Ltd. of approximately 62%, and
Mr. Eckman holds a percentage interest in GEO Chemicals, Ltd. of
approximately 38%.
(4) Includes the shares beneficially owned by Messrs. Ahearn and Eckman as the
sole members of GEO Chemicals, Ltd.
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<PAGE> 50
SHAREHOLDERS AGREEMENT
GEO's shareholders are bound by a shareholders agreement which governs the
relationships between the shareholders and GEO. Under the shareholders
agreement, the shareholders may not transfer their shares to any third-party
unless they first offer such shares to the existing shareholders. In no case may
shares be transferred to any of GEO's competitors. Upon the death, disability or
termination of employment of Messrs. Ahearn or Eckman, GEO has the right to
repurchase the shares held by these employees directly or indirectly through GEO
Chemicals, Ltd. Upon their death, disability or termination without cause,
Messrs. Ahearn and Eckman have the right to require GEO to repurchase the shares
held by them. GEO's ability to make such repurchases is limited by both the
indenture that will govern the offered notes and its senior credit facility. The
indenture provides that such repurchases may not exceed $750,000 in any calendar
year plus the aggregate cash proceeds from any applicable life insurance
policies for which GEO is the beneficiary. The senior credit facility provides
that GEO may not issue more than $5.0 million of promissory notes to Messrs.
Ahearn and Eckman in connection with all such repurchases.
The shareholders agreement provides that Charter Oak Partners may not
transfer more than 50% of GEO's stock without the approval of four of the five
directors of GEO. If Charter Oak Partners obtains such approval, it can compel
the other shareholders to transfer their shares as part of the same transaction
on the same terms. If Charter Oak Partners obtains such approval but does not
invoke its "drag-along" rights, the other shareholders may elect to sell their
shares in the same transaction as Charter Oak Partners.
If GEO decides to sell any stock in a public offering under the federal
securities laws, the shareholders have the right to have their shares registered
as part of the offering. Upon the issuance of any new stock by GEO, the
shareholders have the right to purchase a portion of such stock equal to their
percentage ownership of GEO.
The shareholders agreement provides that GEO's Board of Directors shall
consist of five members. Three members are to be designees of Charter Oak
Partners. The remaining two members are to be Mr. Ahearn, for as long as he is
an employee of GEO or a shareholder after being terminated without cause, and
Mr. Eckman, for as long as he is employed by GEO. Mr. Ahearn may designate his
successor on the board as long as he remains President and Chief Executive
Officer of GEO. The current designees of Charter Oak Partners serving on the
Board are Anatole G. Penchuk, George W. Rapp, Jr. and A. Elliott Archer.
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<PAGE> 51
DESCRIPTION OF GEO'S SENIOR CREDIT FACILITY
Concurrently with the closing of the TRIMET acquisition and the offering of
the outstanding notes, GEO entered into an amended and restated credit agreement
with various financial institutions and Bankers Trust Company, as the
administrative agent, providing for a new $25.0 million senior revolving credit
facility. GEO used approximately $2.4 million under the senior credit facility
to fund a portion of the TRIMET acquisition, the refinancing of its former
credit facility and the payment of fees and expenses incurred in connection with
the issuance of the outstanding notes.
The obligations of GEO under the senior credit facility are secured by a
first priority security interest on all tangible and intangible assets of GEO.
In addition, the senior credit facility will be, under the terms of the
indenture that will govern the offered notes, expressly senior in right of
payment to the offered notes. As of December 31, 1998, GEO had no indebtedness
outstanding under the senior credit facility.
The senior credit facility allows GEO to obtain revolving credit loans to
fund ongoing general corporate purposes, including working capital. All
commitments will terminate, and all revolving loans under the senior credit
facility will mature, on July 31, 2003. GEO's borrowings under the senior credit
facility bear interest, at GEO's option, at:
- 1.25% above the higher of an adjusted certificate of deposit
rate plus 0.5% or the prime lending rate of Bankers Trust
Company; or
- an adjusted Eurodollar rate plus 2.25%.
Amounts borrowed under the senior credit facility may be repaid and
reborrowed before the final maturity date. GEO is required to pay the lenders
under the senior credit facility a commission equal to 0.5% per year, payable in
arrears on a quarterly basis, on the daily average unused portion of the senior
credit facility. For each letter of credit issued to GEO, it must pay the
lenders a fee equal to 2.25% of the daily stated amount of the letter of credit
per year. GEO must also pay to each lender issuing a letter of credit, a facing
fee of 0.25% on the daily stated amount of the letter of credit and customary
charges in connection with the issuance, payment or amendment of any letter of
credit.
The financial ratios that GEO must maintain under the senior credit
facility include a minimum interest coverage ratio and a maximum leverage ratio.
The interest coverage ratio is the ratio of adjusted earnings to adjusted
interest expense for GEO's most recent quarterly period. The interest coverage
ratio that GEO is required to maintain increases every six months until March
31, 2000. The required ratio is currently 1.75 to 1.00 and will rise to 2.00 to
1.00 on September 30, 1999 and 2.25 to 1.00 on March 31, 2000.
The leverage ratio is the ratio of adjusted indebtedness to adjusted
earnings for GEO's most recent quarterly period. The leverage ratio that GEO may
not exceed is lowered every six months until September 30, 2000. The required
ratio is currently 5.50 to 1.00 and will fall to 5.25 to 1.00 on September 30,
1999, 5.00 to 1.00 on March 31, 2000 and 4.75 to 1.00 on September 30, 2000.
After December 31, 2000, the required ratio will be 4.50 to 1.00.
The senior credit facility contains customary covenants restricting the
actions that GEO may take. These covenants restrict GEO's ability to:
- merge or consolidate with another entity or dispose of all or
part of its assets;
- make acquisitions exceeding $10 million in aggregate value;
- incur or assume any indebtedness other than "permitted"
indebtedness, which includes the offered notes, up to $5.0
million of promissory notes pursuant to GEO's requirements under
its shareholders agreement, and up to $10.0 million of
additional indebtedness;
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<PAGE> 52
- create or incur liens on its assets;
- establish or acquire any subsidiaries, except for wholly owned
subsidiaries that guarantee payment of the senior credit
facility;
- make capital expenditures exceeding $10.0 million in any fiscal
year;
- make investments;
- pay dividends to its shareholders, repurchase any shares of its
capital stock, or enter into transactions with its affiliates;
and
- liquidate or dissolve its affairs.
The senior credit facility also contains customary events of default,
including: the nonpayment of principal, interest or fees; violation of
covenants; inaccuracy of representations or warranties in any material respect;
default under certain other indebtedness; bankruptcy; material judgments; and
certain changes of control of GEO. The senior credit facility also contains
customary events of default, including: the nonpayment of principal, interest or
fees; violation of covenants; inaccuracy of representations or warranties in any
material respect; bankruptcy; material judgments; default under any other
indebtedness of GEO; and a change of control of GEO.
Under the senior credit facility, a change of control will occur if:
- the current shareholders cease to own a majority of GEO's voting
stock;
- any person, other than a current shareholder, becomes the owner
of more than 30% of GEO's voting stock at a time when the
current shareholders do not have the right to elect a majority
of GEO's board of directors;
- more than a majority of GEO's board of directors, during any two
year period, are replaced and the replacements are not approved
by GEO's current directors then still in office or the current
shareholders; or
- a change of control occurs under the indenture.
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<PAGE> 53
THE EXCHANGE OFFER
REGISTRATION RIGHTS AGREEMENT
In connection with the issuance of the outstanding notes, GEO entered into
a registration rights agreement with the initial purchaser of the outstanding
notes. The registration rights agreement requires GEO to register the offered
notes under the federal securities laws and offer to exchange such notes with
the holders of the outstanding notes. The offered notes will be issued without a
restrictive legend and generally may be resold without registration under the
federal securities laws. GEO is effecting the exchange offer to comply with the
registration rights agreement.
The registration rights agreement requires GEO to:
- file a registration statement for the exchange offer and the
offered notes on or before March 13, 1999;
- cause the registration statement filed for the exchange offer
and the offered notes to be declared effective by the SEC on or
before April 27, 1999; and
- complete the exchange offer on or before May 27, 1999.
These requirements under the registration rights agreement will be
satisfied when GEO completes the exchange offer. However, if GEO fails to meet
any of these requirements, it must pay additional interest on the outstanding
notes until the applicable requirement has been met. GEO will be required to pay
additional interest at the rate of 0.25% per year for each requirement that it
fails to meet. GEO must pay an additional 0.25% per year for each 90 days that a
requirement has not been met. However, GEO will not be required to pay more than
2.0% per year in additional interest on the outstanding notes. Additional
interest will not accrue after the completion of the exchange offer.
Under the registration rights agreement, GEO's obligations to register the
outstanding notes and the offered notes will terminate upon the completion of
the exchange offer. However, GEO will be required to file a "shelf" registration
statement for a continuous offering by the holders of the outstanding notes if:
- because of any change in law or position of the SEC, GEO cannot
effect the exchange offer;
- the exchange offer is not completed by May 27, 1999; or
- any holder of at least $5.0 million of offered notes does not
receive freely transferable notes in the exchange offer.
If GEO is required to file a "shelf" registration statement, it will be required
to keep such registration statement effective for at least two years. Other than
as described above, no holder will have the right to require GEO to file a
"shelf" registration statement or otherwise register such holder's notes under
the federal securities laws.
This summary includes only the material terms of the registration rights
agreement. For a full description, you should refer to the complete copy of the
registration rights agreement, which has been filed as an exhibit to the
registration statement for the exchange offer and the offered notes.
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<PAGE> 54
TRANSFERABILITY OF THE OFFERED NOTES
Based on the position of the SEC stated in a series of no-action letters,
GEO believes that the offered notes may be resold by you, or any other person
receiving such notes, without compliance with the registration and prospectus
delivery requirements of the federal securities laws, if:
- you, or the person or entity receiving such notes, are acquiring
the offered notes in the ordinary course of business;
- neither you nor any such person or entity is engaging in or
intends to engage in a distribution of the offered notes;
- neither you nor any such person or entity has an arrangement or
understanding with any person or entity to participate in any
distribution of the offered notes;
- neither you nor any such person or entity is an "affiliate" of
GEO, within the meaning of the federal securities laws; and
- you are not acting on behalf of any person or entity who could
not truthfully make these statements.
To participate in the exchange offer, you must represent as the holder of
outstanding notes that each of these statements is true. Any noteholder who
tenders in the exchange offer to participate in a distribution of the offered
notes cannot rely on this interpretation by the SEC. Such persons must comply
with the registration and prospectus delivery requirements of the federal
securities laws to resell any of the offered notes.
Broker-dealers receiving offered notes in exchange for outstanding notes
acquired for their own account through market-making or other trading activities
may not rely on this interpretation by the SEC. Such broker-dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933 and
must therefore deliver a prospectus in connection with any resale of the offered
notes. Such broker-dealers must acknowledge, by signing the letter of
transmittal, that they will deliver a prospectus meeting the requirements of the
Securities Act of 1933 in connection with any such resale. 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 of 1933. For 60 days
after the expiration of the exchange offer, GEO will make this prospectus
available to broker-dealers for use in such resales. See "Plan of Distribution."
EFFECT OF NOT TENDERING
After the completion of the exchange offer, the outstanding notes will
remain subject to restrictions on transfer. Since the outstanding notes have not
been registered under the federal securities laws, they bear a legend
restricting their transfer absent registration or the availability of a specific
exemption from registration. The holders of outstanding notes not tendered into
the exchange offer will have no further registration rights, except for the
limited registration rights described above under the heading "Registration
Rights Agreement." Accordingly, upon the completion of the exchange offer, the
liquidity of the market for the outstanding notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER; ACCEPTANCE OF TENDERED NOTES
GEO will accept any of its outstanding notes validly tendered and not
validly withdrawn before 12:00 midnight, Eastern Standard Time, on
, 1999, subject to the conditions of the exchange offer. GEO will
issue $1,000 principal amount of the offered notes in exchange for each $1,000
principal amount of outstanding notes accepted in the exchange offer.
Noteholders may tender some or all of their notes
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pursuant to the exchange offer. However, noteholders may only tender outstanding
notes in $1,000 increments.
The terms of the offered notes are substantially identical to the terms of
the outstanding notes, except that the offered notes have been registered under
the federal securities laws and will not bear any legend restricting their
transfer. The offered notes will represent the same debt as the outstanding
notes and will be issued under the same indenture.
As of the date of this prospectus, outstanding notes representing $120.0
million in aggregate principal amount were outstanding and there was one
registered holder, a nominee of the Depository Trust Company. This prospectus
and the letter of transmittal are being sent to DTC and to others believed to
have beneficial interests in the outstanding notes. GEO intends to conduct the
exchange offer in accordance with the applicable requirements of the federal
securities laws.
GEO will be deemed to have accepted validly tendered notes when it notifies
the exchange agent of its acceptance. The exchange agent will act as agent for
the tendering holders for the purpose of receiving the offered notes from GEO.
If any tendered notes are not accepted for exchange because of an invalid tender
or otherwise, the exchange agent will return the applicable certificates without
expense to the tendering noteholder promptly after the expiration of the
exchange offer.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees as part of the exchange offer.
Tendering noteholders will also not be required to pay transfer taxes in the
exchange offer. GEO will pay all charges and expenses in connection with the
exchange offer. However, GEO will not pay any taxes incurred in connection with
a noteholder's request to have offered notes or nonexchanged notes issued in the
name of person other than the registered holder. See "Transfer Taxes" in this
section below.
EXPIRATION DATE; EXTENSIONS; AMENDMENT
The exchange offer will expire at 12:00 midnight, Eastern Standard Time, on
, 1999, unless GEO extends the exchange offer. To extend the
exchange offer, GEO will notify the exchange agent and each registered holder of
any extension before 9:00 a.m., Eastern Standard Time, on the next business day
after the previously scheduled expiration date. GEO reserves the right to extend
the exchange offer. GEO also reserves the right to delay accepting any tendered
notes or, if any of the conditions described below under the heading "Conditions
to the Exchange Offer" have not been satisfied, to terminate the exchange offer.
GEO will give oral or written notice of such delay, extension or termination to
the exchange agent. GEO also reserves the right to amend the terms of the
exchange offer in any manner.
PROCEDURES FOR TENDERING
Only holders of outstanding notes may tender such notes into the exchange
offer. To tender notes into the exchange offer, you must use one of the
following methods.
- Complete the letter of transmittal provided with this
prospectus, obtain all required signature guarantees, and
deliver the letter of transmittal to the exchange agent before
the expiration of the exchange offer.
- IF YOU HOLD YOUR NOTES THROUGH DTC, YOU MAY ACCEPT THE EXCHANGE
OFFER THROUGH DTC'S AUTOMATED TENDER OFFER PROGRAM, AS DESCRIBED
BELOW UNDER THE HEADING "BOOK-ENTRY TRANSFER."
- Follow the book-entry transfer procedures described below under
the heading "Book-Entry Transfer."
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- Follow the guaranteed delivery procedures described below under
the heading "Guaranteed Delivery Procedures."
All tenders not withdrawn before the expiration of the exchange offer will
constitute an agreement between the noteholder and GEO in accordance with the
terms described in this prospectus and the letter of transmittal.
The method of delivery of outstanding notes and the letter of transmittal
and all other required documents to the exchange agent is at the election and
risk of the noteholder. Instead of delivery by mail, you should use an overnight
or hand delivery service. In all cases, you should allow for sufficient time to
ensure delivery to the exchange agent before the expiration of the exchange
offer. You may request your broker, dealer, commercial bank, trust company or
nominee to effect these transactions for you. YOU SHOULD NOT SEND ANY NOTE,
LETTER OF TRANSMITTAL OR OTHER REQUIRED DOCUMENT TO GEO.
If your notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you desire to tender, you should:
- contact the registered holder promptly and instruct the
registered holder to tender on your behalf; or
- if you wish to tender on your own behalf, before completing and
executing the letter of transmittal and delivering your notes,
either make appropriate arrangements to register ownership of
the outstanding notes in your name or obtain a properly
completed bond power from the registered holder.
Please note, however, that the transfer of registered ownership may take
considerable time.
The exchange of notes will be made only after timely receipt by the
exchange agent of certificates for outstanding notes, a letter of transmittal
and all other required documents, or timely completion of a book-entry transfer.
If any tendered notes are not accepted for any reason or if outstanding notes
are submitted for a greater principal amount than the holder desires to
exchange, the exchange agent will return such unaccepted or nonexchanged notes
to the tendering noteholder promptly after the expiration or termination of the
exchange offer. In the case of outstanding notes tendered by book-entry
transfer, the exchange agent will credit the nonexchanged notes to an account
maintained with DTC.
GUARANTEE OF SIGNATURES
Noteholders must obtain a guarantee of all signatures on a letter of
transmittal or a notice of withdrawal unless the outstanding notes are tendered:
- by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the letter of transmittal; or
- for the account of an "eligible guarantor institution"
Signature guarantees must be made by an "eligible guarantor institution," which
generally includes: banks; brokers and dealers; credit unions; national
securities exchanges; registered securities associations; learning agencies; and
savings associations.
SIGNATURE ON THE LETTER OF TRANSMITTAL; BONDS POWERS AND ENDORSEMENTS
If the letter of transmittal is signed by a person other than the
registered holder of the outstanding notes, the registered holder must endorse
the outstanding notes or provide a properly completed bond power. Any such
endorsement or bond power must be signed by the registered holder as that
registered
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<PAGE> 57
holder's name appears on the outstanding notes. Signatures on such outstanding
notes and bond powers must be guaranteed by an "eligible guarantor institution."
If you sign the letter of transmittal or any outstanding notes or bond
power as a trustee, executor, administrator, guardian, attorney-in-fact, officer
of a corporation, fiduciary or in any other representative capacity, you must so
indicate when signing. You must submit satisfactory evidence to the exchange
agent of your authority to act in such capacity.
DETERMINATION OF VALID TENDERS; GEO'S RIGHTS UNDER THE EXCHANGE OFFER
All questions as to the validity, form, eligibility, time of receipt,
acceptance and withdrawal of tendered notes will be determined by GEO, which
determination will be final and binding on all parties. GEO reserves the right
to reject any outstanding notes not properly tendered or any outstanding notes
the acceptance of which would, in the opinion of counsel for GEO, be unlawful.
GEO also reserves the right to waive any defects, irregularities or conditions
of tender for any tendered note. GEO's interpretation of the terms of the
exchange offer will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of outstanding notes must
be cured by the tendering noteholder within such time as GEO determines.
Although GEO intends to notify noteholders of defects or irregularities in
tenders of outstanding notes, GEO will not be liable for any failure to give
such notification. Noteholders will be deemed to have tendered outstanding notes
only when such defects or irregularities have been cured or waived. The exchange
agent will return to the tendering noteholder, after the expiration of the
exchange offer, any outstanding notes that are not properly tendered and as to
which the defects have not been cured or waived.
In addition, GEO reserves the right to terminate the exchange offer or
purchase any outstanding notes that are not tendered into the exchange offer.
GEO's termination rights are described below under the heading "Conditions to
the Exchange Offer." GEO may, to the extent permitted by law, purchase some or
all of the outstanding notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such offers or purchases could
differ from the terms of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the
outstanding notes at DTC within two business days after the date of this
prospectus. Any financial institution that is a participant in DTC's systems may
make book-entry delivery of tendered notes by causing DTC to transfer such notes
into the exchange agent's account in accordance with DTC's book-entry transfer
procedures. However, even if delivery of outstanding notes if effected through
book-entry transfer at DTC, noteholders must complete a letter of transmittal
and transmit it to the exchange agent before the expiration of the exchange
offer, unless:
- the exchange offer is accepted through DTC's Automated Tender
Offer Program described in the next paragraph; or
- the guaranteed delivery procedures described in the next section
are complied with.
To accept the exchange offer through DTC's Automated Tender Offer Program,
participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed letter of transmittal. DTC is
obligated to communicate those electronic instructions to the exchange agent. To
tender outstanding notes through the Automated Tender Offer Program, the
electronic instructions sent to DTC and transmitted by DTC to the exchange agent
must contain the character by which the participant acknowledges to be bound by
the letter of transmittal.
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GUARANTEED DELIVERY PROCEDURES
If your notes are currently unavailable or insufficient time exists for you
to tender your notes or complete the procedure for book-entry transfer, you may
tender your notes by taking each of the following steps.
- You must effect your tender through an "eligible guarantor
institution," which is defined above under the heading
"Procedures for Tendering."
- The exchange agent must receive from the "eligible guarantor
institution," before the expiration of the exchange offer, a
properly completed letter of transmittal and notice of
guaranteed delivery by telegram, telex, facsimile transmission,
mail or hand delivery.
- The notice of guaranteed delivery, which has been provided with
this prospectus, must:
c include the name and address of the holder of the
outstanding notes and the amount of notes tendered;
c state that the tender is being made by the notice of
guaranteed delivery; and
c guarantee that within three New York Stock Exchange
trading days after the date of execution of the notice
of guaranteed delivery, the certificates for all
tendered notes or a book-entry confirmation, and any
other documents required by the letter of transmittal,
will be sent by the "eligible guarantor institution" to
the exchange agent.
- Certificates for all tendered notes or a book-entry
confirmation, and any other documents required by the letter of
transmittal, must be received by the exchange agent within three
New York Stock Exchange trading days after the date of execution
of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
Noteholders may withdraw tendered notes at any time before 12:00 midnight,
Eastern Standard Time, on , 1999. For a withdrawal to be effective, a
written notice of withdrawal must be received by the exchange agent before the
expiration of the exchange offer. For DTC participants, a written notice of
withdrawal may be made by electronic transmission through DTC's Automated Tender
Offer Program. Any notice of withdrawal must:
- specify the name of the person having tendered the notes to be
withdrawn;
- identify the notes to be withdrawn, including the certificate
number(s) and principal amount of such notes;
- be signed by the noteholder in the same manner as the original
signature on the letter of transmittal by which such notes were
tendered, with any required signature guarantees, or be
accompanied by documents of transfer sufficient to transfer such
notes into the name of the person withdrawing the tender; and
- specify the name in which any such notes are to be registered,
if different from that of the registered holder.
All questions as to the validity, form, eligibility and time of receipt of
such notices will be determined by GEO, whose determination will be final and
binding on all parties. Any withdrawn notes will be deemed to not have been
validly tendered for purposes of the exchange offer. The exchange agent will
return any withdrawn notes without cost to the noteholder promptly after
withdrawal of the notes. Noteholders may
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retender properly withdrawn notes at any time before the expiration of the
exchange offer by following one of the procedures described above under the
heading "Procedures for Tendering."
CONDITIONS TO THE EXCHANGE OFFER
GEO will not be required to complete the exchange offer and may terminate
or amend it if, at any time before the acceptance or exchange of notes, GEO
determines that the exchange offer violates any applicable law or interpretation
of the SEC or any order of any court or governmental agency. These conditions
are for the sole benefit of GEO and may be asserted or waived by GEO at any time
in its sole discretion. GEO's failure to exercise any of these rights at any
time will not be deemed a waiver of such rights. These rights will be ongoing
and may be asserted by GEO at any time.
In addition, GEO will not be required to complete the exchange offer if any
stop order is threatened or issued with respect to (a) the registration
statement for the exchange offer and the offered notes or (b) the qualification
of the indenture under the Trust Indenture Act of 1939. In any such event, GEO
must use its reasonable best efforts to obtain the withdrawal of the stop order
at the earliest possible moment.
TRANSFER TAXES
Noteholders who tender outstanding notes will not be obligated to pay any
transfer taxes in connection with their tender. However, holders who instruct
GEO to (a) register offered notes in the name of a person other than the
registered holder or (b) request that outstanding notes not tendered or accepted
for exchange be returned to a person other than the registered holder will be
responsible for the payment of any transfer tax arising from such transfer.
THE EXCHANGE AGENT
The Chase Manhattan Bank is serving as the exchange agent for the exchange
offer. ALL EXECUTED LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE EXCHANGE AGENT
AT ONE OF THE ADDRESSES LISTED BELOW. Questions, requests for assistance and
requests for additional copies of this prospectus or the letter of transmittal
should be directed to the exchange agent at one of the addresses or telephone
numbers listed below.
THE CHASE MANHATTAN BANK
<TABLE>
<S> <C> <C>
By Courier: By Hand: By Registered Mail:
Chase Bank of Texas, N.A. The Chase Manhattan Bank Chase Bank of Texas, N.A.
Corporate Trust Services Corporate Trust-Securities Corporate Trust Services
1201 Main Street, 18th Floor Window P.O. Box 219052
Dallas, TX 75202 55 Water Street Dallas, TX 75221-9053
Room 234, North Building
New York, NY 10041
</TABLE>
By Facsimile: (214) 672-5932
Confirm by Telephone: (214) 672-5678 or (212) 946-3487
Originals of all documents sent by facsimile should be promptly sent to the
exchange agent by registered or certified mail, by hand, or by overnight
delivery service.
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DESCRIPTION OF THE OFFERED NOTES
GEO'S ISSUANCE OF THE OFFERED NOTES;
THE INDENTURE THAT WILL GOVERN THE OFFERED NOTES
GEO will issue the offered notes under the same indenture as the
outstanding notes. GEO entered into the indenture on July 31, 1998 with Chase
Manhattan Trust Company, National Association, the trustee under the indenture.
GEO will furnish a copy of the indenture, upon request, to any holder of the
outstanding or offered notes. Upon the completion of the exchange offer, the
indenture will be governed by the Trust Indenture Act of 1939.
GEO will issue the offered notes in fully registered form only, without
coupons, in $1,000 increments. The trustee under the indenture will act as the
paying agent and registrar for the offered notes. Noteholders may present notes
for registration of transfer at the offices of the registrar, which initially
will be the trustee's corporate trust office. No service charge will be made for
any registration of transfer of the offered notes. However, GEO may require
payment of a sum sufficient to cover any transfer tax or other similar charge
payable in connection with any such transfer.
The offered notes and any of the outstanding notes that are not tendered
into the exchange offer will be treated as a single class of securities under
the indenture. Accordingly, references in this section of the prospectus to
"notes" include the offered notes and any of the outstanding notes that are not
tendered into the exchange offer, unless otherwise indicated. The following
sections summarize only the material terms of the indenture and the notes. For a
full description, you should refer to the complete copy of the indenture, which
has been filed as an exhibit to the registration statement for the exchange
offer and the offered notes. You should also refer to the Trust Indenture Act of
1939, specific terms of which are made a part of the indenture by reference.
PRINCIPAL, MATURITY AND INTEREST
The notes are limited in aggregate principal amount to $200.0 million. Up
to $120.0 million in aggregate principal amount will be issued in the exchange
offer. The notes will mature on August 1, 2008. Additional notes may be issued
from time to time, subject to:
- the limitations in the indenture on GEO's incurrence of
additional debt, which are described in this section below under
heading "Limitation on Incurrence of Additional Debt"; and
- the restrictions contained in GEO's senior credit facility,
which are described in the section of the prospectus entitled
"Description of GEO's Senior Credit Facility."
Interest on the notes will accrue at the rate of 10 1/8% per annum and will be
payable in cash semi-annually in arrears on February 1 and August 1 of each
year. Interest will be paid to the registered noteholders as of the close of
business on the 15th day of the month immediately preceding the applicable
interest payment date.
Interest on the offered notes will accrue from the date of the last
periodic payment of interest on the outstanding notes. GEO will make all
payments on the offered notes at the trustee's designated corporate trust
office. GEO may pay interest at the trustee's corporate trust office or by check
mailed to the noteholders. GEO may change the paying agent and registrar without
notice to the noteholders.
The indenture does not require GEO to set aside any funds for the payment
of principal due upon the maturity of the notes.
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REDEMPTION
Optional Redemption. GEO may redeem the notes, in any amount and at any
time, on and after August 1, 2003. Any redemption must be made at the prices
listed below, plus accrued and unpaid interest to the date of redemption. These
prices are applicable commencing on August 1 of the year listed. The redemption
prices are expressed as percentages of the principal amount of the notes.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 105.063%
2004........................................................ 103.375%
2005........................................................ 101.688%
2006 and thereafter......................................... 100.000%
</TABLE>
Optional Redemption Upon Public Equity Offerings. GEO may, at any time on
or before August 1, 2001, use the cash proceeds of one or more public equity
offerings to redeem up to 35% of the notes at a redemption price equal to
110.125% of the principal amount of such notes, plus accrued and unpaid interest
to the date of redemption. However, GEO may make such a redemption only if at
least 65% of the principal amount of the notes originally issued remain
outstanding immediately after the redemption. To make such a redemption, GEO
must do so within 90 days after the completion of a public equity offering.
SELECTION AND NOTICE OF REDEMPTION
Selection of Notes for Redemption. If less than all of the notes are to be
redeemed at any time, the trustee will select notes for redemption:
- in compliance with the requirements of the national securities
exchange on which the notes are listed; or
- if the notes are not listed on a national securities exchange,
on a pro rata basis, by lot or by a method the trustee considers
fair and appropriate.
No notes of a principal amount of $1,000 or less will be redeemed in part. In
addition, if a partial redemption is made with the proceeds of a public equity
offering, selection of the notes or portions of notes for redemption will be
made by the trustee on a pro rata basis or on as nearly a pro rata basis as
possible.
Notice of Redemption. GEO must provide any notice of redemption by
first-class mail at least 30 days but not more than 60 days before the
redemption date to each noteholder whose notes are to be redeemed. If any note
is to be redeemed in part, the notice of redemption will state the portion of
the note to be redeemed. In any such case, a new note in an amount equal to the
unredeemed portion will be issued in the name of the noteholder upon
cancellation of the partially-redeemed note. After the redemption date, interest
will cease to accrue on notes or the portions of notes called for redemption as
long as GEO has deposited the redemption price with the paying agent.
SUBORDINATION
The notes are unsecured senior subordinated obligations of GEO. The payment
of all obligations on the notes is subordinated in right of payment to the prior
payment in full of GEO's senior debt, including its senior credit facility. Upon
any liquidation, bankruptcy, insolvency or other similar proceeding of GEO, all
obligations on GEO's senior debt must first be paid in full before any payment
is made on the notes. In the event of the insolvency of GEO, because of the
subordination of the notes, holders of the notes may recover less, ratably, than
the holders of GEO's senior debt. As of December 31, 1998, GEO had no senior
debt outstanding, excluding the unused availability of $25.0 million under its
senior credit facility.
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If any default occurs in the payment of any amounts under any of GEO's
senior debt, GEO may not make any payment on the notes. In addition, GEO may not
make any payment on or acquire any of the notes for a period of 180 days if:
- any other event of default exists under any "designated senior
debt" of GEO, permitting such debt to be accelerated; and
- the representative for the "designated senior debt" gives
written notice of the default to the trustee.
GEO currently has no "designated senior debt" other than its senior credit
facility. A blockage period may not extend beyond 180 days and only one blockage
period may start within any 360 day period. No event of default which existed at
the start of any blockage period can be the basis for the start of a second
blockage period, unless such event of default has been cured or waived for at
least 90 days.
CHANGE OF CONTROL
Rights of the Noteholders Upon Change of Control. Upon a change of control
of GEO, each noteholder can require GEO to repurchase all or a portion of the
noteholder's notes. The purchase price applicable to such repurchase would be
101% of the principal amount of the notes, plus accrued and unpaid interest to
the date of purchase. Within 30 days after any change of control, GEO must (a)
offer to repay in full and terminate all commitments under all of GEO's senior
debt and repay the amounts owed to each lender which accepts the offer or (b)
obtain all consents required under its senior debt necessary to repurchase the
notes. Neither GEO nor the trustee may waive the noteholder's right to
redemption upon a change of control of GEO.
Within 30 days after the change of control, GEO must send a notice by
first-class mail to each noteholder and the trustee. This notice will govern the
terms of GEO's offer. The notice must include the purchase date, which must be
no earlier than 30 days nor later than 45 days from the date the notice is sent.
GEO can provide no assurance that, upon a change of control, it will have
sufficient funds available to pay the purchase price for all the notes that it
must repurchase. Upon a change of control, GEO expects that it would seek third
party financing to the extent it lacks sufficient funds to meet its purchase
obligations. However, GEO can provide no assurance that it would be able to
obtain such financing on satisfactory terms, if at all.
Events that Constitute A Change of Control. A change of control of GEO
will occur if:
- GEO sells or transfers all or substantially all of its assets
other than to an existing shareholder;
- a person or entity, other than an existing shareholder, acquires
more than 50% of the voting power of GEO's equity;
- more than a majority of GEO's board members, in any two year
period, are replaced and the replacements are not approved by
GEO's current board members then still in office; or
- GEO's shareholders adopt a plan for the liquidation or
dissolution of GEO.
Effect of the Indenture on Takeover Attempts. Restrictions in the
indenture on GEO's ability to incur additional debt, incur liens and sell assets
may make more difficult a takeover of GEO, whether favored or opposed by
management. The completion of any such transaction may require redemption or
repurchase of the notes. GEO can provide no assurance that it or any acquiring
party will have sufficient funds to effect any such redemption or repurchase. In
addition, the restrictions in the indenture, including the restrictions
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<PAGE> 63
on transactions with affiliates, may make more difficult or discourage any
leveraged buyout of GEO by management. Such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions. However, the indenture may not protect noteholders in all
circumstances from the adverse aspects of a highly leveraged transaction.
COVENANTS RESTRICTING GEO'S BUSINESS AND OPERATIONS
The indenture contains the following covenants which restrict the conduct
of GEO's business and operations while the notes are outstanding.
Prohibition on Incurrence of Senior Subordinated Debt. GEO may not incur
any debt that is both senior in right of payment to the notes and subordinate in
right of payment to any other debt of GEO. GEO is not prohibited from incurring
debt that is either senior to the offered notes or on an equal basis with the
offered notes. However, the indenture limits GEO's incurrence of such debt in
provisions described in the next paragraph. As of December 31, 1998, GEO had
outstanding:
- no senior debt, excluding the unused availability of $25.0
million under its senior credit facility;
- no senior subordinated debt, other than the outstanding notes;
and
- $760,000 of debt, incurred in the 1994 acquisition of the assets
of Courtney Industries, Inc., that is subordinate to the senior
credit facility but on an equal basis with the outstanding
notes.
Limitation on Incurrence of Additional Debt. GEO may not incur any debt or
obligation for borrowed money, including any debt assumed as part of an
acquisition, unless:
- no event of default exists under the indenture; and
- after giving effect to the incurrence of the additional debt,
the consolidated fixed charge coverage ratio of GEO is greater
than 2.0 to 1.0.
The "consolidated fixed charge coverage ratio" of GEO means the ratio of its
adjusted earnings, on a consolidated basis, to its fixed charges of GEO, on a
consolidated basis, for the four most recent fiscal quarters. GEO may incur
"permitted" debt, which includes amounts under GEO's senior credit facility,
capital lease and purchase money obligations of $5.0 million or less, and other
debt not to exceed $10.0 million at any time outstanding.
Limitation on Restricted Payments. GEO may not make any "restricted
payment" if, before or after such restricted payment:
- an event of default exists under the indenture;
- GEO's consolidated fixed charge coverage ratio is less than 2.0
to 1.0; or
- the total restricted payments made since the issue date of the
outstanding notes, including the proposed payment, is greater
than, among other things, 50% of GEO's cumulative net income
from the issue date and 100% of the proceeds received by GEO
from the sale of its capital stock or an equity contribution by
its shareholders.
"Restricted payments" include:
- any dividend or distribution on shares of GEO's capital stock;
- the purchase or redemption of any capital stock of GEO or any
warrants, options or other rights to purchase shares of GEO's
capital stock;
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- any prepayment of any debt of GEO that is subordinate to the
notes, other than GEO's current subordinated debt of $760,000;
and
- any investment, other than "permitted investments," which
includes investments of $5.0 million or less at any time
outstanding.
These restrictions do not prohibit GEO from repurchasing its common stock
from its employees, upon the death, disability or termination of employment of
such employees. However, such repurchases may not exceed $750,000 in any
calendar year plus the aggregate cash proceeds from any applicable life
insurance policies for which GEO is the beneficiary. GEO may make such
repurchases only if no event of default exists under the indenture.
Limitation on Asset Sales. GEO may not sell any of its assets, other than
in transactions in the ordinary course of its business, unless:
- it receives consideration at least equal to the fair market
value of the assets;
- at least 80% of the consideration received is in the form of
cash, cash equivalents or replacement assets and is received at
the time of sale; and
- it applies the cash proceeds from the asset sale within 180 days
of receipt to prepay senior debt and/or make an investment in
replacement assets.
If GEO does not apply the cash proceeds from an asset sale, it must make an
offer to purchase an amount of notes equal to the cash proceeds not applied to
prepay senior debt or purchase replacement assets. GEO must offer to repurchase
notes from all noteholders on a pro rata basis, at a price equal to 100% of the
principal amount of the notes, plus accrued and unpaid interest to the date of
repurchase. Any non-cash consideration that is converted into cash will be
deemed to be an asset sale for purposes of this covenant. GEO may defer any
required offer to repurchase until it has received at least $5.0 million in cash
proceeds from asset sales.
If GEO transfers substantially all, but less than all, of its assets in a
transaction permitted under the indenture, the successor will be deemed to have
sold the assets of GEO that were not transferred. The successor must then comply
with the provisions of this covenant with respect to the deemed sale.
Limitation on Liens. GEO may not incur any lien on any of its assets
unless:
- for liens securing debt that is subordinate to the notes, the
notes are secured by a senior lien; and
- in all other cases, the notes are equally and ratably secured.
Liens not covered by this covenant include:
- liens securing GEO's senior credit facility and other senior
debt; and
- liens securing refinancing debt if such liens replace, and are
no more favorable than, liens that are permitted under the
indenture.
Merger, Consolidation and Sale of Assets. GEO may not merge or consolidate
with any entity, or otherwise dispose of all or substantially all of its assets,
unless:
- the surviving entity assumes all payments on the notes and the
performance of the indenture;
- after the transaction, GEO or the surviving entity will have a
net worth at least equal to the net worth of GEO before the
transaction; and
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<PAGE> 65
- before and after the transaction, no event of default exists
under the indenture.
Upon any such merger, consolidation or transfer of all or substantially all
of the assets of GEO, in which GEO does not survive, the surviving entity will
be the successor under the indenture. The surviving entity may then exercise
every right and power of GEO under the indenture.
Limitations on Transactions with Affiliates. GEO may not enter into any
transaction with any of its affiliates, except for:
- transactions on terms that are no less favorable than those that
might have been obtained in a comparable transaction on an
arm's-length basis from a non-affiliate of GEO;
- reasonable compensation and indemnity provided to directors,
employees or consultants of GEO as determined in good faith by
GEO's Board of Directors or senior management; and
- any agreement in effect as of the issue date of the outstanding
notes.
The Board of Directors of GEO must approve all transactions with affiliates
involving more than $250,000 by resolution stating that the transaction complies
with this covenant. If GEO enters into any such transaction that involves more
than $2.5 million, GEO must obtain a favorable opinion from an independent
financial advisor as to the fairness of the transaction to GEO from a financial
point of view.
Conduct of Business. GEO may not engage in any business which is not
reasonably related to the businesses in which GEO was engaged on the issue date
of the outstanding notes.
Reports to Noteholders. GEO is required to provide all noteholders with
copies of the quarterly, annual and other reports which GEO is required to file
with the SEC pursuant to the reporting requirements of the federal securities
laws. If at any time GEO is not subject to such reporting requirements, GEO will
provide all noteholders with the annual, quarterly and other reports that it
would be required to file if it were subject to such reporting requirements.
Other Covenants. The indenture also includes covenants relating to the
following matters: the preservation of GEO's corporate existence; the payment of
taxes; the maintenance of properties and insurance; compliance with laws;
preventing restrictions on the ability of GEO's future subsidiaries to pay
dividends and make other payments to GEO; limitation on GEO's future
subsidiaries to issue preferred stock; and limitation on GEO's future
subsidiaries to guarantee any debt. In addition, many of the covenants in the
indenture expressly apply to GEO's subsidiaries. Although GEO currently has no
subsidiaries, these covenants would apply to subsidiaries formed or acquired by
GEO while the notes are outstanding.
EVENTS OF DEFAULT
Definition of "Events of Default." The following events are included in
the indenture as "events of default":
- the failure to pay interest on any of the notes for a period of
30 days after such interest becomes due;
- the failure to pay, when due, the principal on any of the notes;
- the failure to purchase notes when required after an asset sale
or change of control of GEO;
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<PAGE> 66
- a default in the observance of any other provision of the
indenture for a period of 30 days after GEO receives written
notice of the default from the trustee or the holders of at
least 25% of the notes;
- the failure to pay the principal amount, when due, of any debt
of GEO, if the aggregate principal amount of such debt equals
$2.5 million or more;
- one or more judgments in an aggregate amount more than $2.5
million rendered against GEO and remaining unpaid for 60 days;
and
- the bankruptcy of GEO.
Effect of an Event of Default; Rights of the Noteholders. If an event of
default exists, the trustee or the holders of at least 25% in principal amount
of the notes may declare all principal and accrued interest on the notes to be
due by written notice to GEO. Upon the bankruptcy of GEO, all principal and
accrued interest on the notes will become due without any action by the trustee
or any noteholder.
At any time after the delivery of a declaration of acceleration, the
holders of a majority in principal amount of the notes may rescind such
declaration if all events of default have been cured or waived. The holders of a
majority in principal amount of the notes may waive any existing event of
default under the indenture, except for a default in the payment of principal or
accrued interest.
Noteholders may not enforce the indenture except as allowed by the
indenture and the Trust Indenture Act of 1939. The trustee is under no
obligation to exercise any of its powers under the indenture at the direction of
any of the noteholders, unless such noteholders offer the trustee reasonable
indemnity. The holders of a majority in principal amount of the notes have the
right to direct the time, method and place of conducting any proceeding for any
remedy or power of the trustee.
GEO's Obligation to Report "Events of Default." GEO must provide an
officers' certificate to the trustee promptly after any officer of GEO obtains
knowledge of the occurrence of any event of default. GEO must provide a
certification at least annually whether or not any event of default is known by
any of its officers.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
At any time, GEO may elect to have its obligations under the notes legally
defeased. Legal defeasance means that GEO will be deemed to have discharged all
debt and obligations under the notes, subject to the right of noteholders to
receive principal and interest on the notes when such payments become due.
GEO may also, at any time, elect to have its obligations defeased with
respect to the covenants in the indenture which limit GEO's ability to pay
dividends, incur additional debt, incur liens, sell assets or merge with another
entity. Covenant defeasance means that GEO will be released from its obligations
under these covenants. If GEO elects covenant defeasance, the violation of any
of these covenants will no longer be an event of default under the indenture.
To effect legal defeasance or covenant defeasance GEO must:
- irrevocably deposit with the trustee sufficient funds to pay all
principal and interest on the notes; and
- provide the trustee an opinion of counsel stating that the
defeasance will not affect the federal income tax consequences
of holding the notes.
In addition, no event of default may exist under the indenture at the time GEO
effects the defeasance.
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<PAGE> 67
SATISFACTION AND DISCHARGE OF THE INDENTURE
The indenture will be considered discharged and will no longer have any
effect, when either:
- all outstanding notes have been delivered to the trustee for
cancellation; or
- GEO has irrevocably deposited with the trustee sufficient funds
to pay the entire debt on all of the notes, and no event of
default exists on the date of the deposit.
MODIFICATION OF THE INDENTURE
GEO and the trustee may amend the indenture to cure defects in the
indenture, if such amendment does not adversely affect the rights of any of the
noteholders. However, certain amendments to the indenture may be made only with
the consent of the holders of a majority in principal amount of the notes.
Amendments requiring the consent of the noteholders include those that would:
- reduce the amount of notes whose holders must consent to an
amendment;
- reduce the rate, or change the time for payment, of interest on
the notes;
- reduce the principal, or change the maturity, of the notes;
- change the date on which the notes may be subject to redemption
or reduce any redemption price;
- change any provision in the indenture that protects the right of
each noteholder to receive principal and interest on the notes
or to bring suit to enforce such payment;
- change the provision in the indenture that permits the holders
of a majority in principal amount of the notes to waive events
of default;
- change GEO's obligation to repurchase notes when required after
an asset sale or change of control of GEO; or
- change any subordination provision of the indenture which would
adversely affect the noteholders.
GOVERNING LAW
The indenture and the notes will be governed by New York law.
THE TRUSTEE
Chase Manhattan Trust Company, National Association is the trustee under
the indenture. Except when an event of default exists, the trustee will perform
only the duties that are specifically stated in the indenture. During the
existence of an event of default, the trustee must exercise its rights and
powers under the indenture and must use the same degree of care and skill in
such exercise as a prudent person would use under the same circumstances in the
conduct of his own affairs.
The indenture and the provisions of the Trust Indenture Act of 1939 limit
the rights of the trustee, should it become a creditor of GEO, to obtain
payments of claims. Subject to the Trust Indenture Act of 1939, the trustee will
be permitted to engage in other transactions. However, if the trustee acquires
any conflicting interest as described in the Trust Indenture Act of 1939 and an
event of default exists, the trustee must eliminate such conflict or resign as
trustee.
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<PAGE> 68
FORM AND DELIVERY OF THE OFFERED NOTES
DEPOSIT OF THE NOTES WITH DTC
GEO will issue the offered notes in the form of one or more registered
notes in global form without coupons. GEO will deposit each global note with, or
on behalf of, the Depository Trust Company, and the global notes will be
registered in the name of a nominee of DTC.
DTC has advised GEO that it is a:
- limited purpose trust company organized under New York law;
- member of the Federal Reserve System;
- "clearing corporation" under the Uniform Commercial Code; and
- "clearing agency" registered under Section 17A of the Securities
Exchange Act of 1934.
DTC holds securities for its participants and facilitates the clearance and
settlement of securities transactions between participants through electronic
book entry changes to the accounts of its participants. DTC's system therefore
eliminates the need for physical movement of certificates. DTC's participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations. Other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant have indirect access to DTC's system.
Upon deposit of the global notes, DTC will credit on its internal system
the principal amount of the offered notes to the accounts of participants with
an interest in the global notes. Ownership of the offered notes will be shown
on, and transfers of the offered notes will be effected only through, records
maintained by DTC, participants and indirect participants. The laws of some
states require some persons to take physical delivery in definitive form of
securities that they own. In addition, some states provide that security
interests in negotiable instruments can only be perfected by delivery of
certificates representing the instruments. As a result, the ability of persons
in such states to transfer the offered notes or to pledge the offered notes as
collateral will be limited to this extent.
DTC AS REGISTERED OWNER OF THE NOTES; EXERCISE OF RIGHTS BY THE NOTEHOLDERS
So long as DTC or its nominee is the registered owner of the global notes,
DTC or such nominee will be considered the sole owner of the notes represented
by such global notes. Except as provided below or in the next section, owners of
beneficial interests in a global note will not be:
- entitled to have notes represented by such global note
registered in their names;
- entitled to receive physical delivery of certificated
securities; or
- considered the owners of the offered notes under the indenture
for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee.
As a result, the ability of a person having a beneficial interest in any of the
notes to pledge such interest to persons or entities that do not participate in
DTC's system or to otherwise take action with respect to such interest may be
affected by the lack of a physical certificate evidencing such interest.
To exercise any right of a noteholder under the indenture, each holder of a
beneficial interest in a global note must rely on the procedures of DTC. If such
noteholder is not a participant or an indirect participant of DTC, the
noteholder must rely on the procedures of the participant through which the
noteholder owns its interest. GEO understands that under existing industry
practice:
66
<PAGE> 69
- if GEO requests any action of the noteholders, DTC and DTC's
participants would act upon the instructions of the noteholders;
and
- if a noteholder desires to take any action that DTC is entitled
to take, as the holder of the global note, DTC would authorize
DTC's participants to take such action and the participants
would authorize the noteholders owning through such participants
to take such action.
Neither GEO nor the trustee under the indenture will have any responsibility or
liability for any aspect of the records relating to, or payments made on, the
offered notes by DTC.
PAYMENTS MADE THROUGH DTC
The trustee under the indenture will make all payments on any offered notes
represented by a global note to DTC or its nominee, as the holder of the global
notes. Under the indenture, GEO and the trustee may treat the holder of the
global notes as the owner of such notes for the purpose of receiving payment on
the notes. As a result, neither GEO nor the trustee will have any responsibility
to make payments to the beneficial owners of the offered notes, or to credit the
accounts of DTC participants with such payments. Payments by DTC's participants
and indirect participants to the beneficial owners of the offered notes will be
governed by customary practice and will be the responsibility of the
participants and indirect participants.
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<PAGE> 70
CERTIFICATED SECURITIES
Securities in registered definitive form, without coupons, will be issued
to each beneficial owner of notes represented by the global notes if:
- DTC is no longer willing or able to act as the depository for
the notes and GEO is unable to locate a qualified successor
within 90 days; or
- GEO elects to cause the issuance of notes in definitive form
under the indenture.
In addition, any person having a beneficial interest in a global note may, upon
request to the trustee, exchange such beneficial interest for securities in
registered definitive form. In such case, the trustee is required to register
such notes in the name of the requesting person or his/her nominee and deliver
the notes to such persons.
Neither GEO nor the trustee will be liable for any delay by DTC or any of
DTC's participants or indirect participants in identifying the beneficial owners
of the offered notes. GEO and the trustee will be protected in relying upon
instructions from DTC for all purposes, including with respect to the
registration and delivery of notes to be issued and the principal amounts of any
such notes.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of outstanding notes for offered notes in the exchange offer
should not constitute a significant modification of the terms of the outstanding
notes and, therefore, should not constitute an exchange for federal income tax
purposes. As a result, holders will not recognize gain or loss upon the
exchange. For purposes of determining gain or loss upon the subsequent sale or
exchange of the offered notes, a holder's tax basis in the offered notes should
be the same as such holder's tax basis in the outstanding notes tendered in the
exchange offer. Holders should be considered to have held the offered notes from
the time of their original acquisition of the outstanding notes.
The preceding discussion is a summary of the material federal income tax
consequences applicable to the exchange offer and the ownership and disposition
of the offered notes. This summary deals only with offered notes held as capital
assets by holders who purchased outstanding notes at 100% of their principal
amount. This summary does not apply to special classes of holders, such as
dealers in securities or currencies, banks, tax-exempt organizations, life
insurance companies and persons that hold offered notes as a hedge or hedged
against currency or interest rate risks or part of a straddle or conversion
transaction. This summary also does not apply to persons whose functional
currency is not the U.S. dollar. Holders who purchased the outstanding notes at
a price other than 100% of their principal amount should consult their tax
advisor as to the possible applicability to them of the amortizable bond premium
or market discount rules.
This summary is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as currently in effect and all subject to
change at any time, perhaps with retroactive effect. Any such change could
adversely affect a holder of the offered notes. This summary does not consider
the effect of any applicable foreign, state, local or other tax laws or estate
or gift tax considerations. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO YOU OF EXCHANGING YOUR NOTES FOR OFFERED NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
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<PAGE> 71
PLAN OF DISTRIBUTION
Each broker-dealer that receives offered notes for its own account in
exchange for outstanding notes acquired by the broker-dealer as a result of
market-making or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of the offered notes. This
prospectus, as it may be amended, may be used by a broker-dealer in connection
with such resales. GEO has agreed that, for a period of 60 days after the
expiration of the exchange offer, it will make this prospectus, as amended,
available to any broker-dealer for use in connection with any such resale.
In addition, until , 1999, all dealers that effect
transactions in the offered notes, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealer's obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
GEO will not receive any proceeds from any sale of offered notes by
broker-dealers. Offered notes received by broker-dealers for their own account
in 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 offered notes or a combination of such methods of resale. Such
resales may be made at market prices prevailing at the time of resale, at prices
related to prevailing market prices or negotiated prices. Such resales may also
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 offered notes.
Any broker-dealer that resells the offered notes that were received by it
for its own account in the exchange offer and any broker-dealer that
participates in a distribution of such offered notes may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933 and must
therefore deliver a prospectus meeting the requirements of the Securities Act of
1933 in connection with any resale of the offered notes. Any profit on any such
resale of offered notes and any commissions or concessions received by any such
broker-dealer may be deemed to be underwriting compensation under the Securities
Act of 1933. Such broker-dealers must acknowledge, by signing the letter of
transmittal, that they will deliver a prospectus meeting the requirements of the
Securities Act of 1933 in connection with any such resale. 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 of 1933. For 60 days
after the expiration of the exchange offer, GEO will make this prospectus
available to broker-dealers for use in such resales.
For a period of 60 days after the expiration of the exchange offer, GEO
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. GEO will pay all expenses of the exchange offer,
including the expense of one counsel for the holders of the outstanding notes
but excluding the commissions and concessions of any broker-dealers. GEO also
will indemnify holders of the outstanding notes, including broker-dealers,
against certain liabilities, including certain liabilities under the Securities
Act of 1933.
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LEGAL MATTERS
Thompson Hine & Flory LLP has passed upon the validity of the offered notes
for GEO.
EXPERTS
The financial statements of GEO as of December 31, 1997 and 1998 and for
the period from January 1, 1997 through March 24, 1997, the period from March
25, 1997 through December 31, 1997 and the year ended December 31, 1998 that
appear in this prospectus have been audited by Crowe, Chizek and Company LLP,
independent certified public accountants, and are included in reliance upon the
report of such firm given upon their authority as experts in auditing and
accounting.
The financial statements of GEO for the year ended December 31, 1996
included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of the Paper Chemicals and Construction and
Processing Chemicals, businesses of Henkel Corporation and Henkel Canada Limited
as of December 31, 1996 and March 24, 1997 and for the year ended December 31,
1996 and the period from January 1, 1997 through March 24, 1997 that appear in
this prospectus have been audited by Crowe, Chizek and Company LLP, independent
certified public accountants, and are included in reliance upon the report of
such firm given upon their authority as experts in auditing and accounting.
The financial statements of TRIMET as of June 30, 1998 and 1997 and for
each of the three years in the period ended June 30, 1998 that appear in this
prospectus have been audited by Crowe, Chizek and Company LLP, independent
certified public accountants, and are included in reliance upon the report of
such firm given upon their authority as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION ABOUT GEO
As a result of filing a registration statement for the offered notes with
the Securities and Exchange Commission, GEO will become subject to the filing
requirements of the Securities Exchange Act of 1934. In accordance with such
requirements, GEO will file Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K with the SEC. You can obtain these
materials in any of the following ways:
- GEO will furnish you with copies of these materials within 15 days
after they are filed with the SEC, as long as any of the offered
notes are outstanding;
- you can inspect and copy these materials at the SEC's Public
Reference Room located at 450 Fifth Street, N.W., Washington, D.C.
20549 (information on the operation of the SEC's Public Reference
Room can be obtained by calling the SEC at 1-800-SEC-0330);
- you can inspect and copy these materials at the SEC's regional
offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611 and 7 World Trade Center, 13th Floor, New York, New
York 10048;
- you can obtain copies of these materials at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549; and
- you can view and obtain copies of these materials from the SEC's
website on the Internet located at http://www.sec.gov.
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In accordance with the rules of the SEC, this prospectus excludes certain
portions of GEO's registration statement for the offered notes, including the
exhibits and schedules. The registration statement has been filed with the SEC
and may be examined without charge and copied at prescribed rates at the public
reference facilities of the SEC listed above. In addition, statements made in
this prospectus as to the contents of any agreement or other document are
summaries of the material terms of such agreements and documents. You should
refer to the complete copies of such agreements and documents, which have been
filed with the registration statement, for complete descriptions of the
particular topics.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF GEO SPECIALTY CHEMICALS, INC.
Report of Independent Auditors.............................. F-3
Report of Independent Public Accountants.................... F-4
Balance Sheets (as of December 31, 1997 and 1998)........... F-5
Statements of Operations (for the years ended December 31,
1996, 1997 and 1998)...................................... F-6
Statements of Shareholders' Equity (for the years ended
December 31, 1996, 1997 and 1998)......................... F-7
Statements of Cash Flows (for the years ended December 31,
1996, 1997 and 1998)...................................... F-8
Notes to Financial Statements............................... F-11
FINANCIAL STATEMENTS OF THE PAPER CHEMICALS AND CONSTRUCTION
AND PROCESSING CHEMICALS, BUSINESSES OF HENKEL CORPORATION
AND HENKEL CANADA LIMITED
Report of Independent Auditors.............................. F-26
Balance Sheets (as of December 31, 1996 and March 24,
1997)..................................................... F-27
Statements of Operations (for the year ended December 31,
1996 and for the period from January 1, 1997 through March
24, 1997)................................................. F-28
Statements of Divisional Equity (for the year ended December
31, 1996 and for the period from January 1, 1997 through
March 24, 1997)........................................... F-29
Statements of Cash Flows (for the year ended December 31,
1996 and for the period from January 1, 1997 through March
24, 1997)................................................. F-30
Notes to Financial Statements............................... F-31
FINANCIAL STATEMENTS OF THE TRIMET TECHNICAL PRODUCTS
DIVISION OF MALLINCKRODT INC.
Report of Independent Auditors.............................. F-37
Balance Sheets (as of June 30, 1997 and 1998)............... F-38
Statements of Operations (for the years ended June 30, 1996,
1997 and 1998)............................................ F-39
Statements of Divisional Equity (for the years ended June
30, 1996, 1997 and 1998).................................. F-40
Statements of Cash Flows (for the years ended June 30, 1996,
1997 and 1998)............................................ F-41
Notes to Financial Statements............................... F-42
</TABLE>
F-1
<PAGE> 75
GEO SPECIALTY CHEMICALS, INC.
Cleveland, Ohio
FINANCIAL STATEMENTS
December 31, 1998 and 1997
F-2
<PAGE> 76
REPORT OF INDEPENDENT AUDITORS
Board of Directors
GEO Specialty Chemicals, Inc.
Cleveland, Ohio
We have audited the accompanying balance sheets of GEO Specialty Chemicals,
Inc. (the successor) as of December 31, 1997 and 1998 and the statements of
operations, shareholders' equity, and cash flows for the period March 25, 1997
through December 31, 1997 and for the year ended December 31, 1998 and the
statements of income, shareholders' equity, and cash flows for the period
January 1, 1997 through March 24, 1997 for GEO Specialty Chemicals, Inc. (the
predecessor). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1998 financial statements referred to above
present fairly, in all material respects, the financial position of GEO
Specialty Chemicals, Inc. as of December 31, 1997 and 1998, and the results of
its operations and its cash flows for the periods March 25, 1997 through
December 31, 1997, January 1, 1997 through March 24, 1997, and for the year
ended December 31, 1998 in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
February 13, 1999
F-3
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
GEO Specialty Chemicals, Inc.:
We have audited the accompanying statements of operations, shareholders'
equity and cash flows for the year ended December 31, 1996 of GEO Specialty
Chemicals, Inc. (an Ohio corporation). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of GEO
Specialty Chemicals, Inc. for the year ended December 31, 1996 in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Cleveland, Ohio,
March 7, 1997.
F-4
<PAGE> 78
GEO SPECIALTY CHEMICALS, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
------- --------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 696 $ 1,645
Trade accounts receivable, net of allowance for doubtful
accounts of $186 in 1997 and $336 in 1998.............. 14,580 19,612
Other receivables......................................... 506 862
Inventory................................................. 8,004 9,476
Prepaid expenses and other current assets................. 460 792
Refundable income taxes................................... -- 441
Deferred taxes............................................ 236 418
------- --------
Total current assets.............................. 24,482 33,246
Property and equipment, net................................. 67,851 92,669
Other assets
Intangible assets, net.................................... 3,384 5,614
Goodwill, net............................................. 969 31,743
Other accounts receivable................................. 1,032 589
Other..................................................... 594 664
------- --------
5,979 38,610
------- --------
$98,312 $164,525
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 3,560 $ 760
Accounts payable.......................................... 8,041 7,564
Other accounts payable.................................... 448 448
Accrued expenses and other current liabilities............ 3,652 7,664
------- --------
Total current liabilities......................... 15,701 16,436
Revolving line of credit.................................... 3,639 --
Long-term debt.............................................. 55,175 --
Senior subordinated notes................................... -- 120,000
Other long-term liabilities................................. 4,853 4,196
Other accounts payable...................................... 1,059 580
Deferred taxes.............................................. 1,495 1,471
------- --------
66,221 126,247
Shareholders' equity
Class A voting common stock, $1 par value, 1,035 and 535
shares authorized, 104, and 136 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... -- --
Class B nonvoting common stock, $1 par value, 215 shares
authorized, 0 shares issued and outstanding at December
31, 1997 and 1998...................................... -- --
Additional paid-in capital................................ 14,901 20,901
Retained earnings......................................... 1,489 941
------- --------
16,390 21,842
------- --------
$98,312 $164,525
======= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 79
GEO SPECIALTY CHEMICALS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
(SEE NOTE 2) (SEE NOTE 2)
------------------------- ---------------------------
PERIOD PERIOD
YEAR ENDED JAN. 1 TO MARCH 25 YEAR ENDED
DECEMBER 31, MARCH 24, TO DEC. 31, DECEMBER 31,
1996 1997 1997 1998
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales............................ $23,869 $9,109 $91,727 $126,560
Cost of sales........................ 20,649 8,542 72,626 101,638
------- ------ ------- --------
GROSS PROFIT......................... 3,220 567 19,101 24,922
Selling, general, and administrative
expenses........................... 2,191 808 11,078 14,092
------- ------ ------- --------
INCOME (LOSS) FROM OPERATIONS........ 1,029 (241) 8,023 10,830
Other income (expense)
Net interest expense............... (1,118) (420) (5,004) (9,097)
Other.............................. 136 (15) (26) (118)
------- ------ ------- --------
(982) (435) (5,030) (9,215)
------- ------ ------- --------
INCOME (LOSS) BEFORE TAXES, AND
EXTRAORDINARY ITEM................. 47 (676) 2,993 1,615
Provision for income taxes........... -- -- 999 667
------- ------ ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM............................... 47 (676) 1,994 948
Extraordinary loss on early
extinguishment of debt, net of
tax................................ (113) -- (505) (1,496)
------- ------ ------- --------
NET INCOME (LOSS).................... $ (66) $ (676) $ 1,489 (548)
======= ====== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 80
GEO SPECIALTY CHEMICALS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER NUMBER
OF OF RETAINED
CLASS A CLASS B ADDITIONAL EARNINGS
COMMON COMMON PAID-IN (ACCUMULATED
SHARES SHARES CAPITAL DEFICIT) TOTAL
------- ------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Balance January 1, 1996......... 42 104 $ 1,757 $ (314) $ 1,443
Net loss........................ -- -- -- (66) (66)
--- --- ------- ------- -------
Balance December 31, 1996....... 42 104 1,757 (380) 1,377
Net loss........................ -- -- -- (676) (676)
--- --- ------- ------- -------
Balance March 24, 1997.......... 42 104 $ 1,757 $(1,056) $ 701
=== === ======= ======= =======
SUCCESSOR
Stock issued.................... 104 -- $14,901 $ -- $14,901
Net income for period March 25,
1997 through December 31,
1997.......................... -- -- -- 1,489 1,489
--- --- ------- ------- -------
Balance December 31, 1997....... 104 -- 14,901 1,489 16,390
Stock issued.................... 32 -- 6,000 -- 6,000
Net loss........................ -- -- -- (548) (548)
--- --- ------- ------- -------
Balance December 31, 1998....... 136 -- $20,901 $ 941 $21,842
=== === ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 81
GEO SPECIALTY CHEMICALS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
(SEE NOTE 2) (SEE NOTE 2)
------------------------- ---------------------------
PERIOD PERIOD
YEAR ENDED JAN. 1 TO MARCH 25 YEAR ENDED
DECEMBER 31, MARCH 24, TO DEC. 31, DECEMBER 31,
1996 1997 1997 1998
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................. $ (66) $ (676) $ 1,489 $ (548)
Adjustments to reconcile net income
(loss) to net cash from
operating activities
Depreciation, depletion, and
amortization.................. 1,022 363 4,334 7,905
Extraordinary loss on early
extinguishment of debt........ 113 -- 505 2,266
Deferred income tax expense
(benefit)..................... -- 389 (6)
Bad debt expense................ -- -- 63 --
Noncash other income related to
the Courtney settlement
agreement..................... (136) -- -- --
Change in assets and liabilities
net of effects from acquisitions
Accounts receivable -- trade.... (729) (1,367) (1,654) (1,241)
Other accounts receivable....... -- (494) 854 (356)
Inventories..................... 170 (179) (1,422) 670
Prepaid expenses and other
assets........................ (159) (30) (344) (197)
Accounts payable and accrued
expenses...................... 1,025 416 2,495 1,344
Other accounts payable.......... 261 (110) -- (231)
Checks written in excess of bank
balance....................... (91) 562 (1,080) --
-------- ------- -------- --------
Net cash from operating
activities.............. 1,410 (1,515) 5,629 9,606
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and
equipment....................... (559) (127) (3,177) (6,755)
Acquisition of paper and
construction processing
businesses from Henkel
Corporation, net of assumed
liabilities..................... -- -- (54,210) --
Acquisition of Trimet business from
Mallinckrodt Inc., net of
assumed liabilities............. -- -- -- (61,106)
Proceeds from sale of Andersonville
mining facility................. 4,000 -- -- --
Acquisition of land and mineral
reserves from National
Refractories & Minerals
Corporation..................... (199) -- -- --
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 82
GEO SPECIALTY CHEMICALS, INC.
STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
(SEE NOTE 2) (SEE NOTE 2)
------------------------- ---------------------------
PERIOD PERIOD
YEAR ENDED JAN. 1 TO MARCH 25 YEAR ENDED
DECEMBER 31, MARCH 24, TO DEC. 31, DECEMBER 31,
1996 1997 1997 1998
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
Acquisition of aluminum sulphate
business and Andersonville
mining facility of Cytec
Industries Inc., net of assumed
liabilities..................... $(11,345) $ -- $ -- $ --
-------- ------- -------- --------
Net cash from investing
activities.............. (8,103) (127) (57,387) (67,861)
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving line of credit borrowings
(payments), net................. (511) 2,017 139 (3,640)
Proceeds from bank borrowing....... 14,000 -- 65,500 --
Proceeds from issuance of
subordinated notes.............. -- -- -- 120,000
Payments made on long-term
borrowing....................... (5,580) (372) (20,963) (57,975)
Payment on note payable to seller
of Courtney..................... (380) -- -- --
Payments on capital leases......... (24) (3) (23) --
Proceeds from stock issuance....... -- -- 14,754 6,000
Payment of deferred financing
costs........................... (812) -- (3,731) (5,181)
Cash consideration paid to
predecessor shareholder......... -- -- (3,222) --
-------- ------- -------- --------
Net cash from financing
activities.............. 6,693 1,642 52,454 59,204
-------- ------- -------- --------
Net change in cash................... -- -- 696 949
Cash at beginning of period.......... -- -- -- 696
-------- ------- -------- --------
CASH AT END OF PERIOD................ $ -- $ -- $ 696 $ 1,645
======== ======= ======== ========
Supplemental disclosures of cash flow
information
Cash paid for
Interest...................... $ 956 $ 1,147 $ 3,076 $ 4,346
Taxes......................... -- -- 242 440
Supplemental schedule of noncash
investing and financing activities
In conjunction with the
acquisition of Henkel
Corporation, liabilities were
assumed as follows:
Fair value of assets
acquired................ -- -- 59,884 --
Cash paid.................. -- -- (54,210) --
-------- ------- -------- --------
Liabilities assumed..... -- -- 5,674 --
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 83
GEO SPECIALTY CHEMICALS, INC.
STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
(SEE NOTE 2) (SEE NOTE 2)
------------------------- ---------------------------
PERIOD PERIOD
YEAR ENDED JAN. 1 TO MARCH 25 YEAR ENDED
DECEMBER 31, MARCH 24, TO DEC. 31, DECEMBER 31,
1996 1997 1997 1998
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
In conjunction with the change
in control of the Company on
March 24, 1997, liabilities
were assumed as follows:
Fair market value of
assets.................. $ -- $ -- $ 30,917 $ --
Predecessor basis of
shareholder's equity.... -- -- (105)
Cash received.............. -- -- (14,754) --
-------- ------- -------- --------
Liabilities assumed..... -- -- 16,058 --
In conjunction with the
acquisition of Trimet from
Mallinckrodt Inc., liabilities
were assumed as follows:
Fair value of assets
acquired................ -- -- -- 62,393
Cash paid.................. -- -- -- (61,106)
-------- ------- -------- --------
Liabilities assumed..... -- -- -- 1,287
Seller note on acquisition of land
and mineral reserves from National
Refractories & Minerals
Corporation........................ 1,890 -- -- --
Assumed liabilities in acquisition of
aluminum sulphate business and
Andersonville mining facility of
Cytec Industries Inc............... 586 1,000 -- --
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE> 84
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: GEO Specialty Chemicals, Inc. (the Company) was
incorporated in the state of Ohio for the purpose of owning and operating
specialty chemical businesses. The Company's manufacturing process produces a
variety of specialty chemical products for use in various major chemical
markets. The Company produces more than 300 products. These products are used
primarily in the construction, paper, water treating and oil field industries.
The Company sells these products to customers located throughout the United
States and in some European markets.
The Company operates in an environment with many financial and operating
risks, including, but not limited to, intense competition, fluctuations in cost
and supply of raw materials, technological changes, and environmental matters.
As discussed in Notes 7 and 8, the Company has a high level of indebtedness
which creates liquidity and debt service risks.
Revenue Recognition: Revenues are recognized upon transfer of the goods to
the customer.
Use of Estimates in the Preparation of Financial Statements: 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 expenses during the reporting period.
Actual results could differ from those estimates. Reclamation reserves and
mineral reserves are particularly subject to change.
Fair Value of Financial Instruments: The Company's financial instruments
are comprised of cash, trade accounts receivable, other accounts receivable,
accounts payable, other accounts payable, other current liabilities, long term
debt, revolving line of credit and other long term liabilities. The carrying
value of all instruments except long term debt approximates fair value. The face
value of the Company's long term debt as of December 31, 1998 based on quoted
market values is approximately $115,800.
Property and Equipment: Property and equipment are depreciated on a
straight-line method. Mineral reserves are depleted on a units-of-production
basis. Property and equipment are being depreciated using the following
estimated lives:
<TABLE>
<CAPTION>
ASSET LIVES
IN YEARS
-----------
<S> <C>
Land improvements........................................... 20
Buildings................................................... 40
Machinery and equipment..................................... 12
Office furniture and fixtures............................... 10
Computer equipment.......................................... 6
Vehicles.................................................... 6
</TABLE>
Inventories: Inventories are stated at the lower of cost or market, with
cost being determined on a first-in, first-out (FIFO) basis.
Income Taxes: The Company accounts for its income taxes based on the amount
of taxes due on its tax return plus deferred taxes computed based on the
expected future tax consequences of temporary
F-11
<PAGE> 85
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
differences between the carrying amounts and tax bases of assets and
liabilities, using enacted tax rates. The Company also recognizes the deferred
tax asset for the benefit of operating loss carryforwards.
Intangible Assets: Intangible assets, which consist principally of deferred
financing costs, are amortized on a straight-line basis over the terms of the
respective financing agreements.
Goodwill: Goodwill is amortized on a straight-line basis over 15 years. The
Company periodically assesses whether a change in circumstances has occurred
subsequent to an acquisition which would indicate whether the future useful life
of an asset should be revised. The Company considers the future earnings
potential of the acquired business in assessing the recoverability of goodwill.
Environmental Expenditures: The Company accrues for environmental expenses
resulting from existing conditions that relate to past operations when costs are
probable and reasonably estimable.
Accounting Standards: The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," effective January 1, 1996. SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever circumstances indicate that the carrying amount
of an asset may not be recoverable. The adoption of this new standard did not
have a material impact on the financial statements. Management periodically
reviews the long-lived assets of the Company in accordance with SFAS No. 121.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
financial reports issued to stockholders. The Company has adopted SFAS No. 131
for the year ended December 31, 1998. The Company monitors its sales of product
by process additives and performance chemicals; however, for purposes of
internal reporting, considers the Company to be in one segment.
The Company adopted Statement of Financial Accounting Standards (FAS) No.
132, "Employers' Disclosures About Pensions and Other Postretirement Benefits,"
effective January 1, 1998. FAS No. 132 requires additional information to be
disclosed on pensions and other postretirement benefit plans including changes
in the benefit obligations and fair values of plan assets.
Reclassification: Certain 1996 balances have been reclassified in order to
conform to the December 31, 1997 and December 31, 1998 presentation.
NOTE 2 -- ACQUISITIONS
On July 31, 1998, pursuant to an acquisition agreement dated June 29, 1998,
the Company purchased substantially all of the assets of TRIMET Technical
Products, a Division of Mallinckrodt, Inc. (TRIMET) from Mallinckrodt, Inc. and
its affiliates. The TRIMET business produces specialty chemicals used primarily
in the coatings industry by customers located in the United States and Europe.
The contractual purchase price was $60,000, adjusted by $1,106 to reflect
TRIMET's actual working capital amount at closing.
F-12
<PAGE> 86
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
A summary of the assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Current assets............................................ $ 5,975
Property and equipment.................................... 24,497
Other assets.............................................. 200
Current liabilities....................................... (1,287)
-------
Net assets acquired............................... 29,385
Excess cost over fair value of assets acquired.............. 31,721
-------
Purchase price....................................... $61,106
=======
</TABLE>
Concurrently with the acquisition of TRIMET, the Company refinanced its
debt structure. The purchase price of TRIMET and refinancing of the Company's
debt was funded through the offering of $120,000, 10 1/8% Senior Subordinated
Notes due 2008 and an equity contribution of $6,000 from the Company's
shareholders.
On March 25, 1997, the Company purchased certain assets and assumed certain
liabilities of the Paper Chemicals and Construction and Processing Chemicals,
business of Henkel Corporation and Henkel Canada Limited (collectively, Henkel).
The contractual purchase price was $55,000, adjusted by $790 to reflect Henkel's
actual working capital amount at closing. The purchase price was funded through
the refinancing of the Company's debt and proceeds received from the issuance of
common stock.
A summary of the assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Current assets............................................ $12,816
Property and equipment.................................... 46,396
Current liabilities....................................... (4,499)
Long term liabilities..................................... (1,175)
-------
Net assets acquired............................... 53,538
Excess cost over fair value of assets acquired.............. 672
-------
Purchase price....................................... $54,210
=======
</TABLE>
In conjunction with the Henkel acquisition, the Company redeemed all the
Class A voting common stock and Class B nonvoting common stock owned by
shareholders, Key Equity Capital Corporation (Key) and Key Equity Partners
(KEPI), and repaid the subordinated debt, together with accrued interest
thereon, owed to Key and KEPI for total consideration of $5,754. The purchased
shares were immediately retired. Simultaneously, the Company sold 82.31 shares
of Class A voting common stock, representing a 79% interest, to Charter Oak
Partners (Charter Oak) for $14,754.
F-13
<PAGE> 87
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
A summary of assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Fair market value of assets................................. $ 30,917
Predecessor basis of shareholders' equity................... (105)
Liabilities assumed......................................... (16,058)
--------
Equity contributed........................................ $ 14,754
========
</TABLE>
Goodwill of $373 was recorded as a result of the above transaction.
In conjunction with the above acquisition of Henkel and the change of
ownership of the Company, the Company accounted for both transactions as a
purchase and, accordingly, the purchase price was allocated to 100% of the
assets acquired and liabilities assumed from Henkel and 79% of the assets and
liabilities assumed of the Company, in accordance with Accounting Principles
Board Opinion No. 16, "Business Combinations" and the Emerging Issues Task Force
Issue Number 88-16. As a result, all assets including inventories and property,
plant, and equipment of Henkel were stated at fair value and the property,
plant, and equipment of the Company were stated at fair value and allocated
based upon the ownership percentage change at March 25, 1997. The total goodwill
associated with the above transactions was approximately $1,045 (see Note 5).
Additionally, the Company incurred approximately $3,731 of financing costs
associated with the above acquisitions, which is being amortized over the life
of the respective loans.
In December 1996, the Company purchased certain assets and assumed certain
liabilities of the aluminum sulfate business and the Andersonville mining
facility of Cytec Industries Inc. (Cytec). The cash purchase consideration was
approximately $11,345, inclusive of transaction costs of $179. The purchase
price was funded through the refinancing of the Company's credit facility (Note
8). Immediately subsequent to the acquisition, the Company sold the
Andersonville mining facility for $4,000. No gain or loss resulted from the
sale. The proceeds from the sale were used to repay debt. The Cytec acquisition
was accounted for under Accounting Principles Board Opinion No. 16, "Business
Combinations." As a result, inventories were stated at fair value and property,
plant, and equipment were stated at allocated acquisition cost. Pro forma data
of the Company and Cytec for the year ended 1996 is not available.
A summary of assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 781
Property and equipment...................................... 6,580
Non compete agreement....................................... 570
Long-term liabilities....................................... (586)
------
Purchase price (net of Andersonville mining facility
sale).................................................. $7,345
======
</TABLE>
In October 1996, the Company purchased certain land and mineral reserves
from National Refractories & Minerals Corporation (National). The purchase price
was $2,089, inclusive of transaction costs of $89. The purchase price was funded
through borrowings against the Company's credit facility and a $1,890 seller
note (Note 8).
F-14
<PAGE> 88
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE 3 -- INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Raw materials............................................. $3,364 $3,065
Work in progress.......................................... 236 341
Finished goods............................................ 4,404 6,070
------ ------
$8,004 $9,476
====== ======
</TABLE>
NOTE 4 -- PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following major
classifications:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Land.............................................. $ 3,238 $ 4,892
Mineral reserves.................................. 2,136 2,136
Building and improvements......................... 13,424 15,390
Equipment......................................... 51,373 77,497
Construction in progress.......................... 1,305 2,431
------- -------
71,476 102,346
Accumulated depreciation and depletion............ (3,625) (9,677)
------- -------
$67,851 $92,669
======= =======
</TABLE>
NOTE 5 -- INTANGIBLE ASSETS AND GOODWILL
Costs incurred in obtaining financing have been deferred and are being
amortized on a straight-line basis over the terms of the related credit
agreements. Accumulated amortization of deferred financing costs was $548 and
$263 at December 31, 1997 and 1998, respectively. Amortization expense related
to deferred financing costs of $205, $0, $548 and $658 is included in interest
expense in the accompanying statements of operations for the year ended December
31, 1996, for the periods ended March 24, 1997 and December 31, 1997, and for
the year ended December 31, 1998, respectively. The Company refinanced its bank
credit and secured additional financing to purchase assets from Henkel
Corporation and Trimet Technical Products as discussed in Notes 2 and 8. The
1998 refinancing replaced the Tranche A and Tranche B Notes refinancing that
occurred in March 1997, as discussed in Note 8. In 1998, the Company charged off
the remaining $2,266, net of taxes of $770, of costs related to these two 1997
credit facilities. In the period ended December 31, 1997, the Company charged
off the remaining $765, net of taxes of $260, of deferred financing costs which
related to the 1996 credit agreement. In 1996, the Company charged off the
remaining $113 of costs that pertained to the previous credit agreement. The
charge incurred in each year is included as an extraordinary loss in the
accompanying statements of operations.
F-15
<PAGE> 89
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
The excess purchase price of acquiring the fair value of net assets of
Henkel Corporation and Trimet Technical Products was recorded as goodwill and is
being amortized on a straight-line basis over 15 years. Additionally, goodwill
of $373 was recorded in relation to the Company's 79% change of ownership.
Accumulated amortization at December 31, 1997 and 1998 amounted to $76 and
$1,023, respectively.
In 1997 and 1998, other deferred costs include covenant not to compete
costs, and deferred land stripping costs. These costs are being amortized either
on a units-of-production basis or on a straight-line basis over one to five
years. Accumulated amortization of other deferred costs was $219 and $306 at
December 31, 1997 and 1998, respectively.
NOTE 6 -- OTHER ACCOUNTS RECEIVABLE AND OTHER ACCOUNTS PAYABLE
At December 31, 1997 and 1998, the Company held options to purchase, at a
fixed price, a certain raw material from a vendor. Total payments made to the
vendor for the purchase of options which were unexercised at December 31, 1997
and 1998 were $1,447 and $1,004, respectively, and are included in other
accounts receivable in the accompanying balance sheets. When exercised, the
option payments will be applied as a reduction of the purchase price of the raw
material.
In connection with the above, at December 31, 1997 and 1998, the Company
had sold to a customer options of equal quantities and prices for the sale, at a
fixed price, of a certain product. The product to be sold is made from the raw
material which the Company purchases pursuant to the options discussed in the
previous paragraph. Total payments received by the Company from the customer for
options which were unexercised at December 31, 1997 and 1998 were $1,500 and
$1,028, respectively, and are included in other accounts payable in the
accompanying balance sheets. When the options are exercised by the customer, the
purchase price of the options will be applied as a reduction of the sales price
of the related product.
NOTE 7 -- REVOLVING LINE OF CREDIT
In connection with the March 25, 1997 transaction discussed in Note 2, the
Company entered into a $15 million revolving line of credit agreement which, in
connection with the purchase of Trimet on July 31, 1998, was amended to increase
the amount available to $25,000 expiring on July 31, 2003. The loan bears
interest, at the Company's option, at either (a) 1.25% above the higher of (i)
.5% in excess of the adjusted certificate of deposit rate, as defined in the
agreement, or (ii) the prime lending rate or (b) 2.25% above the Eurodollar
rate, as defined in the agreement. At December 31, 1998, the rate was 7.3125%.
The note is secured by virtually all of the Company's assets and subject to
affirmative and negative covenants as described in Note 8. The Company pays .5%
for the amount of unused credit available during the year. At December 31, 1997
and 1998, the Company had borrowed $3,639 and $0, respectively, under the
agreement.
F-16
<PAGE> 90
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE 8 -- LONG-TERM DEBT
The Company's long-term debt obligations consist of the following as of
December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Senior Subordinated Notes -- Series A bearing fixed interest
at 10.125%. Unsecured, Subordinated to all existing and
future senior debt. Due August 1, 2008, interest payments
are semi-annual beginning February 1, 1999. The Company
may redeem the offered notes after August 1, 2003 at
redemption prices set forth in the agreement.............. $ -- $120,000
Tranche Loan A which bears interest, at the Company's
option, at either (a) 1.5% above the higher of (i) .5% in
excess of the adjusted certificate of deposit rate, as
defined, or (ii) the prime lending rate or (b) 2.75% above
the Eurodollar rate, as defined. Quarterly principal
payments of $625 began in June 1997. The loan was
refinanced on July 31, 1998............................... 28,125 --
Tranche Loan B which bears interest, at the Company's
option, at either (a) 2% above the higher of (i) .5% in
excess of the adjusted certificate of deposit rate, as
defined, or (ii) the prime lending rate or (b) 3.25% above
the Eurodollar rate, as defined. Semiannual principal
payments of $150 began September 1997. The loan was
refinanced July 31, 1998.................................. 29,850 --
Subordinated note payable to the seller of Courtney which
bears interest at 2% above the prime lending rate, 10.5%
and 9.75% at December 31, 1997 and 1998, respectively. The
Company deferred its required July 1997 payment until a
dispute between the Company and Courtney can be resolved,
at which time the forgone principal and accrued interest
will be due. The entire principal balance is shown as
current on the 1998 financial statements. Final payment
will be due in 1999....................................... 760 760
------- --------
58,735 120,760
Current portion............................................. 3,560 760
------- --------
Long-term portion........................................... $55,175 $120,000
======= ========
</TABLE>
The future maturities of interest-bearing, long-term debt which includes
the revolving line of credit follows:
<TABLE>
<S> <C>
1999........................................... $760
2000........................................... --
2001........................................... --
2002........................................... --
2003........................................... --
</TABLE>
The credit agreement requires the Company to meet certain affirmative and
negative covenants which include certain restrictions on future indebtedness,
capital expenditures, and dividend payments meeting certain interest coverage
and leverage ratios. At December 31, 1998, the Company was in compliance with
these covenants.
F-17
<PAGE> 91
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE 9 -- SUPPLY AND PURCHASE CONTRACTS
The Company has entered into two supply contract agreements with Henkel
effective March 25, 1997. One agreement calls for the Company to supply products
to Henkel on a cost basis at prices as indicated in the supply agreement. The
Company has no obligation to sell or manufacture more than One Hundred Ten
Percent (110%) of the annual sales volume to Henkel in the previous year. The
cost basis of the products may be adjusted on the first day of each calendar
quarter based on changes in the purchase price of raw materials used to produce
the products. In addition, the overhead component may be increased annually to
reflect an increase in energy costs and labor costs, as measured by a percentage
of the increase in the energy component of the Producer Price Index for Finished
Goods, and the Employment Cost Index, respectively. In general, the price to be
paid by Henkel will, at a minimum, be equal to the raw material and overhead
costs associated with the production. The Company sold $10.3 million and $8.1
million to Henkel during 1998 and the period March 24, 1997 through December 31,
1997, respectively.
The second agreement calls for the Company to purchase raw materials from
Henkel at market prices, and toll products which are manufactured by Henkel will
be sold to the Company on a cost basis at prices as indicated in the supply
agreement. Henkel has no obligation to sell or manufacture more than One Hundred
Ten Percent (110%) of the previous years purchases by GEO. The cost basis of the
toll products may be adjusted on the first day of each calendar quarter based on
changes in the purchase price of raw materials used to produce the products. In
addition, the overhead component may be increased annually to reflect an
increase in energy costs and labor costs, as measured by a percentage of the
increase in the energy component of the Producer Price Index for Finished Goods,
and the Employment Cost Index, respectively. In general, the prices paid by GEO
were not in excess of current market prices. The Company purchased approximately
$9.8 million and $10.2 million from Henkel during 1998 and the period March 24,
1997 through December 31, 1997, respectively.
The agreements will remain in effect for a term of three to five years
depending on the product. Upon termination of the initial contracts, both are
renewable annually thereafter until written termination is provided one year in
advance of either party's intent to terminate the agreement. The Company
believes that the above transaction will not result in any losses.
NOTE 10 -- 401(k) PLAN AND DEFINED CONTRIBUTION PLAN
The Company sponsors a qualified 401(k) plan and a defined contribution
money purchase plan which covers all eligible employees except those who are
members of the Cedartown, Georgia and Allentown, Pennsylvania plant unions (see
Note 11).
At December 31, 1998, under the terms of the 401(k) plan, which was amended
once during 1998, twice during 1997 and once during 1996, all eligible employees
can elect to defer up to 12% of their annual salary. In 1997 and 1998, the
Company elected to match 50% of the employee's deferred contribution up to 6% of
the employee's salary. Total 401(k) expense for the periods ended March 24, 1997
and December, 1997 and year ended December 31, 1998 approximated $0, $200, and
$322, respectively. In 1996, the amount of the Company's discretionary matching
contribution was limited to 6% of each participant's qualifying compensation. In
1996, the Company elected not to match the employee deferral. In 1997 and 1998,
the Company could elect, on a discretionary basis, to contribute
F-18
<PAGE> 92
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
an additional amount to be distributed to plan participants as outlined in the
plan document. The Company made no discretionary contributions in 1997 or 1998.
Under the terms of the money purchase plan, the Company will contribute to
the plan on behalf of each eligible participant an amount equal to 5% of the
participant's qualifying compensation. The Company's contribution requirements
for the year ended December 31, 1996, the periods ended March 24, 1997 and
December 31, 1997, and year ended December 31, 1998 were $144, $51, $453, and
$538, respectively.
NOTE 11 -- UNION EMPLOYEE DEFINED BENEFIT PENSION PLAN
The Company has a defined benefit pension plan covering substantially all
of its Cedartown, Georgia and Allentown, Pennsylvania union employees. The
benefits are based on years of service through the date of retirement,
multiplied by a predetermined amount payable in a monthly annuity for life,
vested over a five-year period with reductions for early retirement. The
Cedartown benefits are also reduced by the accrued benefit as of March 25, 1997,
under the Henkel Corporation Consolidated Union Retirement Plan. The Company's
funding policy is to contribute amounts sufficient to satisfy regulatory funding
standards.
Information about the pension plans was as follows:
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of
period................................. $ -- $ 229
Service cost.............................. 58 116
Interest cost............................. -- 14
Actuarial (gain)/loss..................... 10 (19)
Benefits paid............................. -- (5)
Other..................................... 161 --
------ ------
Benefit obligation at end of
period.......................... 229 335
Change in plan assets
Fair value of plan assets at beginning of
period................................. -- --
Actual return on plan asset............... -- 1
Employer contribution..................... -- 106
Benefits paid............................. -- (5)
Fair value of plan assets at end of
period................................. -- 102
------ ------
Funded status............................... (229) (233)
Unrecognized net actuarial gain............. -- (7)
Unrecognized prior service cost............. 161 146
------ ------
Accrued benefit cost........................ $ (94) $ (68)
====== ======
</TABLE>
F-19
<PAGE> 93
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
The components of pension expense and related actuarial assumptions and
methods were as follows:
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
<S> <C> <C>
Service cost.............................. $ 58 $ 116
Interest cost............................. -- 15
Expected return on plan asset............. -- (4)
Amortization of transition
(asset)/obligation..................... 10 (10)
Amortization of prior service cost........ -- 15
------ ------
Net periodic benefit cost................. $ 68 $ 132
====== ======
Discount rate on benefit obligation......... 5.50% 6.25%
Long term expected rate of return on plan
assets.................................... 8.00 8.00
Rate of compensation increase............... N/A N/A
Amortization method......................... Straight-line Straight-line
</TABLE>
The provisions of Statement of Financial Accounting Standards (SFAS) No.
87, "Employers' Accounting for Pensions," require recognition in the balance
sheet of an additional minimum liability and related intangible asset for
pension plans with accumulated benefits in excess of plan assets. At December
31, 1997 and 1998, an additional liability of $229, and $233, respectively, and
an intangible asset of $161 and $135, respectively, are reflected in the
consolidated balance sheets. The increase after March 25, 1997 was due to
changes in the plan provisions for salaried employees including a change in the
definition of final average earnings and recognition of past service credit for
predecessor employees.
NOTE 12 -- POST-RETIREMENT BENEFIT PLANS
The Company sponsors two post-retirement benefit plans that cover
substantially all union employees of the Cedartown, Georgia plant who have
attained age 55 and have 5 years of service and their spouses. One plan provides
medical benefits and the other provides life insurance benefits. The
post-retirement health care plan is contributory. The life insurance plan is
noncontributory.
The company also maintains two postretirement benefit plans that cover
substantially all employees of the Allentown, Pennsylvania plant who have
attained age 55 and have 5 years of service and their spouses. One plan provides
medical benefits and the other provides life insurance benefits. The
postretirement health care plan is contributory. The life insurance plan is
noncontributory.
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of
period................................. $ 1,175 $ 1,269
Benefit obligation assumed with Trimet
acquisition............................ -- 502
Service cost.............................. 30 57
Interest cost............................. 68 89
Actuarial loss............................ -- 11
Benefits paid............................. (4) (17)
------- -------
Benefit obligation at end of
period.......................... 1,269 1,911
</TABLE>
F-20
<PAGE> 94
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
<S> <C> <C>
Change in plan assets
Employer contribution..................... 4 17
Plan participant contribution............. (4) (17)
Fair value of plan assets at end of
period................................. -- --
------- -------
Funded status............................... (1,590) (2,198)
Unrecognized net actuarial gain............. 321 287
------- -------
Accrued benefit cost........................ $(1,269) $(1,911)
======= =======
</TABLE>
The components of postretirement health costs and related actuarial
assumptions were as follows:
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
<S> <C> <C>
Service cost................................ $ 30 $ 57
Interest cost............................... 68 89
Amortization of transition obligation....... -- 12
Recognized net actuarial gain............... -- (1)
------ ------
Net periodic benefit cost................... $ 98 $ 157
====== ======
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered health care benefits was assumed for the period ended December
31, 1997 and 1998; the rate was assumed to decrease gradually to 5.5% at 2003
and remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. Increasing the assumed health
care cost trend rates by one percentage point in each year would increase the
accumulated post-retirement benefit obligation as of December 31, 1997 and 1998
by $242 and $351 and the aggregate of the service and interest cost components
of post-retirement expense for the period then ended by $29 and $53. Decreasing
the assumed health care cost trend rates by one percentage point in 1998 would
decrease the accumulated post-retirement benefit by $290 and service and
interest cost components on post-retirement expense for the year then ended by
$44. The 1997 percentage decrease information is not readily available.
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7% and 6.5% at December 31, 1997 and
1998.
NOTE 13 -- LEASE COMMITMENTS
The Company has entered into numerous noncancellable operating lease
agreements for various autos, trucks, railroad cars, land, and office facilities
with lease terms expiring at various dates through the year 2003. Rent expense
under these leases for the year ended December 31, 1996, the periods ended March
24, 1997 and December 31, 1997 and year ended December 31, 1998 approximated
$12,
F-21
<PAGE> 95
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
$37, $688, and $863, respectively. Total minimum rentals under noncancellable
operating leases as of December 31, 1998 over future years are:
<TABLE>
<S> <C>
1999.......................................... $ 960
2000.......................................... 612
2001.......................................... 287
2002.......................................... 247
2003.......................................... 32
------
$2,138
======
</TABLE>
NOTE 14 -- INCOME TAXES
The income tax provision is comprised of the following:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, PERIOD
1997 TO MARCH 25 TO YEAR ENDED
DECEMBER 31, MARCH 24, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Current payable.................. $ -- $ -- $610 $ 873
Benefit of net operating loss
carryover..................... -- -- -- (7,994)
Deferred income taxes............ -- -- 389 7,788
------ ------ ---- -------
$ -- $ -- $999 $ 667
====== ====== ==== =======
</TABLE>
The difference between the effective tax rate and the statutory rate is
reconciled below:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, PERIOD
1997 TO MARCH 25 TO YEAR ENDED
MARCH 24, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
-------------------- -------------------- -------------------- --------------------
DOLLARS PERCENTAGE DOLLARS PERCENTAGE DOLLARS PERCENTAGE DOLLARS PERCENTAGE
------- ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statutory rate....... $16 34.0% $(230) (34.0)% $1,026 34.0% $549 34.0%
Permanent items and
state taxes........ -- -- -- -- 69 3.0 118 7.0%
Valuation
allowance.......... (16) (34.0) 230 34.0 (96) (3.0) -- --
--- ----- ----- ----- ------ ---- ---- ----
$-- --% $ -- --% $ 999 34.0% $667 41.0%
=== ===== ===== ===== ====== ==== ==== ====
</TABLE>
F-22
<PAGE> 96
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
Significant components of the deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Deferred tax liabilities
Property, plant, and equipment......................... $ 5,931 $ 13,863
Other liabilities...................................... 255 132
------- --------
6,186 13,995
Deferred tax assets
Net operating loss carryforwards....................... 1,776 9,770
Post retirement benefit................................ 507 823
Pond closure reserve................................... 1,206 884
Other assets........................................... 1,438 1,465
------- --------
4,927 12,942
Valuation allowance.................................... -- --
------- --------
4,927 12,942
------- --------
Net deferred tax (liability) asset................... $(1,259) $ (1,053)
======= ========
</TABLE>
Income tax carryforwards approximated and consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ -------
<S> <C> <C>
Net operating loss carryforward............................. $4,440 $22,670
====== =======
AMT credit carryforwards.................................... $ 362 $ 251
====== =======
</TABLE>
As of December 31, 1998, net operating loss carryforwards listed above
expire as indicated below:
<TABLE>
<CAPTION>
AMOUNT YEAR
- ------ ----
<S> <C>
$ 211........................................... 2008
974........................................... 2009
534........................................... 2010
954........................................... 2011
3,604........................................... 2012
16,393.......................................... 2018
</TABLE>
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
Contracts
Pursuant to the terms of a shareholder's agreement and employment
agreements with certain individuals who are partners in GEO Chemicals, Ltd.
(GCL) and members of the key management of the Company, the Company has the
right and, in certain cases, the obligation to repurchase specified percentages
of the stock held by GCL in the event of termination of employment of these
individuals. The redemption prices are based on the higher of fair value or
original cost. The agreement also obligates the Company to maintain disability
insurance and specified levels of life insurance coverage on
F-23
<PAGE> 97
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
these individuals to fund any such redemption. The current life insurance
coverage for these management members is $2,600.
During 1995, the Company purchased the customer list relating to the
Houston, Texas dry alum business of Rhone-Poulenc, Inc. (Rhone-Poulenc). In
accordance with the purchase agreement, the Company is required to pay a 7.5%
commission on its gross sales of dry alum product until such time as the
cumulative commission payments equal $375, plus an additional lump sum payment
based on a formula calculation, as defined, of the increase in dry alum sales
over a specified period of time. The lump sum payment cannot exceed $120. For
the year ended December 31, 1996, the periods ended March 24, 1997 and December
31, 1997, and the year ended December 31, 1998, the Company charged $169, $23,
$103, and $4, respectively, against operations for commissions applicable to dry
alum sales. The formula in the purchase agreement calculates that no additional
payment is due Rhone-Poulenc.
Litigation
In the ordinary course of business, the Company is periodically named as a
defendant in a variety of lawsuits. Currently, the Company is one of 102 named
defendants in a toxic tort lawsuit commended in Harrison County, Texas. The
plaintiffs in the action are employees, former employees and the families of
such employees of the Monarch Tile Company tile plant in Marshall, Texas. The
plaintiffs allege that they were exposed to hazardous substances in the course
of their employment at the Monarch plant and that the Company or its predecessor
was a manufacturer of one of those substances. The Company intends to vigorously
defend this action and disputes that its substances are hazardous or responsible
for the plaintiffs' alleged injuries. The Company believes, that its pending
cases will not have a material adverse effect on its business, financial
condition or results of operations.
Environmental Matters
The Company believes that it is in substantial compliance with
environmental laws applicable to its facilities. The Company has no reason to
believe that the discovery of presently unknown environmental conditions or
changes in the scope, interpretation or enforcement of any environmental laws
will have a material adverse effect on the Company's operations, business or
financial condition or results of operations.
NOTE 16 -- OTHER INCOME
During 1996, the principal amount of the Courtney note payable was reduced
by $136 in connection with a mutual release by all parties of all claims,
disputes and losses related to the acquisition of Courtney. Such amount is
included in other income for 1996.
F-24
<PAGE> 98
PAPER CHEMICALS AND CONSTRUCTION
AND PROCESSING CHEMICALS,
BUSINESSES OF HENKEL CORPORATION AND
HENKEL CANADA LIMITED
FINANCIAL STATEMENTS
December 31, 1996 and March 24, 1997
F-25
<PAGE> 99
REPORT OF INDEPENDENT AUDITORS
Board of Directors
GEO Specialty Chemicals, Inc.
Cleveland, Ohio
We have audited the accompanying balance sheets of Paper Chemicals and
Construction and Processing Chemicals, businesses of Henkel Corporation and
Henkel Canada Limited, as of December 31, 1996 and March 24, 1997 and the
related statements of operations, divisional equity, and cash flows for the year
ended December 31, 1996 and for the period January 1, 1997 to March 24, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paper Chemicals and
Construction and Processing Chemicals, businesses of Henkel Corporation and
Henkel Canada Limited, as of December 31, 1996 and March 24, 1997 and the
results of operations and cash flows for the year ended December 31, 1996 and
for the period January 1, 1997 to March 24, 1997, in conformity with generally
accepted accounting principles.
As explained in Note 1, the financial statements include significant costs
and expenses of Henkel Corporation and Henkel Canada Limited allocated to Paper
Chemicals and Construction and Processing Chemicals, businesses of Henkel
Corporation and Henkel Canada Limited.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
October 22, 1998
F-26
<PAGE> 100
PAPER CHEMICALS AND CONSTRUCTION AND PROCESSING
CHEMICALS, BUSINESSES OF HENKEL CORPORATION
AND HENKEL CANADA LIMITED
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 24,
1996 1997
------------ ---------
<S> <C> <C>
ASSETS
Current assets
Accounts receivable -- less allowance for doubtful
accounts of $15 in 1996 and $13 in 1997................ $ 7,472 $ 7,996
Inventory................................................. 5,279 4,638
Prepaid expenses.......................................... 5 5
Deferred income taxes..................................... 372 382
------- -------
Total current assets................................... 13,128 13,021
Property, plant, and equipment, net......................... 34,485 32,777
------- -------
Total assets........................................... $47,613 $45,798
======= =======
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities
Accounts payable.......................................... $ 3,216 $ 3,126
Accrued expenses.......................................... 2,636 1,578
------- -------
Total current liabilities.............................. 5,852 4,704
Other long-term liabilities................................. 1,904 1,968
Deferred income taxes....................................... 1,834 1,697
Divisional equity........................................... 38,023 37,429
------- -------
Total liabilities and divisional equity................ $47,613 $45,798
======= =======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 101
PAPER CHEMICALS AND CONSTRUCTION AND PROCESSING
CHEMICALS, BUSINESSES OF HENKEL CORPORATION
AND HENKEL CANADA LIMITED
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, MARCH 24,
1996 1997
------------ ----------
<S> <C> <C>
Net sales................................................... $78,172 $18,327
Cost of sales............................................... 71,247 17,423
------- -------
GROSS PROFIT................................................ 6,925 904
Operating expenses
Selling, general, and administrative...................... 11,039 2,520
------- -------
OPERATING LOSS.............................................. (4,114) (1,616)
Other expense............................................... (68) --
------- -------
LOSS BEFORE INCOME TAX BENEFIT.............................. (4,182) (1,616)
Income tax benefit.......................................... 1,663 645
------- -------
NET LOSS.................................................... $(2,519) $ (971)
======= =======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 102
PAPER CHEMICALS AND CONSTRUCTION AND PROCESSING
CHEMICALS, BUSINESSES OF HENKEL CORPORATION AND
HENKEL CANADA LIMITED
STATEMENTS OF DIVISIONAL EQUITY
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance, January 1, 1996.................................... $43,660
Net loss for the year ended December 31, 1996............... (2,519)
Net distributions to Henkel Corporation and Henkel Canada
Limited................................................... (3,118)
-------
Balance, December 31, 1996.................................. 38,023
Net loss for the period January 1, 1997 to March 24, 1997... (971)
Net capital contributions from Henkel Corporation and Henkel
Canada Limited............................................ 377
-------
Balance, March 24, 1997..................................... $37,429
=======
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 103
PAPER CHEMICALS AND CONSTRUCTION AND PROCESSING
CHEMICALS, BUSINESSES OF HENKEL CORPORATION
AND HENKEL CANADA LIMITED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, MARCH 24,
1996 1997
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(2,519) $ (971)
Adjustments to reconcile net loss to net cash from
operating activities
Depreciation.............................................. 7,719 1,943
Deferred income taxes..................................... (1,378) (147)
Loss on disposal of property, plant, and equipment........ 68 --
Changes in assets and liabilities
Accounts receivable.................................... 693 (524)
Inventory.............................................. 283 641
Accounts payable and accrued expenses.................. 235 (1,148)
Other long-term liabilities............................ (40) 64
------- -------
Net cash from operating activities................... 5,061 (142)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................ (1,943) (235)
------- -------
Net cash from investing activities..................... (1,943) (235)
CASH FLOWS FROM FINANCING ACTIVITIES
Net capital contribution/(distribution) from Henkel
Corporation and Henkel Canada Limited................. (3,118) 377
------- -------
Net cash from financing activities................... (3,118) 377
------- -------
Net change in cash.......................................... -- --
Cash at beginning of period................................. -- --
------- -------
CASH AT END OF PERIOD....................................... $ -- $ --
------- -------
Supplemental disclosure of cash flow information
Income taxes received..................................... $ 285 $ 398
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 104
PAPER CHEMICALS AND CONSTRUCTION AND PROCESSING
CHEMICALS, BUSINESSES OF HENKEL CORPORATION AND
HENKEL CANADA LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND MARCH 24, 1997
(IN THOUSANDS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by Paper
Chemicals and Construction and Processing Chemicals, businesses of Henkel
Corporation and Henkel Canada Limited, (the Company) are as follows:
Description of Business: The Company manufactures, sells, and distributes
chemicals used in the paper, pulp, construction, oil field, latex and SBR
polymerization, and ceramic industries. The Company has customers located
throughout the world, but primarily in the United States.
Environmental Expenditures: The Company accrues for environmental expenses
resulting from existing conditions that relate to past operations when costs are
probable and reasonably estimable.
Revenue Recognition: The Company recognizes revenue, net of allowances for
estimated returns, upon shipment of the product.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Property, Plant, and Equipment: Property, plant, and equipment are stated
at cost and are depreciated on a straight-line method over their estimated
useful lives ranging from 3 to 30 years.
Fair Value of Financial Instruments: The Company's financial instruments
are comprised of trade accounts receivable and accounts payable. The carrying
value of these instruments approximate fair value.
Income Taxes: Henkel Corporation and Henkel Canada Limited have allocated
income taxes to the Company on the same basis as if the Company had filed a
separate income tax return. Deferred taxes are computed based on the expected
future tax consequences of temporary differences between the carrying amounts
and tax basis of assets and liabilities, using enacted tax rates.
Allocations and Use of Estimates: During the year ended December 31, 1996
and for the period January 1, 1997 to March 24, 1997, the Company was allocated
certain operational and administrative expenses from Henkel Corporation and
Henkel Canada Limited. Allocations were based on various methods including
relative sales volume, headcount, and estimates of time spent. Management
believes that these allocations are based on reasonable methods. Sales, returns,
material cost, and direct labor cost were specifically identified to the Company
and were not based on allocations.
Management must make estimates and assumptions in preparing financial
statements that affect the amounts reported therein and the disclosures
provided. These estimates, allocations, and assumptions may change in the future
and future results could differ.
F-31
<PAGE> 105
PAPER CHEMICALS AND CONSTRUCTION AND PROCESSING
CHEMICALS, BUSINESSES OF HENKEL CORPORATION
AND HENKEL CANADA LIMITED
NOTES TO FINANCIAL
STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
NOTE 2 -- INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 24,
1996 1997
------------ ---------
<S> <C> <C>
Raw materials............................................. $1,998 $1,900
Finished goods............................................ 3,281 2,738
------ ------
Total inventory................................... $5,279 $4,638
====== ======
</TABLE>
NOTE 3 -- PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 24,
1996 1997
------------ ---------
<S> <C> <C>
Land and improvements..................................... $ 1,029 $ 1,029
Buildings................................................. 28,278 28,307
Manufacturing equipment................................... 65,542 65,937
Office equipment.......................................... 3,093 3,115
------- -------
97,942 98,388
Accumulated depreciation.................................. 64,322 66,239
------- -------
33,620 32,149
Construction in progress.................................. 865 628
------- -------
$34,485 $32,777
======= =======
</TABLE>
NOTE 4 -- INCOME TAXES
The income tax benefit is comprised of the following:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, MARCH 24,
1996 1997
------------ ----------
<S> <C> <C>
Current.............................................. $ 285 $498
Deferred............................................. 1,378 147
------ ----
$1,663 $645
====== ====
</TABLE>
F-32
<PAGE> 106
PAPER CHEMICALS AND CONSTRUCTION AND PROCESSING
CHEMICALS, BUSINESSES OF HENKEL CORPORATION
AND HENKEL CANADA LIMITED
NOTES TO FINANCIAL
STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Income tax benefit is reconciled to the tax benefit that would result from
applying regular statutory rates to pretax income (loss) as follows:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, MARCH 24,
1996 1997
------------ ----------
<S> <C> <C>
Income tax benefit at the statutory rate............. $1,422 $549
State tax benefit, net of federal benefit............ 241 96
------ ----
$1,663 $645
====== ====
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 24,
1996 1997
------------ ---------
<S> <C> <C>
Current deferred items
Accounts receivable allowance......................... $ 6 $ 5
Inventory valuation................................... 111 121
Vacation accrual...................................... 255 256
------- -------
372 382
Noncurrent deferred items
Depreciation.......................................... (2,596) (2,484)
Accrued post-retirement cost.......................... 762 787
------- -------
(1,834) (1,697)
------- -------
$(1,462) $(1,315)
======= =======
</TABLE>
NOTE 5 -- RELATED PARTY TRANSACTIONS
The Company has been allocated certain operational and administrative costs
from Henkel Corporation and Henkel Canada Limited which approximated $1,726 and
$390 for the year ended December 31, 1996 and for the period January 1, 1997 to
March 24, 1997, respectively. During the periods indicated, the costs related to
these services were allocated to the Company as discussed in Note 1.
The Company had sales to other divisions of Henkel Corporation and Henkel
Canada Limited. Sales to these other divisions were approximately $8,432 and
$1,783 for the year ended December 31, 1996 and for the period January 1, 1997
to March 24, 1997, respectively. These sales were recorded at the Company's cost
with no profit recognized.
F-33
<PAGE> 107
PAPER CHEMICALS AND CONSTRUCTION AND PROCESSING
CHEMICALS, BUSINESSES OF HENKEL CORPORATION
AND HENKEL CANADA LIMITED
NOTES TO FINANCIAL
STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
The Company also had sales to entities owned by Henkel Corporation and
Henkel Canada Limited. Sales to those entities were approximately $1,747 and
$419 for the year ended December 31, 1996 and for the period January 1, 1997 to
March 24, 1997, respectively. Amounts due to the Company for these sales were
$515 and $681 as of December 31, 1996 and March 24, 1997, respectively, and are
included with accounts receivable.
The Company's cash collections and cash disbursements are administered by
Henkel Corporation and Henkel Canada Limited. The overall net amount of cash
received and cash disbursed is reflected as net capital
contribution/(distribution) in the Statements of Cash Flows.
NOTE 6 -- COMMITMENTS
The Company leases machinery and equipment on a month to month basis. Rent
expense for the year ended December 31, 1996 and for the period January 1, 1997
to March 24, 1997 approximated $163 and $41, respectively.
NOTE 7 -- EMPLOYEE BENEFIT PLANS
Retirement Income Plans: Employees of the Company not covered by a
collective bargaining agreement participate in a Henkel Corporation defined
benefit pension plan. Henkel Corporation funding policy is to contribute an
amount meeting the required employer contribution in accordance with Section
401(a)(17) of the Internal Revenue Code.
A separate pension plan is maintained for employees of the Company covered
by a collective bargaining agreement. The plan calls for benefits to be paid to
eligible employees at retirement based upon years of service multiplied by a
monthly compensation factor. Participants are fully vested after five years.
Summarized information about the Henkel Corporation plans with projected
benefit obligations in excess of plan assets at December 31, 1996 is as follows:
Accumulated benefit obligations -- $186,056; projected benefit
obligations -- $236,415; plans' assets -- $173,467; service costs -- $10,049.
The amortization of prior service costs, interest costs, unrecognized prior
service costs, unamortized transactions liability, and actual return on assets
were not available.
The Company's expense for these plans for the year ended December 31, 1996
was approximately $140. The weighted average discount rate used to measure the
projected benefit obligations are 9% and the expected long-term rates of return
on assets are 12.1% for the year ended December 31, 1996.
The actual calculations of the plans' assets, liabilities, and expense
components as of March 24, 1997 and for the period January 1, 1997 to March 24,
1997 were not available. Management of the Company believes that those unfunded
liabilities existing at December 31, 1996 resemble those at March 24, 1997. The
Company's expense for these plans were approximately $35 for the period January
1, 1997 to March 24, 1997.
F-34
<PAGE> 108
PAPER CHEMICALS AND CONSTRUCTION AND PROCESSING
CHEMICALS, BUSINESSES OF HENKEL CORPORATION
AND HENKEL CANADA LIMITED
NOTES TO FINANCIAL
STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Post-retirement Benefits Other Than Pensions: The Company also participated
in a post-retirement benefit plan maintained by Henkel. Employees retiring from
the Company after attaining specified age and service requirements may become
eligible for post-retirement health care benefits.
As of December 31, 1996 and March 24, 1997, the Company's share of the
accrued post-retirement liabilities was $1,904 and $1,968, respectively. There
are no plan assets. The Company's expense for post-retirement health care
benefits for the year ended December 31, 1996 and for the period January 1, 1997
to March 24, 1997 was approximately $15 and $7, respectively. The assumptions
used to calculate the accrued post-retirement at March 24, 1997 are as follows:
7% weighted average discount rate used in determining the actuarial present
value of the accumulated post-retirement benefit obligations and 5.5% assumed
health care cost trend.
NOTE 8 -- SUBSEQUENT EVENT
On March 24, 1997, Henkel Corporation and Henkel Canada Limited sold
certain assets net of certain liabilities of the Company for approximately
$55,000.
F-35
<PAGE> 109
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1998
F-36
<PAGE> 110
REPORT OF INDEPENDENT AUDITORS
Board of Directors
GEO Specialty Chemical, Inc.
Cleveland, Ohio
We have audited the accompanying balance sheets of TRIMET Technical
Products, A Division of Mallinckrodt Inc. as of June 30, 1997 and 1998, and the
related statements of operations, divisional equity and cash flows for each of
the years in the three-year period ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TRIMET Technical Products, A
Division of Mallinckrodt Inc. as of June 30, 1997 and 1998 and the results of
its operations and its cash flows for each of the years in the three-year period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
As explained in Note 1, the financial statements include significant costs
and expenses of Mallinckrodt Inc. allocated to TRIMET Technical Products, A
Division of Mallinckrodt Inc.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
August 7, 1998
F-37
<PAGE> 111
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1998
------- -------
<S> <C> <C>
ASSETS
Current assets
Accounts receivable -- less allowance for doubtful
accounts of $47 in 1997 and $59 in 1998................ $ 4,302 $ 4,189
Inventories (Note 2)...................................... 1,552 1,866
Prepaid expenses.......................................... 223 135
Deferred income taxes (Note 4)............................ 414 389
------- -------
Total current assets.............................. 6,491 6,579
Property and equipment, net (Note 3)........................ 9,790 12,434
Other assets (Note 5)....................................... 612 607
------- -------
$16,893 $19,620
======= =======
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities
Accounts payable.......................................... $ 1,358 $ 1,934
Accrued expenses.......................................... 682 191
------- -------
Total current liabilities......................... 2,040 2,125
Other long-term liabilities (Note 5)........................ 1,383 1,541
Deferred income taxes (Note 4).............................. 1,334 1,727
Divisional equity (Note 6).................................. 12,136 14,227
------- -------
$16,893 $19,620
======= =======
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 112
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
NET SALES.............................................. $25,689 $26,768 $29,505
Cost of sales.......................................... 17,596 18,519 18,897
------- ------- -------
GROSS PROFIT........................................... 8,093 8,249 10,608
Operating expenses
Selling and marketing................................ 1,313 1,464 1,150
General and administrative (Note 6).................. 1,441 1,947 1,724
Environmental remediation (Note 9)................... 135 228 1,042
Research and development............................. 77 11 11
------- ------- -------
2,966 3,650 3,927
------- ------- -------
Operating income....................................... 5,127 4,599 6,681
Other expense, net..................................... 44 149 37
------- ------- -------
INCOME BEFORE INCOME TAXES............................. 5,083 4,450 6,644
Provision for income taxes (Note 4).................... 2,065 1,810 2,700
------- ------- -------
NET INCOME............................................. $ 3,018 $ 2,640 $ 3,944
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 113
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
STATEMENTS OF DIVISIONAL EQUITY
(IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE, JULY 1, 1995....................................... $ 9,049
Net Income.................................................. 3,018
Net capital contributions from Mallinckrodt Inc. (Note 6)... 204
-------
BALANCE, JUNE 30, 1996...................................... 12,271
Net income.................................................. 2,640
Net distributions to Mallinckrodt Inc. (Note 6)............. (2,775)
-------
BALANCE, JUNE 30, 1997...................................... 12,136
Net income.................................................. 3,944
Net distributions to Mallinckrodt Inc. (Note 6)............. (1,853)
-------
BALANCE, JUNE 30, 1998...................................... $14,227
=======
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 114
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $3,018 $2,640 $3,944
Adjustment to reconcile net income to net cash from
operating activities
Deferred income taxes................................ 969 367 418
Depreciation......................................... 643 665 843
Provision for doubtful accounts...................... 7 12 12
Changes in assets and liabilities
Accounts receivable............................... (1,715) 266 101
Inventories....................................... (71) 636 (314)
Prepaid expenses and other assets................. (12) (476) 93
Accounts payable and accrued expenses............. 361 83 85
Other long-term liabilities....................... (1,189) 71 158
------ ------ ------
Net cash from operating activities.............. 2,011 4,264 5,340
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................ (2,215) (1,489) (3,487)
------ ------ ------
Net cash from investing activities................... (2,215) (1,489) (3,487)
CASH FLOWS FROM FINANCING ACTIVITIES
Net capital contribution/(distribution)
Mallinckrodt Inc..................................... 204 (2,775) (1,853)
------ ------ ------
Cash flows from financing activities.............. 204 (2,775) (1,853)
------ ------ ------
Net change in cash.......................................... -- -- --
Cash at beginning of year................................... -- -- --
------ ------ ------
CASH AT END OF YEAR......................................... $ -- $ -- $ --
====== ====== ======
Supplemental disclosures of cash flow information
Cash paid during the year for income taxes paid........... $1,096 $1,443 $2,282
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE> 115
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by TRIMET
Technical Products, a division of Mallinckrodt Inc. (the Company) are as
follows:
Description of Business: The Company, based in Allentown, Pennsylvania, is
a leading producer of two chemically unique specialty polyols (DMPA(R) and TME).
The Company is a Division of Mallinckrodt Inc. (Mallinckrodt) and sells its
products to customers in the United States, Europe, and other selected
countries. All operating assets are located in the United States.
In June 1998, Mallinckrodt Chemical, Inc. was merged with Mallinckrodt
Medical, Inc. and the name of the surviving corporation was changed to
Mallinckrodt Inc. The merger and subsequent name change had no effect on the
financial position of the TRIMET Technical Products Division.
Fiscal Year: The Company's fiscal year begins on July 1 and ends on June 30
of each year.
Revenue Recognition: The Company recognizes revenue, net of allowances for
estimated returns, upon shipment of the product.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Property and Equipment: Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to expense as incurred and
expenditures for additions and improvements which significantly extend the lives
of assets are capitalized. Upon sale or other retirement of depreciable
property, the cost and accumulated depreciation are removed from the related
accounts and any gain or loss is reflected in operations.
Manufacturing equipment and office equipment are depreciated over the
estimated useful lives of the assets, ranging from 5 to 15 years, using the
straight-line method.
Income Taxes: Mallinckrodt has allocated income taxes to the Company on the
same basis as if the Company had filed a separate income tax return.
The deferred tax liability or asset at each balance sheet date is measured
by applying enacted tax laws to future amounts that will result from differences
in the financial statement and tax bases of assets and liabilities.
Financial Instruments: The carrying value of accounts receivable and
accounts payable approximates fair value because of the short maturity of these
items.
Allocations and Use of Estimates: During the years ended June 30, 1996,
1997 and 1998 the Company was allocated certain operational and administrative
expenses from Mallinckrodt Inc. Allocations were based on various methods
including asset cost, relative sales volume, headcount, and estimates of time
spent. Management believes these allocations are based on reasonable methods.
Sales, returns, material cost, and direct labor cost were specifically
identified to the Company and were not based on allocations.
F-42
<PAGE> 116
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Management must make estimates and assumptions in preparing financial
statements that affect the amounts reported therein and the disclosures
provided. These estimates, allocations and assumptions may change in the future
and future results could differ.
Foreign Currency Translations: The accounts receivable of the Company's
outstanding international sales are translated into U.S. dollars and adjusted at
the end of each period. Any gains or losses from these transactions are included
in the statement of operations.
NOTE 2 -- INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1997 1998
------ ------
<S> <C> <C>
Raw materials............................................. $ 343 $ 632
Work in process........................................... 163 171
Finished goods............................................ 1,046 1,063
------ ------
Total inventory................................... $1,552 $1,866
====== ======
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following major classifications:
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1998
------ -------
<S> <C> <C>
Land and improvements..................................... $1,727 $ 1,730
Buildings................................................. 1,878 2,248
Manufacturing equipment................................... 19,014 22,755
Office equipment.......................................... 198 309
------ -------
22,817 27,042
Accumulated depreciation.................................. 15,226 15,184
------ -------
7,591 11,858
Construction in progress.................................. 2,199 576
------ -------
$9,790 $12,434
====== =======
</TABLE>
NOTE 4 -- INCOME TAXES
The income tax provision is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Current payable...................................... $1,096 $1,443 $2,282
Deferred income taxes................................ 969 367 418
------ ------ ------
$2,065 $1,810 $2,700
====== ====== ======
</TABLE>
F-43
<PAGE> 117
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Income tax expense is reconciled to the tax expense that would result from
applying regular statutory rates to pretax income as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Income taxes at the statutory rate..................... $1,728 $1,513 $2,259
State taxes, net of federal benefit.................... 337 297 441
------ ------ ------
$2,065 $1,810 $2,700
====== ====== ======
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1998
------- -------
<S> <C> <C>
Current deferred items
Accounts receivable allowance............................ $ 19 $ 24
Inventory valuation...................................... 395 365
------- -------
414 389
Noncurrent deferred items
Prepaid pension cost..................................... (248) (247)
Accrued post-employment and post-retirement cost......... 561 626
Depreciation............................................. (1,647) (2,106)
------- -------
(1,334) (1,727)
------- -------
$ (920) $(1,338)
======= =======
</TABLE>
NOTE 5 -- EMPLOYEE BENEFIT PLANS
Retirement Income Plans: Employees of the Company not covered by a
collective bargaining agreement participate in a Mallinckrodt Inc. defined
benefit pension plan. Mallinckrodt Inc.'s funding policy is to contribute an
amount meeting the required employer contribution under the Employee Retirement
Income Security Act of 1974 (ERISA). Plan assets are invested in corporate
equity and U.S. government securities and units in a short-term investment fund.
The Company's expense for this plan for the years ended June 30, 1996, 1997 and
1998 was $(4), $85 and $80, respectively. Pension expense was allocated based on
actuarial calculations.
Summarized information about the Mallinckrodt Inc. plans with assets in
excess of accumulated benefits at June 30, 1998 is as follows: Accumulated
benefit obligation -- $365,100; Projected benefit obligation -- $461,700; Plan
assets -- $427,200; Accrued liability -- $35,300; Service cost -- $21,100;
Interest -- $34,800; Return on assets -- ($104,500); Amortization of prior
service costs -- $71,000; Special termination benefits gains/losses,
net -- $7,500; Net expense -- $29,900. The assumptions used to calculate the
accrued pension cost are as follows: 7.75%, 8.0% and 7.0% weighted average
discount rates used in determining the actuarial present value of the projected
benefit obligation, 5%, 5% and 4.5% expected rates of compensation increase, and
9.0%, 9.5% and 9.5% long-term rates of return on assets for the years ended June
30, 1996, 1997 and 1998, respectively.
F-44
<PAGE> 118
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
A separate pension plan is maintained for employees of the Company covered
by a collective bargaining agreement. The plan calls for benefits to be paid to
eligible employees at retirement based upon years of service multiplied by a
monthly compensation factor. Liabilities of the collectively bargained pension
plan are actuarially calculated based upon negotiated benefit amounts, overall
plan provisions and plan demographics. Participants are fully vested after five
years.
Pension expense for this plan for the years ended 1996, 1997, and 1998
includes the following components:
<TABLE>
<CAPTION>
1996 1997 1998
------- ----- -------
<S> <C> <C> <C>
Service cost........................................ $ 20 $ 31 20
Interest cost on projected benefit obligation....... 391 383 380
Actual return on assets............................. (1,076) (466) (1,714)
Net amortization of prior service cost, transition
liability, and net gain........................... 755 135 1,319
------- ----- -------
Pension expense..................................... $ 90 $ 83 $ 5
======= ===== =======
</TABLE>
The following sets forth the funded status of the plan and the amounts
shown in the accompanying balance sheets at June 30, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $(5,002) $(4,741)
Nonvested benefits........................................ (29) (249)
------- -------
Accumulated benefit obligation.............................. $(5,031) $(4,990)
======= =======
Projected benefit obligation................................ $(5,031) $(4,990)
Fair value of assets held in the plan....................... 5,683 6,836
------- -------
Plan assets in excess of projected benefit obligation....... 652 1,846
Unrecognized net gain from the effects of changes in
assumptions............................................... (455) (1,549)
Unrecognized prior service cost............................. 16 10
Unamortized transition liability............................ 399 300
------- -------
Pension asset............................................... $ 612 $ 607
======= =======
</TABLE>
The weighted average discount rates used to measure the projected benefit
obligation are 7.75%, 8.0% and 7.0% for the years ended June 30, 1996, 1997, and
1998, respectively, and the expected long-term rates of return on assets are
9.0%, 9.5% and 9.5% for the years ended June 30, 1996, 1997, and 1998,
respectively. The Company uses the straight-line method of amortization for
prior service cost and unrecognized gains and losses.
The Company also participates in a Mallinckrodt Inc. defined contribution
plan. Participation in the plan is voluntary. Substantially all employees are
eligible to participate. Expenses related to the plan consist primarily of
Company contributions, which are based on percentages of employee contributions,
F-45
<PAGE> 119
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
plus discretionary amounts determined on an annual basis. Defined contribution
investment plan expense for 1996, 1997 and 1998 was $86, $79 and $94,
respectively.
Post-retirement Benefits Other Than Pensions: The Company also participates
in a post-retirement benefit plan maintained by Mallinckrodt Inc. Employees
retiring from the Company on or after attaining specified age and service
requirements may become eligible for post-retirement health care benefits. The
Company's expense for post-retirement health care benefits for the years ended
June 30, 1996, 1997 and 1998 was $266, $200 and $178, respectively.
As of June 30, 1997 and 1998, Mallinckrodt Inc. had an accrued
post-retirement benefit liability of $161,900 and $169,200, respectively. There
are no plan assets. The Company's share of the accrued post-retirement costs as
of June 30, 1997 and 1998 is $1,262 and $1,397, respectively, which was recorded
by the Company. The assumptions used to calculate the accrued post-retirement
cost at June 30, 1996, 1997 and 1998 are as follows: 7.75%, 8.0% and 7.0%
weighted average discount rates used in determining the actuarial present value
of the accumulated post-retirement benefit obligations, and 9.0%, 8.5% and 8.0%
assumed health care cost trends, declining gradually to an ultimate rate of
4.75%. A one percentage point increase in the healthcare cost trend would
increase the Mallinckrodt Inc. accumulated post-retirement obligation for 1998
by $11,400 and the aggregate service and interest cost by $1,200.
In addition, the Company provides certain post-employment benefits to its
employees. These include disability benefits and continuation of health care
benefits to former employees after employment but before retirement.
Post-employment benefit expense for the years ended June 30, 1996, 1997 and 1998
was $34, $35 and $35, respectively. The Company's share of the accrued
post-employment costs is $121 and $144 as of June 30, 1997 and 1998,
respectively.
NOTE 6 -- RELATED PARTY TRANSACTIONS
The Company has been allocated costs from Mallinckrodt Inc. in the amounts
of $941, $1,671 and $1,349 for the years ended June 30, 1996, 1997 and 1998,
respectively. The amounts represent costs associated with human resources,
information systems, aviation, internal audit, strategic planning, property,
franchise and other taxes, risk management, regulatory affairs, treasury
functions, legal services and centralized financial shared services.
The expenses related to these services were allocated to the Company as
discussed in Note 1.
The Company's cash collections and cash disbursements are administered by
Mallinckrodt Inc. The overall net amount of cash received and cash disbursed is
reflected as a net capital contribution/distribution in the Statements of
Divisional Equity.
F-46
<PAGE> 120
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
NOTE 7 -- GEOGRAPHIC SALES
The following summarizes sales in the geographic locations:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues
United States.................................. $17,766 $16,635 $18,313
Europe......................................... 4,772 6,511 7,761
Other geographical areas....................... 3,151 3,622 3,431
------- ------- -------
$25,689 $26,768 $29,505
======= ======= =======
Accounts Receivable
United States.................................. $ 2,254 $ 2,514
Europe......................................... 1,161 1,182
Other geographical areas....................... 887 493
------- -------
$ 4,302 $ 4,189
======= =======
</TABLE>
NOTE 8 -- EMPLOYEE STOCK OPTIONS
Certain employees of the Company have stock options in Mallinckrodt Inc.
The exercise price of the options granted by Mallinckrodt Inc. has generally
been equal to or greater than fair market value at the date of the grant. As of
June 30, 1998, there were approximately 7,200 shares granted under this plan.
Trimet employees hold options to purchase approximately 28 shares of common
stock.
The Company applies APB Opinion 25 in accounting for its stock compensation
plans. Accordingly, no compensation cost has been recognized for the plan in
1996, 1997 or 1998. Had compensation cost been determined on the basis of fair
value pursuant to FASB Statement No. 123, net income would not have been reduced
by a material amount.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company has incurred environmental remediation costs resulting from
past operations. These costs have been incurred primarily on property which is
not currently used in the operations and is to be retained by Mallinckrodt Inc.
as part of the transaction described in Note 10. Remediation costs incurred and
charged to operations in 1996, 1997 and 1998 were $135, $228 and $1,042,
respectively.
The Company is subject to extensive laws and regulations pertaining to the
discharge of material into the environment, the handling and disposal of solid
and hazardous wastes, and the remediation of contamination, and otherwise
relating to health, safety and protection of the environment. As such, the
Company's operations and the environment condition of its real property could
give rise to liabilities under applicable environmental laws and there can be no
assurance that material costs will not be incurred in connection with such
liabilities. There can be no assurance that the Company's facilities will not
require environmental remediation in the future. Environmental laws are
constantly evolving and it is impossible to predict accurately the effect they
may have upon the capital expenditures, earnings or competitive position of the
Company in the future. Should environmental laws become more stringent,
F-47
<PAGE> 121
TRIMET TECHNICAL PRODUCTS,
A DIVISION OF MALLINCKRODT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
the cost of compliance could increase. If the Company cannot pass on future
costs to its customers, such increases may have an adverse effect on the
Company's financial condition or results of operations.
There are currently no known environmental remediation activities or any
requests by any governmental agency to remediate in regards to the property to
be sold by Mallinckrodt Inc. other than activities for which costs are
specifically being paid by Mallinckrodt Inc.
NOTE 10 -- SUBSEQUENT EVENT
On July 31, 1998, Mallinckrodt Inc. sold substantially all of the assets of
the TRIMET Technical Products Division. The sale included the assumption of the
certain identified liabilities and obligations of the business.
F-48
<PAGE> 122
- ------------------------------------------------------
- ------------------------------------------------------
GEO HAS NOT AUTHORIZED ANYONE TO PROVIDE ANY INFORMATION IN CONNECTION
WITH THIS OFFERING OTHER THAN THE INFORMATION CONTAINED IN THIS PROSPECTUS. YOU
SHOULD RELY ONLY UPON THE INFORMATION CONTAINED IN THIS PROSPECTUS IN DECIDING
WHETHER TO MAKE AN INVESTMENT IN THE OFFERED NOTES. THIS PROSPECTUS IS NOT AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
OFFERED NOTES. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR THE SOLICITATION OF
AN OFFER TO BUY TO ANY PERSON IN A JURISDICTION WHERE THE OFFER OR SOLICITATION
IS NOT PERMITTED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED, OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. THE DELIVERY OF AND ANY SALE MADE UNDER THIS PROSPECTUS DOES NOT
IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF GEO SINCE THE DATE OF THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 9
Proceeds from the Offering of the
Outstanding Notes........................ 15
Unaudited Pro Forma Financial Data......... 16
Selected Historical Financial Data......... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 22
GEO's Business............................. 29
Management................................. 40
Management Compensation.................... 43
Shareholders............................... 47
Description of GEO's Senior Credit
Facility................................. 49
The Exchange Offer......................... 51
Description of the Offered Notes........... 58
Form and Delivery of the Offered Notes..... 66
Certificated Securities.................... 68
Federal Income Tax Considerations.......... 68
Plan of Distribution....................... 69
Legal Matters.............................. 70
Experts.................................... 70
Where You Can Find More Information About
GEO...................................... 70
Index to Financial Statements.............. F-1
</TABLE>
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN
THE OFFERED NOTES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
EXCHANGE OFFER FOR
$120,000,000
10 1/8% SENIOR SUBORDINATED
NOTES DUE 2008
GEO SPECIALTY CHEMICALS
PROSPECTUS
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 123
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the issuance and distribution of the securities
being registered are estimated (other than with respect to the SEC registration
fee) to be as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 33,360
Exchange Agent Fees and Expenses............................ $ 1,000
Printing Fees and Expenses.................................. $100,000
Accounting Fees and Expenses................................ $400,000
Legal Fees and Expenses..................................... $ 75,000
Miscellaneous............................................... $ 5,000
--------
Total............................................. $614,360
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Paragraph (E) of Section 1701.13 of the Ohio Revised Code grants each
corporation organized under the laws of the State of Ohio, such as GEO, the
power to indemnify its directors, officers and other specified persons.
Provisions relating to indemnification of directors and officers of GEO and
other specified persons have been adopted pursuant to Ohio law and are contained
in GEO's Code of Regulations.
GEO's Code of Regulations requires GEO to indemnify its directors and
officers against expenses, judgments, fines and amounts paid in settlement in
connection with any proceeding, whether civil, criminal, administrative or
investigative, arising by reason of the fact that such person is or was a
director or officer of GEO. These indemnification provisions apply only where
the director or officer acted in good faith and in a manner that the director or
officer reasonably believed to be in or not opposed to GEO's best interests.
Indemnification is not required if the actions of the director or officer were
taken with intent to cause injury to GEO. Indemnification is also not required
if there is a finding of negligence or misconduct on the part of the director or
officer. In criminal actions, indemnification is required only if the director
or officer had no reasonable cause to believe his conduct was unlawful.
GEO's Code of Regulations further provides that GEO will pay in advance of
the final determination of any such proceeding any expenses incurred by the
director or officer in their defense. However, upon any such advance the
director or officer must provide an undertaking to GEO that such director or
officer will repay the amount of the advance if it is ultimately determined that
the director or officer is not entitled to be indemnified by GEO. GEO's Code of
Regulations also allows GEO to purchase liability insurance covering any
liability that might be asserted against any director or officer of GEO as a
result of their status as such. Accordingly, GEO maintains director's and
officer's liability insurance in favor of each of the directors and officers of
GEO.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 25, 1997, GEO issued 82.31 common shares to Charter Oak Partners
for a purchase price of $14,754,251.87, in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933 as a
transaction by an issuer not involving any public offering. On the same date,
GEO issued to Charter Oak Partners and Chemical Specialties Enterprises, Inc.
(whose successor-in-interest by merger is GEO Chemicals, Ltd.) warrants to
purchase common shares of GEO, in reliance
II-1
<PAGE> 124
upon the exemption from registration set forth in Section 4(2) of the Securities
Act of 1933 as transactions by an issuer not involving any public offering. The
warrant granted to Charter Oak Partners allows it to purchase over four years,
upon the failure of GEO to achieve certain specified earnings targets in such
years, common shares in an amount equal to a maximum of 8% of the outstanding
equity of GEO. The warrant granted to Chemical Specialties Enterprises, Inc.
allows it to purchase, upon the achievement by Charter Oak of a certain rate of
return on its investment in GEO, common shares in an amount equal to a maximum
of 5% of the outstanding equity of GEO. The agreements underlying these warrants
were amended and restated on July 31, 1998.
On July 31, 1998, GEO issued 31.645 common shares to its shareholders and
their affiliates for an aggregate cash purchase price of $6.0 million, in
reliance upon the exemption from registration set forth in Section 4(2) of the
Securities Act of 1933 as transactions by an issuer not involving any public
offering.
On July 31, 1998, GEO sold $120,000,000 aggregate principal amount of its
10 1/8% senior subordinated notes due 2008 in a private placement to BT
Alex.Brown Incorporated at a price equal to 97% of the stated principal amount
of such notes. This sale was made by GEO in reliance upon the exemption from
registration provided in Section 4(2) of the Securities Act of 1933 as a
transaction by an issuer not involving any public offering. BT Alex.Brown
Incorporated immediately resold such notes to a number of qualified
institutional buyers in reliance upon the exemption from registration provided
in Rule 144A promulgated under the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
2.1 Asset Purchase Agreement, dated June 29, 1998, by and among
GEO Specialty Chemicals, Inc., Mallinckrodt Inc. (a Delaware
corporation) and Mallinckrodt Inc. (a New York corporation)*
2.2 Asset Sale and Purchase Agreement, dated February 10, 1997,
by and among GEO Specialty Chemicals, Inc., Henkel
Corporation and Henkel Canada Limited*
2.3 Asset Purchase Agreement, dated December 5, 1996, by and
between GEO Specialty Chemicals, Inc. and Cytec Industries
Inc.*
2.4 Amended and Restated Asset Sale Agreement, dated July 15,
1994, by and among GEO Specialty Chemicals, Inc., Courtney
Industries, Inc. and C Associates*
2.5 Asset Purchase Agreement, dated June 5, 1992, by and between
GEO Specialty Chemicals, Inc. and Rhone-Poulenc Basic
Chemicals Co.*
3.1 Amended Articles of Incorporation of GEO Specialty
Chemicals, Inc.*
3.2 Amended Code of Regulations of GEO Specialty Chemicals,
Inc.*
4.1 Indenture, dated July 31, 1998, by and between GEO Specialty
Chemicals, Inc. and Chase Manhattan Trust Company, National
Association, as the trustee*
4.2 Form of outstanding Senior Subordinated Note (included in
Exhibit 4.1)
4.3 Form of offered Senior Subordinated Note (included in
Exhibit 4.1)
5.1 Opinion of Thompson Hine & Flory LLP regarding the legality
of the offered 10 1/8% Senior Subordinated Notes due 2008
10.1 Share Purchase Agreement, dated March 25, 1997, by and
between GEO Specialty Chemicals, Inc. and Charter Oak
Partners*
10.2 Amended and Restated Shareholders Agreement, dated July 31,
1998, by and among GEO Specialty Chemicals, Inc., Charter
Oak Partners, Charter Oak Capital Partners, GEO Chemicals,
Ltd., George P. Ahearn, William P. Eckman, George W. Rapp,
Jr. and A. Elliott Archer*
</TABLE>
II-2
<PAGE> 125
<TABLE>
<C> <S>
10.3 Amended and Restated Warrant Agreement, dated July 31, 1998,
by and between GEO Specialty Chemicals, Inc. and Charter Oak
Partners*
10.4 Amended and Restated Warrant Agreement, dated July 31, 1998,
by and between GEO Specialty Chemicals, Inc. and GEO
Chemicals, Ltd.*
10.5 Employment Agreement, dated March 25, 1997, by and between
GEO Specialty Chemicals, Inc. and George P. Ahearn*
10.6 Employment Agreement, dated March 25, 1997, by and between
GEO Specialty Chemicals, Inc. and William P. Eckman*
10.7 Employment Agreement, dated May 20, 1996, by and between GEO
Specialty Chemicals, Inc. and Mr. Dennis S. Grandle*
10.8 Supply Agreement (Supply to Buyer), dated March 25, 1997, by
and between GEO Specialty Chemicals, Inc. and Henkel
Corporation*
10.9 Supply Agreement (Supply to Henkel), dated March 25, 1997,
by and between GEO Specialty Chemicals, Inc. and Henkel
Corporation*
10.10 Purchase Agreement, dated July 31, 1998, by and between GEO
Specialty Chemicals, Inc. and BT Alex.Brown Incorporated*
10.11 Registration Rights Agreement, dated July 31, 1998, by and
between GEO Specialty Chemicals, Inc. and BT Alex.Brown
Incorporated*
10.12 Provisional Lease Agreement, dated July 29, 1998, by and
between GEO Specialty Chemicals, Inc. and Mallinckrodt Inc.
(a Delaware corporation)*
10.13 Lease Agreement, dated July 29, 1998, by and between GEO
Specialty Chemicals, Inc. and Mallinckrodt Inc. (a Delaware
corporation)*
10.14 Credit Agreement, dated March 25, 1997 and amended and
restated as of July 31, 1998, by and among GEO Specialty
Chemicals, Inc., various lending institutions and Bankers
Trust Company, as the administrative agent*
10.15 GEO Specialty Chemicals, Inc. 1997 Management Incentive
Program*
12.1 Computation of ratio of earnings to fixed charges*
21.1 Subsidiaries of GEO Specialty Chemicals, Inc.*
23.1 Consent of Thompson Hine & Flory LLP (included in Exhibit
5.1)
23.2 Consent of Crowe, Chizek and Company LLP, independent
accountants
23.3 Consent of Arthur Andersen LLP, independent accountants
24.1 Power of Attorney*
25.1 Statement of eligibility and qualification of Chase
Manhattan Trust Company, National Association, as the
trustee under the Indenture filed as Exhibit 4.1 (Form T-1)*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
</TABLE>
* These agreements and documents were filed as exhibits to GEO's Registration
Statement on Form S-1 filed on December 31, 1998 and, accordingly, are not
filed herewith. The schedules to Exhibits 2.1, 2.2, 2.3, 2.4 and 2.5 have not
been filed with the Securities and Exchange Commission pursuant to Item
601(b)(2) of Regulation S-K. GEO will supplementally provide copies of such
schedules to the Securities and Exchange Commission upon request.
II-3
<PAGE> 126
(b) Financial Statement Schedules:
All schedules are omitted since the required information is not present or
is not present in the amounts sufficient to require submission of the schedules,
or because the information required is included in the financial statements and
notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(h) 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
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a 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 of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(j) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-4
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Cleveland,
state of Ohio, on April 2, 1999.
GEO SPECIALTY CHEMICALS, INC.
By: /s/ GEORGE P. AHEARN
-----------------------------------
George P. Ahearn
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GEORGE P. AHEARN President and Chief Executive Officer;
- ----------------------------------------------------- Principal Executive Officer; Director
George P. Ahearn
/s/ WILLIAM P. ECKMAN Executive Vice President; Chief Financial
- ----------------------------------------------------- Officer;
William P. Eckman Principal Financial and Accounting Officer;
Director
/s/ ANATOLE G. PENCHUK Director
- -----------------------------------------------------
Anatole G. Penchuk
/s/ GEORGE W. RAPP, JR. Director
- -----------------------------------------------------
George W. Rapp, Jr.
/s/ A. ELLIOTT ARCHER Director
- -----------------------------------------------------
A. Elliott Archer
By: /s/ GEORGE P. AHEARN April 2, 1999
------------------------------------------------
George P. Ahearn, Attorney-in-Fact
for the Officers and Directors
signing in the capacities indicated
</TABLE>
II-5
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Asset Purchase Agreement, dated June 29, 1998, by and among
GEO Specialty Chemicals, Inc., Mallinckrodt Inc. (a Delaware
corporation) and Mallinckrodt Inc. (a New York corporation)*
2.2 Asset Sale and Purchase Agreement, dated February 10, 1997,
by and among GEO Specialty Chemicals, Inc., Henkel
Corporation and Henkel Canada Limited*
2.3 Asset Purchase Agreement, dated December 5, 1996, by and
between GEO Specialty Chemicals, Inc. and Cytec Industries
Inc.*
2.4 Amended and Restated Asset Sale Agreement, dated July 15,
1994, by and among GEO Specialty Chemicals, Inc., Courtney
Industries, Inc. and C Associates*
2.5 Asset Purchase Agreement, dated June 5, 1992, by and between
GEO Specialty Chemicals, Inc. and Rhone-Poulenc Basic
Chemicals Co.*
3.1 Amended Articles of Incorporation of GEO Specialty
Chemicals, Inc.*
3.2 Amended Code of Regulations of GEO Specialty Chemicals,
Inc.*
4.1 Indenture, dated July 31, 1998, by and between GEO Specialty
Chemicals, Inc. and Chase Manhattan Trust Company, National
Association, as the trustee*
4.2 Form of outstanding Senior Subordinated Note (included in
Exhibit 4.1)
4.3 Form of offered Senior Subordinated Note (included in
Exhibit 4.1)
5.1 Opinion of Thompson Hine & Flory LLP regarding the legality
of the offered 10 1/8% Senior Subordinated Notes due 2008
10.1 Share Purchase Agreement, dated March 25, 1997, by and
between GEO Specialty Chemicals, Inc. and Charter Oak
Partners*
10.2 Amended and Restated Shareholders Agreement, dated July 31,
1998, by and among GEO Specialty Chemicals, Inc., Charter
Oak Partners, Charter Oak Capital Partners, GEO Chemicals,
Ltd., George P. Ahearn, William P. Eckman, George W. Rapp,
Jr. and A. Elliott Archer*
10.3 Amended and Restated Warrant Agreement, dated July 31, 1998,
by and between GEO Specialty Chemicals, Inc. and Charter Oak
Partners*
10.4 Amended and Restated Warrant Agreement, dated July 31, 1998,
by and between GEO Specialty Chemicals, Inc. and GEO
Chemicals, Ltd.*
10.5 Employment Agreement, dated March 25, 1997, by and between
GEO Specialty Chemicals, Inc. and George P. Ahearn*
10.6 Employment Agreement, dated March 25, 1997, by and between
GEO Specialty Chemicals, Inc.* and William P. Eckman*
10.7 Employment Agreement, dated May 20, 1996, by and between GEO
Specialty Chemicals, Inc. and Mr. Dennis S. Grandle*
10.8 Supply Agreement (Supply to Buyer), dated March 25, 1997, by
and between GEO Specialty Chemicals, Inc. and Henkel
Corporation*
10.9 Supply Agreement (Supply to Henkel), dated March 25, 1997,
by and between GEO Specialty Chemicals, Inc. and Henkel
Corporation*
10.10 Purchase Agreement, dated July 31, 1998, by and between GEO
Specialty Chemicals, Inc. and BT Alex.Brown Incorporated*
10.11 Registration Rights Agreement, dated July 31, 1998, by and
between GEO Specialty Chemicals, Inc. and BT Alex.Brown
Incorporated*
10.12 Provisional Lease Agreement, dated July 29, 1998, by and
between GEO Specialty Chemicals, Inc. and Mallinckrodt Inc.
(a Delaware corporation)*
10.13 Lease Agreement, dated July 29, 1998, by and between GEO
Specialty Chemicals, Inc. and Mallinckrodt Inc. (a Delaware
corporation)*
</TABLE>
II-6
<PAGE> 129
<TABLE>
<C> <S>
10.14 Credit Agreement, dated March 25, 1997 and amended and
restated as of July 31, 1998, by and among GEO Specialty
Chemicals, Inc., various lending institutions and Bankers
Trust Company, as the administrative agent*
10.15 GEO Specialty Chemicals, Inc. 1997 Management Incentive
Program*
12.1 Computation of ratio of earnings to fixed charges*
21.1 Subsidiaries of GEO Specialty Chemicals, Inc.*
23.1 Consent of Thompson Hine & Flory LLP (included in Exhibit
5.1)
23.2 Consent of Crowe, Chizek and Company LLP, independent
accountants
23.3 Consent of Arthur Andersen LLP, independent accountants
24.1 Power of Attorney*
25.1 Statement of eligibility and qualification of Chase
Manhattan Trust Company, National Association, as the
trustee under the Indenture filed as Exhibit 4.1 (Form T-1)*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
</TABLE>
- ---------------
* These agreements and documents were filed as exhibits to GEO's Registration
Statement on Form S-1 filed on December 31, 1998 and, accordingly, are not
filed herewith. The schedules to Exhibits 2.1, 2.2, 2.3, 2.4 and 2.5 have not
been filed with the Securities and Exchange Commission pursuant to Item
601(b)(2) of Regulation S-K. GEO will supplementally provide copies of such
schedules to the Securities and Exchange Commission upon request.
II-7
<PAGE> 1
[Thompson Hine & Flory LLP Letterhead]
Exhibit 5.1
March 29, 1999
GEO Specialty Chemicals, Inc.
28601 Chagrin Boulevard, Suite 210
Cleveland, Ohio 44122
Dear Sirs:
We have acted as counsel to GEO Specialty Chemicals, Inc., an Ohio
corporation ("GEO"), in connection with the preparation by GEO of a Registration
Statement on Form S-1, to be filed with the Securities and Exchange Commission
under the Securities Act of 1933, relating to $120 million aggregate principal
amount of its 10 1/8% Senior Subordinated Notes due 2008 (the "Offered Notes")
to be offered in exchange for a like principal amount of its outstanding 10 1/8%
Senior Subordinated Notes due 2008 (as the same may be amended, the
"Registration Statement"). The Offered Notes will be issued pursuant to an
Indenture, dated as of July 31, 1998 (the "Indenture"), by and between GEO and
Chase Manhattan Trust Company, National Association, as the trustee (the
"Trustee").
In rendering this opinion, we have examined copies of the Indenture,
the form of the Offered Notes set forth in the Indenture and such other
documents as we have deemed necessary or appropriate to render this opinion. In
our examination we have assumed the genuineness of all signatures; the
authenticity of all documents submitted to us as originals; the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies; and the authenticity of the originals of such copies. As to
questions of fact not independently verified by us we have relied, to the extent
we have deemed appropriate, upon representations and certificates of officers of
GEO, public officials and other appropriate persons. We have investigated such
questions of law for the purpose of rendering this opinion as we have deemed
necessary. We express no opinion with respect to compliance with state
securities laws or with respect to any state or federal law relating to
fraudulent conveyance.
Based upon the foregoing and subject to the qualifications, exceptions
and limitations set forth herein, we are of the opinion that, when (i) the
agreements, documents and certificates that are required to be executed and
delivered pursuant to, or are contemplated by, the Indenture upon the issuance
of the Offered Notes have been executed and delivered by the applicable parties,
(ii) the Offered Notes have been duly executed, authenticated and delivered in
accordance with the Indenture, and (iii) one or more global certificates in
definitive, fully registered form has been delivered by GEO to the Trustee and
deposited by the Trustee with,
<PAGE> 2
and accepted by, The Depository Trust Company, the Offered Notes will be
legally issued, fully paid and non-assessable and will constitute the legally
valid and binding obligations of GEO, except as may be limited by (a)
bankruptcy, reorganization, insolvency or other similar laws of general
application affecting the rights and remedies of creditors and secured parties
and (b) the discretion of the courts in applying equitable principles.
To the extent that the obligations of GEO under the Indenture may be
dependent upon such matters, we assume for purposes of this opinion that the
Trustee is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization; that the Trustee is duly qualified to
engage in the activities contemplated by the Indenture; that the Indenture has
been duly authorized, executed and delivered by the Trustee and constitutes the
valid, binding and enforceable obligation of the Trustee; that the Trustee is in
compliance, generally and with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite corporate and legal power and authority to perform its obligations
under the Indenture.
The opinions expressed in this letter are limited to the matters set
forth herein and no other opinions should be inferred beyond the matters
expressly stated. We assume no obligation to revise or supplement this opinion
in the event of any amendment, supplement or other modification of the Indenture
or any other agreement, document or certificate executed and delivered in
connection with the issuance of the Offered Notes, or upon a change in any of
the laws of the United States or any jurisdiction thereof by legislative action,
judicial decision or otherwise.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Sincerely,
/s/ THOMPSON HINE & FLORY LLP
Thompson Hine & Flory LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Registration Statement on Form
S-1 and the related Prospectus of our reports dated February 13, 1999, October
22, 1998, and August 7, 1998 on the financial statements of GEO Specialty
Chemicals, Inc.; Paper Chemicals and Construction and Processing Chemicals,
Businesses of Henkel Corporation and Henkel Canada Limited; and Trimet Technical
Products, a Division of Mallinckrodt Inc., respectively, and to the reference to
our firm under the heading "Experts" included in this Registration Statement and
the related Prospectus.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
April 1, 1999
<PAGE> 1
EXHIBIT 23.3
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our
report dated March 7, 1997 and to all references to our Firm included in or made
a part of this registration statement (Registration Statement File No.
333-70011).
Cleveland, Ohio,
March 29, 1999
