<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
-----------------------------
GENTEK INC.
(Exact name of registrant as specified in its charter)
Delaware Pending
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Liberty Lane 03842
Hampton, New Hampshire (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: _____________
Securities to be registered pursuant to Section 12(b) of the Securities Exchange
Act of 1934:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- ------------------- ------------------------------
<S> <C>
Common Stock, New York Stock Exchange
par value $.01 per share
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act: None.
==============================================================================
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EXPLANATORY NOTE
This Registration Statement on Form 10 has been prepared on a prospective basis
on the assumption that, among other things, the Spinoff (as hereinafter defined)
and the related transactions contemplated to occur prior to or contemporaneously
with the Spinoff will be consummated as contemplated by the Information
Statement which is a part of this Registration Statement. There can be no
assurance, however, that any or all of such transactions will occur or will
occur as so contemplated. Any significant modifications or variations in the
transactions contemplated will be reflected in an amendment or supplement to
this Registration Statement.
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<PAGE> 3
CROSS-REFERENCE
GENTEK INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
ITEM 1. BUSINESS.
The information required by this item is contained under the section
entitled "The GenTek Business" in the Information Statement dated __________
attached hereto as Annex A (the "Information Statement"), and such section is
incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is contained under the sections
entitled "GenTek Business Selected Financial Data" and "GenTek Business:
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Information Statement, and such sections are incorporated
herein by reference.
ITEM 3. PROPERTIES.
The information required by this item is contained under the section
entitled "The GenTek Business--Properties" in the Information Statement, and
such section is incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is contained under the section
entitled "Beneficial Ownership of GenTek and General Chemical Group Common
Stock" in the Information Statement, and such section is incorporated herein by
reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is contained under the section
entitled "GenTek Business: Management" in the Information Statement, and such
section is incorporated herein by reference.
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ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is contained under the section
entitled "GenTek Business: Compensation of Directors and Executive Officers" in
the Information Statement, and such section is incorporated herein by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is contained under the sections
entitled "Certain Relationships and Affiliate Transactions," "Arrangements
Between GenTek and New GCG Relating to the Spinoff" and "Special
Factors--Control by and Relationship with Principal Stockholder; Potential
Conflicts of Interest" in the Information Statement, and such sections are
incorporated herein by reference.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is contained under the sections
entitled "The GenTek Business--Environmental Matters" and "The GenTek
Business--Legal Proceedings" in the Information Statement, and such sections
are incorporated herein by reference.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is contained under the sections
entitled "Summary--Questions and Answers about the Spinoff, GenTek and New GCG,"
"The Spinoff," "Special Factors--Absence of a Trading Market; Possible
Volatility of Stock Price" and "Certain Provisions of Certificate of
Incorporation and Bylaws of GenTek--Dividends" in the Information Statement,
and such sections are incorporated herein by reference.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On January 25, 1999, as part of its original incorporation, GenTek Inc.
issued 1,000 shares of its Common Stock for a total consideration of $10 to New
Hampshire Oak, Inc. ("New Hampshire Oak"), a wholly owned subsidiary of The
General Chemical Group Inc. New Hampshire Oak is and will be the sole
shareholder of GenTek Inc. until the Spinoff as described in the section
entitled "The Spinoff" in the Information Statement, which section is
incorporated herein by reference. Before the Spinoff, GenTek Inc. will issue an
additional __ shares of its Common Stock and __ shares of its Class B common
stock, par value $.01 per share, to New Hampshire Oak, which will then
immediately distribute all such shares to The General Chemical Group Inc.
Subsequent to the Spinoff, neither New Hampshire Oak nor The General Chemical
Group Inc. will hold any equity interest in GenTek Inc.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is contained under the sections
entitled "Description of Capital Stock of GenTek" and "Certain Provisions of
Certificate of Incorporation and Bylaws of GenTek" in the Information Statement,
and such sections are incorporated herein by reference.
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Reference is also made to the Certificate of Incorporation and Bylaws of GenTek
Inc. which are set forth as Exhibits 3.01 and 3.02 hereto.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is contained under the section
entitled "Certain Provisions of Certificate of Incorporation and Bylaws of
GenTek--Indemnification and Limitation of Liability" in the Information
Statement, and such section is incorporated herein by reference. In addition,
GenTek Inc. intends to obtain, procure and maintain directors' and officers'
liability insurance coverage generally consistent with prevailing corporate
practices.
ITEM 13. FINANCIAL STATEMENTS AND OTHER SUPPLEMENTARY DATA.
The information required by this item is contained under the section
entitled "GenTek Business: Pro Forma Combined Financial Information" and in the
"F-pages" in the Information Statement, and such section and "F-pages" are
incorporated herein by reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
The information required by this item is contained in the "Index to
Financial Statements" on page F-1 of the Information Statement, and such
information is incorporated herein by reference.
(b) Exhibits.
The following documents are filed as exhibits hereto:
Exhibit
No. Description
- ------- -----------
2.01* Separation Agreement, dated as of __________, 1999, among The
General Chemical Group Inc., GenTek Inc., General Chemical
Industrial Products Inc. and General Chemical Corporation ........
3.01* Form of Amended and Restated Certificate of Incorporation of GenTek
Inc. ..............................................................
3.02* Form of Amended and Restated Bylaws of GenTek Inc. ................
10.01* Form of GenTek Inc. Restricted Unit Plan for
Non-Employee Directors ............................................
10.02* Form of GenTek Inc. Annual Performance Incentive Plan .............
10.03* Form of GenTek Inc. Long-Term Incentive Plan ......................
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Exhibit
No. Description
- ------- -----------
10.04* Form of Employee Benefits Agreement between GenTek Inc. and The
General Chemical Group Inc. .......................................
10.05* Form of Transition Support Agreement between GenTek Inc. and The
General Chemical Group Inc. .......................................
10.06* Form of Tax Sharing Agreement between GenTek Inc. and The General
Chemical Group Inc. ...............................................
10.07* Form of License Agreement among General Chemical Corporation, The
General Chemical Group Inc. and General Chemical Industrial
Products Inc. .....................................................
10.08* Form of Management Agreement between GenTek Inc. and Latona
Associates, Inc. ..................................................
10.09* Form of Non-Interference Agreement between GenTek Inc. and Paul M.
Montrone ..........................................................
10.10* Form of Stockholders' Agreement among GenTek Inc., the Paul M.
Montrone 1996 GRAT and Sandra G. Montrone. ........................
21.01* Active Subsidiaries of GenTek Inc. ................................
27.01* Financial Data Schedule ...........................................
- -------------------------
* To be filed by amendment.
6
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
GENTEK INC.
January 27, 1999 By: /s/ Todd M. DuChene
--------------------------------------
Name: Todd M. DuChene
Title: Vice President and Secretary
<PAGE> 8
ANNEX A
THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT IS SUBJECT TO COMPLETION
OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO GENTEK INC.'S COMMON STOCK
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
WILL NOT BE ISSUED BEFORE THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY THESE SECURITIES.
[LOGO]
THE GENERAL CHEMICAL GROUP INC.
___________, 1999
Fellow Shareholders:
As you may know, in January 1999, the Board of Directors of The General
Chemical Group Inc. announced that it intends to separate the company's
performance products and manufacturing segments from its industrial chemicals
segment through a Spinoff. The Board of Directors has concluded that
shareholders can better maximize the value of their investments if these two
businesses are separated. The Spinoff will give you a direct investment in two
leaders in their respective industries and is a major step in repositioning our
businesses to enhance their value to shareholders.
The General Chemical Group Inc. believes that its businesses are facing
divergent industry trends, which are expected to continue. The Spinoff will
enhance their access to the capital markets and enable the management of each
business to focus its attention and its company's resources on the company's
core business while pursuing the strategy that best suits that business.
Following the Spinoff, GenTek Inc. (NYSE: ___) will operate the
performance products and manufacturing segments, and The General Chemical Group
Inc. (NYSE: GCG) will continue to operate the industrial chemicals segment.
GenTek Inc. will focus on increasing shareholder value through a combination of
value-enhancing acquisitions and internal growth. The General Chemical Group
Inc. will attempt to increase profitability by improving operating efficiency
and capitalizing on the expected recovery in the Asian and Latin American
economies, while also seeking selective strategic acquisitions and joint
ventures to complement its existing businesses.
This Information Statement contains details on our businesses and the
Spinoff. If you have questions, however, please feel free to contact The General
Chemical Group Inc. Shareholder Services at 1-800-443-6474 (toll-free).
Best regards,
Paul M. Montrone
Chairman of the Board
<PAGE> 9
THE GENERAL CHEMICAL GROUP INC.'S
SPINOFF OF
GENTEK INC.
[LOGO]
THROUGH A 100% COMMON STOCK SPINOFF
Dear Shareholders:
In January 1999, the Board of Directors of The General Chemical Group
Inc. ("General Chemical Group") announced plans to separate the company's
performance products and manufacturing segments (the "GenTek Business") from its
industrial chemicals segment (the "Industrial Chemicals Business") through a
Spinoff. General Chemical Group will accomplish the Spinoff by transferring the
GenTek Business to its subsidiary, GenTek Inc. ("GenTek"), and distributing the
common stock of GenTek to General Chemical Group shareholders. General Chemical
Group will continue to operate the Industrial Chemicals Business. Following the
Spinoff, GenTek will operate the GenTek Business as a new independent public
company. We are pleased to announce that the Spinoff will occur on or about
__________, 1999.
If you own Common Stock of General Chemical Group on the Record Date of
__________, 1999, you will receive one share of GenTek Common Stock for every
share of Common Stock of General Chemical Group that you own. General Chemical
Group intends to distribute shares of GenTek Common Stock on __________, 1999.
You do not need to take any action for the Spinoff to occur. You do not
have to pay for the shares of GenTek Common Stock that you will receive in the
Spinoff, nor do you have to surrender or exchange shares of Common Stock of
General Chemical Group in order to receive shares of GenTek Common Stock. The
number of shares of Common Stock of General Chemical Group that you own will not
change as a result of the Spinoff. GenTek Common Stock will trade on the New
York Stock Exchange under the symbol ____. Common Stock of General Chemical
Group will continue to trade on the New York Stock Exchange under the symbol
"GCG".
This Information Statement will give you information about GenTek and
the GenTek Business, as well as General Chemical Group and the Industrial
Chemicals Business after the Spinoff. We are enthusiastic about the Spinoff and
the separate public status of these two businesses. We encourage you to read
this document carefully to learn more about the two companies and the Spinoff.
Sincerely,
Todd M. DuChene
Vice President and Secretary
__________, 1999
<PAGE> 10
TABLE OF CONTENTS
Page
Summary.......................................................................1
Forward-looking Statements...................................................16
The Spinoff..................................................................17
Capitalization of GenTek.....................................................24
GenTek Business: Selected Financial Data.....................................25
GenTek Business: Pro Forma Combined Financial Statements.....................28
GenTek Business: Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................32
The GenTek Business..........................................................40
GenTek Business: Management..................................................52
GenTek Business: Compensation of Directors and Executive Officers............54
Beneficial Ownership of GenTek and General Chemical Group Common Stock.......63
Certain Relationships and Affiliate Transactions.............................67
Arrangements Between GenTek and New GCG Relating to the Spinoff..............69
Special Factors..............................................................76
Description of Capital Stock of GenTek.......................................81
Certain Provisions of Certificate of Incorporation and Bylaws of GenTek......84
The Industrial Chemicals Business: Unaudited Pro Forma Financial
Statements..............................................................86
New General Chemical Group: The Industrial Chemicals Business................90
Annual Meeting and Shareholder Proposals....................................106
Available Information.......................................................106
Index to Defined Terms......................................................107
Index to Financial Statements...............................................F-1
i
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SUMMARY
This summary highlights selected information from this document, but
does not contain all the details of the Spinoff or GenTek, including information
that may be important to you. To better understand the Spinoff and GenTek, you
should carefully review this entire document. References in this document to
"General Chemical Group" mean The General Chemical Group Inc. before the
Spinoff, which includes both the GenTek Business and the Industrial Chemicals
Business. References in this document to "New GCG" or "New General Chemical
Group" mean General Chemical Group Inc. and its subsidiaries after the Spinoff.
References in this document to "GenTek" mean GenTek Inc. and its subsidiaries
after the Spinoff.
INTRODUCTION
The Spinoff culminates a process during which the Board of Directors of
General Chemical Group and the management of its GenTek and Industrial Chemicals
Businesses, working with their financial advisors, have considered options to
enhance the value of General Chemical Group's businesses to its shareholders.
The Board of Directors and management of General Chemical Group believe that
shareholder value will be enhanced by separating the GenTek and Industrial
Chemicals Businesses into two separate, stand-alone companies. After the
Spinoff, GenTek will be a supplier of performance chemical products and services
and a manufacturer of components for the automotive industry; New GCG will be a
producer of soda ash, calcium chloride and other industrial chemicals.
The Spinoff will allow these two companies to focus on their respective
businesses while taking advantage of the divergent industry trends in their
industries. The Board of Directors of General Chemical Group believes that this
action is in the best interest of shareholders.
We have highlighted certain information in this Summary to explain the
Spinoff process and give you a better understanding of GenTek. We also have
included cross-references in the Summary to other portions of the document where
you will find more detailed information about these matters. We encourage you to
read the entire document.
QUESTIONS AND ANSWERS ABOUT
THE SPINOFF, GENTEK AND NEW GCG
Q: WHY DO THE SPINOFF NOW?
A: DIVERGENT STRATEGIC DIRECTIONS. The Board of Directors of General Chemical
Group determined that the Spinoff is in the best interest of the company's
shareholders at this time because divergent industry trends have required
the GenTek and Industrial Chemicals Businesses to pursue increasingly
different strategies. The GenTek Business has been pursuing a growth
strategy; it is focusing on increasing shareholder value through a
combination of value-enhancing acquisitions and internal growth. The
Industrial Chemicals Business will attempt to increase profitability by
improving operating efficiency and capitalizing on the expected recovery
in the Asian and Latin American economies, while also seeking selective
strategic acquisitions and joint ventures to complement its existing
businesses. As independent organizations, each company will be able more
effectively to pursue its own strategy and the opportunities suitable for
its own business.
<PAGE> 12
Q: HOW COULD I BENEFIT FROM THE SPINOFF?
A: DIRECT INVESTMENT IN TWO BUSINESSES. The Spinoff will give you a direct
investment in two businesses that are leaders in different industries:
GenTek, a leading supplier of performance chemical products and services
and automotive components; and New GCG, a leading producer of soda ash and
calcium chloride in North America. General Chemical Group believes that
shareholders can better maximize the values of their investments if these
two businesses are separated.
DIRECT ACCESS TO CAPITAL. Each company will have direct access to capital
markets and stock-based acquisition currency to finance its own expansion
and growth opportunities.
FOCUSED MANAGEMENT. Management of each company will be able to concentrate
its attention and financial resources on the execution of a targeted
strategic plan. GenTek's management team will have the flexibility to
pursue a value-enhancing acquisition program, while New GCG's management
will be able to focus on improving operating efficiency as well as seeking
selective strategic acquisitions and joint ventures to complement its
existing businesses. In addition, each management's incentive compensation
will be directly tied to the performance of its own business.
FOCUSED VALUATION. The financial markets will be able to focus on the
GenTek and Industrial Chemicals Businesses separately and more accurately
evaluate these two distinct businesses and their performance.
Q: WHAT DO I HAVE TO DO TO PARTICIPATE IN THE SPINOFF?
A: NOTHING. No proxy or vote is necessary for the Spinoff. If you own Common
Stock of General Chemical Group at the close of business on __________,
1999 (the Record Date for the Spinoff), shares of GenTek Common Stock will
be credited to your brokerage account, or certificates representing shares
of GenTek Common Stock will be mailed to you on the Spinoff Date, which
will be on or about __________, 1999. You do not need to mail in any
certificates of Common Stock of General Chemical Group to receive stock
certificates representing Common Stock of GenTek.
You will not receive new stock certificates for Common Stock of New GCG as
a result of the Spinoff, nor will the Spinoff change the number of shares
of Common Stock of New GCG that you own.
Q: WHEN WILL THE SPINOFF HAPPEN?
A: __________, 1999. General Chemical Group will distribute all of the shares
of Common Stock of GenTek on the Spinoff Date, which will be on or about
_________, 1999. The effective time of the Spinoff will be at 5:00 p.m.
EST on that date, after which GenTek and its new shareholders will be the
sole beneficiaries of the GenTek Business and New GCG and its shareholders
will be the sole beneficiaries of the Industrial Chemicals Business.
Q: HOW MANY GENTEK SHARES WILL I RECEIVE IN THE SPINOFF?
A: You will receive one share of GenTek Common Stock for every share of
Common Stock of General Chemical Group that you own at the close of
business on the Record Date. Similarly, you will receive one share of
GenTek Class B Common Stock for every share of Class B Common Stock of
General Chemical Group that you own at the close of business on the Record
Date.
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EXAMPLE: If you own 100 shares of Common Stock of General Chemical Group
as of the close of business on ________, 1999, you will receive 100 shares
of GenTek Common Stock in the Spinoff.
Q: WILL GENTEK'S SHARES BE LISTED ON AN EXCHANGE?
A: YES. Common Stock of GenTek is expected to be listed on the New York Stock
Exchange under the symbol _____. Regular trading in GenTek Common Stock
will begin on or about ________, 1999.
Q: WHAT WILL HAPPEN TO THE LISTING OF GENERAL CHEMICAL GROUP'S SHARES ON THE
NEW YORK STOCK EXCHANGE?
A: NOTHING. The Common Stock of General Chemical Group will continue to be
listed on the New York Stock Exchange under the symbol "GCG".
Q: WILL SHARES TRADE ANY DIFFERENTLY AS A RESULT OF THE SPINOFF?
A: MOST LIKELY, DURING PART OF __________, 1999. A regular public market for
GenTek Common Stock will not exist prior to the Spinoff Date. We expect,
however, that "when-issued" trading for GenTek Common Stock will develop
on or about the Record Date and continue through the Spinoff Date.
When-issued trading means that shares are traded prior to the time
certificates are actually available or issued and reflects the assumed
value of those shares after they have been issued (e.g., the assumed value
of GenTek Common Stock after the Spinoff). When-issued trading would lead
to the development of an orderly market and establish the trading price
for GenTek Common Stock after the Spinoff.
If when-issued trading develops, you may buy and sell shares of GenTek
Common Stock before the Spinoff Date. None of these trades, however, would
settle until after the Spinoff Date, when regular trading in GenTek Common
Stock has begun. If the Spinoff does not occur, all when-issued trading
would be null and void. If when-issued trading in GenTek Common Stock
occurs, the symbol on the New York Stock Exchange will be ____.
General Chemical Group expects that its Common Stock will continue to
trade on a regular basis through the Spinoff Date, but any shares of
Common Stock of General Chemical Group sold between the Record Date and
the Spinoff Date will have a due bill attached representing GenTek Common
Stock to be distributed in the Spinoff.
In addition, between the Record Date and the Spinoff Date, the Common
Stock of General Chemical Group may also trade on a when-issued basis,
reflecting an assumed post-Spinoff value for New GCG Common Stock. If such
when-issued trading occurs, the symbol on the New York Stock Exchange will
be "GCGwi".
Q: WILL THE SPINOFF AFFECT THE TRADING PRICE OF MY GENERAL CHEMICAL GROUP
SHARES?
A: YES. General Chemical Group is separating itself into two public companies
through the Spinoff. Therefore, after the Spinoff, the trading price of
New GCG Common Stock should reflect only the Industrial Chemicals Business
and will initially be lower than the trading price of Common Stock of
General Chemical Group prior to the Spinoff.
The combined trading prices of GenTek Common Stock and New GCG Common
Stock after the Spinoff may not equal the trading price of Common Stock of
General Chemical Group prior to the Spinoff. In addition, until the market
has evaluated the separate operations of both companies, the
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trading price of each company's Common Stock may fluctuate significantly.
Q: WILL MY DIVIDENDS CHANGE?
A: General Chemical Group has been paying a regular quarterly cash dividend
of $.05 per share of Common Stock. After the Spinoff, the respective
Boards of Directors of GenTek and New GCG will be responsible for deciding
if a dividend will be paid and the amount of any dividend. For further
information see the section "Certain Provisions of Certificate of
Incorporation and Bylaws of GenTek--Dividends," beginning on page ___.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE SPINOFF TO GENERAL CHEMICAL GROUP'S
SHAREHOLDERS?
A: We have structured the Spinoff so that it will not occur unless General
Chemical Group has received a private letter ruling from the Internal
Revenue Service (the "IRS") that the Spinoff generally will be tax-free to
General Chemical Group and its shareholders for Federal income tax
purposes. The U.S. Federal income tax consequences of this transaction are
described in more detail in "The Spinoff" section, under the heading
"Certain United States Federal Income Tax Consequences," beginning on page
___ and in the "Special Factors" section, under the heading "Federal
Income Tax Consequences of Changes in Control following the Spinoff,"
beginning on page ___.
Q: ARE THERE RISKS RELATING TO AN INVESTMENT IN GENTEK COMMON STOCK?
A: The GenTek Business is subject to risks relating to, among other things,
general economic downturns, the highly competitive nature of its
end-markets, environmental laws and regulations, labor disruptions, the
Year 2000 problem, its ability to identify and consummate acquisitions and
successfully integrate acquired businesses, and its leverage and debt
service requirements. GenTek's separation from General Chemical Group
presents certain additional risks because the GenTek Business has never
operated independently, the GenTek Common Stock has no trading history and
because there are certain potential adverse Federal income tax
consequences should there be a change of control of GenTek after the
Spinoff. These factors are described in greater detail in the "Special
Factors" section beginning on page ___.
Q: WILL NEW GCG AND GENTEK BE RELATED IN ANY WAY AFTER THE SPINOFF?
A: General Chemical Group will no longer own any GenTek Common Stock after
the Spinoff. GenTek and New GCG will be separate publicly owned companies.
Since one stockholder, Paul M. Montrone, controls a majority of the voting
rights of the stock of General Chemical Group and the Spinoff will be
through a pro rata distribution of GenTek stock to stockholders of General
Chemical Group, Mr. Montrone will control a majority of the voting rights
of the stock of both GenTek and New GCG. Mr. Montrone will also serve as
the Chairman of the Board of Directors of both companies. In addition,
GenTek and New GCG will have ___ additional common directors. For further
information, see the sections "Beneficial Ownership of GenTek and General
Chemical Group Common Stock" and "Certain Relationships and Affiliate
Transactions" beginning on pages ___ and ___, respectively.
GenTek and New GCG will enter into agreements to govern their relationship
after the Spinoff. These agreements will provide for each party to make
certain services,
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<PAGE> 15
records and personnel available to the other. They will also provide for
separation between GenTek and New GCG of assets, liabilities and
responsibilities with respect to employee benefits and compensation, taxes
and for certain other matters. For a more detailed description of these
agreements, see the section "Arrangements Between GenTek and New GCG
Relating to the Spinoff" beginning on page ___.
Q: WHAT WILL NEW GCG LOOK LIKE AFTER THE SPINOFF?
A: After the Spinoff, New GCG will continue to operate the Industrial
Chemicals Business and will be a leading producer of soda ash and calcium
chloride in North America; New GCG will not conduct any of the businesses
of General Chemical Group's performance products or manufacturing
segments.
The net revenues of the Industrial Chemicals Business were $289.7 million
in 1997 and $197.6 million in the first nine months of 1998. After giving
pro forma effect to the Spinoff and an initial borrowing under New GCG's
financing facilities, New GCG's consolidated long-term debt is expected to
be approximately $165.0 million.
New GCG and the Industrial Chemicals Business are described in greater
detail in the sections "Industrial Chemicals Business: Unaudited Pro Forma
Financial Statements" and "New General Chemical Group: The Industrial
Chemicals Business" on pages ___ through ___.
Q: ARE THERE RISKS RELATING TO AN INVESTMENT IN NEW GCG SHARES?
A: The Industrial Chemicals Business is subject to risks relating to, among
other things, further reductions in soda ash prices, decreased soda ash
consumption in major markets, increases in worldwide soda ash production,
general economic downturns, environmental laws and regulations, U.S.
dollar exchange rates and the Year 2000 problem. The separation of the
GenTek and Industrial Chemicals Businesses presents additional risks for
New GCG because the Industrial Chemicals Business has never operated
independently, New GCG will be highly leveraged, certain General Chemical
Group's executive officers will leave to join GenTek in connection with
the Spinoff, and there are certain potential adverse Federal income tax
consequences should there be a change of control of New GCG after the
Spinoff. These factors are discussed in greater detail in the section "New
General Chemical Group: The Industrial Chemicals Business" beginning on
page ___.
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WHAT WE HAVE ALREADY ACCOMPLISHED TO PREPARE FOR THE SPINOFF
BOARD APPOINTMENTS............. General Chemical Group, as the current sole
shareholder of GenTek, will identify and elect
____ persons to serve on the GenTek Board of
Directors on or prior to the Spinoff Date.
Paul M. Montrone will serve as the Chairman of
the Board of Directors of both GenTek and New
GCG. GenTek and New GCG will have ___
additional common Board members. For further
information, see the section "GenTek Business:
Management" beginning on page ___.
SENIOR MANAGEMENT
APPOINTMENTS................... The senior management of GenTek and New GCG
will include the executive officers of General
Chemical Group currently responsible for the
GenTek Business and the Industrial Chemicals
Business, respectively. These executives have
extensive experience in their respective
industries. For further information on
management of GenTek, see the section "GenTek
Business: Management" beginning on page ___.
ARRANGING NEW FINANCING
FACILITIES..................... To reflect the independent status of GenTek
and New GCG after the Spinoff, each company
will have its own separate financing
facilities, which are expected to be in place
on or about the Spinoff Date. The proceeds of
these facilities will be used in part to repay
General Chemical Group"s existing borrowings
from third parties.
At this time, General Chemical Group expects
that, immediately after the Spinoff, GenTek's
indebtedness for borrowed money will be about
$195 million, and New GCG's indebtedness for
borrowed money will be about $165 million.
General Chemical Group is still discussing the
debt financing of the two companies with banks
and other financial institutions, and the
specific terms of their indebtedness will
depend on, among other things, the market
conditions for debt financing at the time of
the Spinoff. For further information, see "The
Spinoff" section, under the heading "Financing
Facilities," beginning on page ___.
6
<PAGE> 17
APPLIED FOR INTERNAL REVENUE
SERVICE TAX RULING............. General Chemical Group has applied for a
private letter tax ruling from the IRS to the
effect that the Spinoff, including the
pre-Spinoff transfers of assets and
liabilities to separate the GenTek and
Industrial Chemicals Businesses, generally
will be tax-free to General Chemical Group and
its shareholders for Federal income tax
purposes. General Chemical Group will not
effect the Spinoff unless General Chemical
Group receives a favorable private letter
ruling from the IRS. For further information,
see "The Spinoff" section, under the heading
"Certain United States Federal Income Tax
Consequences," beginning on page ___.
Tax matters are complicated, and the tax
consequences of the Spinoff to you will depend
on your personal circumstances. You should
consult your own tax advisor for a full
understanding of the tax consequences to you
of the Spinoff.
APPLIED FOR NEW YORK
STOCK EXCHANGE LISTING......... GenTek Common Stock is expected to trade on
the New York Stock Exchange. There is not
currently a public market for GenTek Common
Stock, although a "when-issued" trading market
is expected to develop on or before ______
1999. GenTek will apply to list the GenTek
Common Stock on the New York Stock Exchange
under the symbol ___ and regular trading is
expected to begin on the Spinoff Date (i.e.,
on or about _____, 1999). For further
information, see "The Spinoff" section, under
the heading "Listing and Trading of GenTek and
New GCG Common Stock," beginning on page ___.
KEY TERMS OF THE SPINOFF
NO SHAREHOLDER ACTION
REQUIRED....................... No action is required by shareholders of
General Chemical Group to receive Common Stock
of GenTek in the Spinoff. You do not need to
surrender Common Stock of General Chemical
Group to receive Common Stock of GenTek in the
Spinoff. The number of shares of Common Stock
of General Chemical Group you own will not
change as a result of the Spinoff; those
shares will represent Common Stock of New GCG.
RECORD DATE.................... You need to own Common Stock of General
Chemical Group as of the close of business on
__________, 1999 to receive Common Stock of
GenTek in the Spinoff.
7
<PAGE> 18
SPINOFF RATIO.................. You will receive one share of GenTek Common
Stock for every share of Common Stock of
General Chemical Group you owned as of the
close of business on __________, 1999. In
addition, one share of Class B Common Stock of
GenTek will be distributed in the Spinoff for
every share of Class B Common Stock of General
Chemical Group to the owners of record as of
the close of business on _______, 1999.
SHARES TO BE DISTRIBUTED....... All GenTek Common Stock owned by General
Chemical Group will be distributed in the
Spinoff; after the Spinoff, General Chemical
Group will no longer own any GenTek Common
Stock. Based on __________ shares of Common
Stock of General Chemical Group outstanding as
of ________, 1999, the same number of shares
of GenTek Common Stock will be distributed in
the Spinoff.
MAILING DATE................... ChaseMellon Shareholder Services, L.L.C. (the
"Distribution Agent") will mail GenTek Common
Stock certificates to General Chemical Group
shareholders on or about __________, 1999.
You will not receive new stock certificates
for Common Stock of New GCG. Your current
certificates for Common Stock of General
Chemical Group will be the certificates for
New GCG Common Stock after the Spinoff.
8
<PAGE> 19
WHO CAN HELP ANSWER YOUR QUESTIONS
Shareholders of General Chemical Group or New GCG with questions about the
Spinoff or their shares should contact:
The General Chemical Group Inc. Shareholder Services
P.O. Box 1400
Pittsburgh, PA 15230
Telephone (toll free): 1-800-443-6474
After the Spinoff, shareholders of GenTek with questions about their shares
should contact:
GenTek Inc. Shareholder Services
P.O. Box 1400
Pittsburgh, PA 15230
Telephone (toll free): 1-800-________
The agent responsible for the distribution of Common Stock of GenTek in the
Spinoff and acting as Distribution Agent and registrar for Common Stock of both
GenTek and New GCG after the Spinoff is:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Telephone (toll free): 1-800-756-3353
9
<PAGE> 20
GENTEK
The following information only highlights selected information about
the GenTek Business. You should read this information together with other
information about the Performance Business, including the section "GenTek
Business: Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page ___ and the section "The GenTek
Business" beginning on page ___.
GENTEK BUSINESS................ The GenTek Business consists of the
performance products segment and the
manufacturing segment of General Chemical
Group.
FINANCIAL HIGHLIGHTS.......... For the first nine months of 1998 and the full
year 1997, the GenTek Business generated net
revenues of $331.5 million and $368.5 million,
respectively, representing increases of 22%
and 12%, respectively, from the comparable
prior periods. Operating profit was $56.9
million in the first nine months of 1998 and
$68.8 million in the year 1997, representing
increases of 8% and 34%, respectively, from
the comparable prior periods.
PERFORMANCE PRODUCTS
SEGMENT...................... The GenTek Business performance products
segment provides a broad range of value-added
products and services to four principal
markets: Pharmaceutical and Personal Care,
Environmental, Technology and Chemical
Processing. Its principal products include
antiperspirant and antacid active ingredients,
water treatment chemicals, specialty
agrichemicals, advanced lithographic printing
plates and related pressroom chemicals,
ultra-high-purity electronic chemicals, and a
range of chemical intermediates used in
photographic, pulp and paper and other
applications. The GenTek Business also
provides "closed loop" sulfuric acid
regeneration services, which significantly
reduce the waste streams generated by certain
refineries and chemical plants.
MANUFACTURING SEGMENT........ The GenTek Business' manufacturing segment
specializes in the manufacture of stamped and
machined rocker arms, roller rocker arms,
roller followers and other precision, highly-
engineered metal components for the automotive
and industrial markets. GenTek Business'
principal customers of these products are
DaimlerChrysler, Ford and General Motors. The
manufacturing segment also produces
fluid-handling equipment for the automotive
service market and for industrial
applications.
10
<PAGE> 21
The manufacturing segment is currently
undergoing a significant expansion to
accommodate new business awarded by U.S. auto
manufacturers, as well as pursuing business in
markets outside the United States.
General Chemical Group has entered into an
agreement and launched a tender offer for the
acquisition of Defiance, Inc. ("Defiance"), a
manufacturer of bearings for the
transportation industry and a provider of
vehicle testing services, tooling design and
pre-production dies and components primarily
for the automotive industry. This acquisition
will increase the range of products and
services provided by the manufacturing segment
and provide for a more complete product
offering of valve-train-related components for
the automotive industry.
COMPETITIVE STRENGTHS........ The GenTek Business has built a strong
customer base and enjoys a significant market
share for a majority of its product lines in
both its performance products and
manufacturing segments. Its management
believes that its strong market positions
result from its competitive strengths:
- High-quality, value-added products and
customer service;
- Technological, marketing and distribution
expertise;
- Low-cost manufacturing; and
- Experience and commitment of its management.
11
<PAGE> 22
STRATEGY..................... The strategy of the GenTek Business is to
build upon its strengths and create additional
shareholder value through the following
initiatives:
- Pursue value-enhancing acquisitions and
investments to generate incremental cash
flow;
- Capitalize on favorable trends in existing
markets where legislation, consumer
preferences and increased outsourcing of
chemical manufacturing are expected to
result in growth opportunities for the
GenTek Business;
- Enhance competitive position by expanding
and diversifying product offerings in both
existing and new markets; and
- Continue to improve operating efficiency
through capital expenditures to enhance
productivity and reduce energy, raw material
and labor costs.
12
<PAGE> 23
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA FOR THE GENTEK BUSINESS
The following summary historical and pro forma financial data of the
GenTek Business highlights selected information for your benefit. The following
information is only a summary, and you should read it in conjunction with more
detailed information about the GenTek Business appearing in the rest of this
document, including the "Special Factors" section beginning on page ___ and the
GenTek Business Combined Financial Statements and notes thereto included in the
"F-pages" of this Information Statement. For a description of the basis of
presentation of the historical financial data of the GenTek Business, see note 1
to the GenTek Business Combined Financial Statements.
Because the GenTek Business did not actually operate as a separate,
stand-alone company during the periods depicted, it may have recorded different
results had it been operated independently of the Industrial Chemicals Business.
Therefore, the financial information presented below is not necessarily
indicative of the results of operations or financial position that would have
resulted if the GenTek Business had been a separate, stand-alone company during
the periods shown, or of its future performance as a separate, stand-alone
company. Results for interim periods are not necessarily indicative of full
fiscal year results. Per share data for net income has not been presented
because the GenTek Business was operated through General Chemical Group for the
periods presented.
The pro forma balance sheet data have been prepared on the basis that
the Spinoff and all related transactions, including the initial borrowings under
GenTek's new financing facility, had occurred at September 30, 1998. The pro
forma statement of operations data for the year ended December 31, 1997 and the
nine-month period ended September 30, 1998 have been prepared on the basis that
the Spinoff and all related transactions had occurred as of January 1, 1997.
This pro forma financial information does not purport to represent what the
financial position or results of operations of the GenTek Business would
actually have been, had the Spinoff and all related transactions in fact
occurred on such date, or as of the beginning of such periods or to be
indicative of the financial position or results of operations for the GenTek
Business for any future date or period.
13
<PAGE> 24
THE GENTEK BUSINESS
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997
--------- ----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenues ....................... $ 262,602 $ 275,767 $ 290,185 $ 330,120 $ 368,516 $ 368,516
Cost of sales ...................... 182,793 186,651 205,363 229,237 251,912 251,912
Gross profit ....................... 79,809 89,116 84,822 100,883 116,604 116,604
Selling, general and
administrative expense .......... 41,503 51,835(7) 40,121 49,591(6) 47,793 49,793
Operating profit ................... 38,306 37,281 44,701 51,292 68,811 66,811
Interest Income .................... 1,463 1,578 1,922 1,404 1,475 1,475
Foreign currency transaction
(gains) losses .................. 899 2,110 (699) (83) 442 442
Other (income) expense .......... (237) 487 423 263 169 169
Income before interest,
income taxes and extra
ordinary item ................... 39,107 36,262 46,899 52,516(6) 69,675 67,675
Interest expense (2) ............ 20,607 20,813 12,927 10,747 8,855 14,050
Income before income taxes
and extraordinary item .......... 18,500 15,449(7) 33,972 41,769(6) 60,820 53,625
Income tax provision ............... 7,660 6,913 33,836(1) 19,441 26,769 23,923
Income before
extraordinary item .............. 10,840 8,536(7) 136(1) 22,328(6) 34,051 29,702
Net income (3) ..................... $ 9,777 $ 4,352(7) $ 136(1) $ 22,328(6) $ 34,051 $ 29,702
========= ========= ========= ========= ========= =========
OTHER DATA:
Capital expenditures ............... $ 16,109 $ 21,538 $ 24,842 $ 19,231 $ 26,203 $ 26,203
Depreciation and
amortization (4) ................ 11,525 11,922 12,506 13,653 15,829 16,472
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash, cash equivalents and
short-term investments .......... $ 4,278 $ 4,686 $ 3,556 $ 16,576 $ 12,075 N/A
Total assets ....................... 168,972 198,269 206,419 211,483 293,809 N/A
Long-term debt (5) ................. 2,352 16,750 13,995 -- -- N/A
Total divisional equity (deficit) (18,342) (7,641) (7,651) 21,583 73,143 N/A
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
PRO FORMA
1997 1998 1998
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenues ....................... $ 271,669 $ 331,452 $ 331,452
Cost of sales ...................... 184,401 234,935 234,935
Gross profit ....................... 87,268 96,517 96,517
Selling, general and
administrative expense .......... 34,496 39,649 41,149
Operating profit ................... 52,772 56,868 55,368
Interest Income .................... 1,136 678 678
Foreign currency transaction
(gains) losses .................. 340 397 397
Other (income) expense .......... (86) 10 10
Income before interest,
income taxes and extra
ordinary item ................... 53,654 57,139 55,639
Interest expense (2) ............ 6,575 10,186 10,537
Income before income taxes
and extraordinary item .......... 47,079 46,953 45,102
Income tax provision ............... 20,936 19,280 18,548
Income before
extraordinary item .............. 26,143 27,673 26,554
Net income (3) ..................... $ 26,143 $ 25,623 $ 24,504
========= ========= =========
OTHER DATA:
Capital expenditures ............... $ 17,397 $ 22,185 $ 22,185
Depreciation and
amortization (4) ................ 11,507 16,037 16,037
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash, cash equivalents and
short-term investments .......... $ 8,435 $ 5,326 $ 29,356
Total assets ....................... 285,293 406,659 432,689
Long-term debt (5) ................. -- 6,544 195,000
Total divisional equity (deficit) 54,053 172,755 8,529
</TABLE>
14
<PAGE> 25
- --------------------
(1) The financial statements reflect a nonrecurring charge to income tax
expense of $17.1 million for all years prior to 1995 related to Internal
Revenue Service examinations. See Note 3 of Notes to the GenTek Business
Combined Financial Statements.
(2) Includes allocated interest expense from General Chemical Group.
(3) During 1993, 1994 and the nine months ended September 30, 1998 the GenTek
Business recorded extraordinary losses of $1.1 million, $4.2 million and
$2.1 million, respectively, related to the early retirement of certain
outstanding indebtedness.
(4) Consolidated depreciation and amortization excluding amortization of
deferred financing costs.
(5) Includes the current portion of long-term debt.
(6) Includes an allocated one-time charge of $6.8 million ($4.1 million after
tax) due primarily to awards made under a restricted unit plan, which
replaced certain prior equity programs.
(7) Includes a one-time charge of $9.0 million ($5.4 million after tax) due to
litigation related to an incident at one of the GenTek Business'
manufacturing facilities.
15
<PAGE> 26
FORWARD-LOOKING STATEMENTS
This Information Statement includes forward-looking statements and
information that are based on the beliefs, plans, expectations and assumptions
of General Chemical Group and GenTek and on information currently available to
these entities. The words "may," "should," "expect," "anticipate," "intend,"
"plan," "continue," "believe," "seek," "estimate" and similar expressions used
in this Information Statement are intended to identify forward-looking
statements. The forward-looking statements in this Information Statement involve
certain risks, uncertainties and assumptions. Many of these factors are beyond
the ability of General Chemical Group or GenTek to control or predict. As a
result, the future actions, financial condition, results of operations and stock
price of GenTek could differ materially from those expressed in any
forward-looking statements.
The following factors, among others, in some cases have affected and in
the future could affect the actions, financial condition, results of operations
and stock price of the GenTek Business: (i) the degree of leverage of GenTek and
the financial and operating restrictions imposed by its debt facilities; (ii)
the cyclicality of the chemical and manufacturing industries, together with the
highly competitive nature of these industries; (iii) discovery of any additional
or unknown environmental contamination at the company's facilities, possible
modification of existing laws and regulations relating to the protection of
human health and the environment, and the adoption of new laws and regulations
in the future; (iv) GenTek's ability to identify suitable acquisitions, complete
such acquisitions on reasonable prices and terms, and successfully integrate any
acquired businesses into the company's operations; (v) increases in the cost of
energy or raw materials used in the manufacture of the GenTek Business'
products; (vi) susceptibility of the GenTek Business' to general economic
conditions; and (vii) GenTek's ability to assess, mitigate and remediate the
potential impact of the "Year 2000" problem. See also the factors described
under the section "Special Factors" beginning on page ___.
GenTek does not intend to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
All subsequent written and oral forward-looking statements attributable to
General Chemical Group or GenTek, or persons acting on behalf of any of them,
are expressly qualified in their entirety by these cautionary statements.
16
<PAGE> 27
THE SPINOFF
REASONS FOR THE SPINOFF
The Board of Directors of General Chemical Group has determined that
the Spinoff is in the best interest of shareholders of General Chemical Group.
General Chemical Group believes shareholders can better maximize the value of
their investments if the GenTek and Industrial Chemicals Businesses are
separated.
The GenTek and Industrial Chemicals Businesses are developing
increasingly different strategies to address divergent trends in their
respective industries. The GenTek Business, which consists of the performance
products and manufacturing segments of General Chemical Group, will focus on
increasing shareholder value through a combination of value-enhancing
acquisitions and internal growth. The Industrial Chemicals Business, which is a
leading North American producer of soda ash and calcium chloride, will attempt
to increase its profitability by improving its operating efficiency and
capitalizing on the expected recovery in the Asian and Latin American economies,
while also seeking selective strategic acquisitions and joint ventures to
complement its existing businesses. As independent organizations, each company
will be able to pursue more effectively its own strategy and the opportunities
suitable for its own business. See "The GenTek Business--Strategy" and "New
General Chemical Group: The Industrial Chemicals Business--Strategy."
The Spinoff will enable each company to access the capital markets
independently, without the capital resource allocation issues present within the
combined General Chemical Group. In addition, such direct access will provide
each company with its own stock-based acquisition currency to finance expansion
and growth opportunities. The Spinoff will permit investors to make investment
decisions based on the operations and financial results of the individual
companies that will be separately and more accurately evaluated by the financial
markets.
The Spinoff will also enable management of each company to concentrate
its attention and financial resources on the execution of a targeted strategic
plan. The management team of the GenTek Business will have the flexibility to
pursue a value-enhancing acquisition program, while the management of the
Industrial Chemicals Business will be able to focus on improving operating
efficiency as well as seeking selective strategic acquisitions and joint
ventures to complement its existing businesses. The Spinoff will also permit
each company to offer management incentives more directly tied to the
performance of its business; each of GenTek and New GCG can develop employee
compensation and benefit programs more appropriate to its individual operations,
including stock-based and other incentive programs that reward its management
and employees based on the success of its own operations.
Accordingly, General Chemical Group has concluded that the long-term
interests of both businesses are best served through the creation of two
separate, independent and focused corporations: GenTek focused on
value-enhancing acquisitions and its performance products and manufacturing
segments and New GCG focused on soda ash, calcium chloride and other industrial
chemicals.
17
<PAGE> 28
MANNER OF EFFECTING THE SPINOFF
General Chemical Group will effect the Spinoff by delivering all of the
outstanding shares of GenTek Common Stock to the Distribution Agent for
distribution to the holders of record of Common Stock of General Chemical Group
as of the close of business on the Record Date of __________, 1999. The
distribution of GenTek Common Stock will be made on the basis of a distribution
ratio of one share of GenTek Common Stock for each share of Common Stock of
General Chemical Group held as of the close of business on the Record Date.
Similarly, one share of GenTek Class B Common Stock will be distributed in the
Spinoff for each share of Class B Common Stock of General Chemical Group owned
on the Record Date. The actual total number of shares of GenTek Common Stock and
Class B Common Stock to be distributed will depend on the number of shares of
Common Stock and Class B Common Stock of General Chemical Group outstanding as
of the Record Date. The Distribution Agent will credit the brokerage accounts of
General Chemical Group shareholders or will mail GenTek Common Stock
certificates to General Chemical Group shareholders on or about __________, 1999
(the "Spinoff Date"). The shares of GenTek Common Stock will be fully paid and
nonassessable and the holders thereof will not be entitled to preemptive rights.
No holder of Common Stock of General Chemical Group will be required to
pay any cash or other consideration for shares of GenTek Common Stock received
in the Spinoff or to surrender or exchange shares of General Chemical Group
Common Stock. On and after the Spinoff Date, certificates for shares of Common
Stock of General Chemical Group will represent the same shares of New GCG. You
will not receive new stock certificates for Common Stock of New GCG as a result
of the Spinoff.
Prior to the Spinoff, General Chemical Group will engage in a series of
internal restructuring transactions (the "Reorganization") to separate the
GenTek Business from the Industrial Chemicals Business. As a result, at the time
of the Spinoff, GenTek will hold, through its wholly owned subsidiary, General
Chemical Corporation, all the assets and liabilities related to the GenTek
Business, and New GCG will hold, through its wholly owned subsidiary, General
Chemical Industrial Products Inc., all the assets and liabilities related to the
Industrial Chemicals Business. GenTek and General Chemical Group will enter into
various agreements to govern their relationship after the Spinoff, including
making available to each other certain services, records and personnel. They
will also provide for separation between GenTek and New GCG of assets,
liabilities and responsibilities with respect to employee benefits and
compensation, taxes and for certain other matters. See "Arrangements Between
GenTek and New GCG Relating to the Spinoff."
FINANCING FACILITIES
To reflect the independent status of GenTek and New GCG after the
Spinoff, each company will have its own separate financing facilities. The
proceeds of these facilities will be used in part to repay General Chemical
Group's existing borrowings from third parties. General Chemical Group is
currently discussing the terms of these financing facilities with banks and
other financial institutions and expects that these facilities will be in place
on or about the Spinoff Date.
At this time, management expects that GenTek will have financing
facilities (collectively, the "GenTek Financing Facility") of about $535 million
and believes that approximately $195 million (or, if the Defiance acquisition is
consummated, approximately $235 million) would be funded on or about
18
<PAGE> 29
the Spinoff Date. It is expected that approximately $300 million would be
available for borrowings after the Spinoff and the consummation of the Defiance
acquisition.
At this time, General Chemical Group expects that, after the Spinoff,
New GCG will have financing facilities (collectively, the "Industrial Financing
Facility") of about $205 million, of which approximately $165 million would be
funded on or about the Spinoff Date and approximately $40 million would be
available for future borrowings.
General Chemical Group has had ongoing discussions with a number of
banks and other financial institutions regarding the capital structure of GenTek
and New GCG and is continuing to explore financing alternatives to arrive at the
most advantageous debt financing structures for GenTek and New GCG. In addition,
the amount and terms of these companies' indebtedness after the Spinoff will
depend on a number of factors that are beyond the control of General Chemical
Group, including market conditions -- which have been volatile -- for debt
financing at the time of the Spinoff. As a result, no predictions can be made
about the terms of the financing facilities that GenTek or New GCG will
ultimately obtain.
CONDITIONS TO THE SPINOFF
The Spinoff is subject to a number of conditions, including (i) the
receipt of a favorable private letter ruling of the IRS concerning the tax-free
nature of the Spinoff, (ii) appropriate equity and debt market conditions for
the Spinoff, (iii) various regulatory approvals, (iv) closings under the new
financing facilities for each of GenTek and New GCG, and the application of a
portion of their proceeds to repay debt of General Chemical Group, (v) receipt
by General Chemical Group's Board of Directors of an independent appraisal
confirming that General Chemical Group's surplus is sufficient to permit the
dividend of GenTek shares without violating Section 170 of the Delaware General
Corporation Law, and (vi) approval by the Board of Directors of General Chemical
Group of the final terms of the Spinoff, including the formal declaration of a
dividend to General Chemical Group's shareholders and other specific actions
necessary to the Spinoff.
The significant pending regulatory approvals include the receipt of the
private letter ruling from the IRS and the Securities and Exchange Commission's
(the "SEC") declaration of the effectiveness of the Registration Statement on
Form 10 (the "Form 10") filed under the Securities Exchange Act of 1934 (the
"Exchange Act") to register the Common Stock of GenTek. The Board of Directors
of General Chemical Group does not intend to waive these conditions.
The Board of Directors of General Chemical Group may amend, modify or
abandon the Spinoff at any time prior to the Spinoff Date.
See also "Arrangements Between GenTek and New GCG Relating to the
Spinoff."
EFFECT OF THE SPINOFF
Following the Spinoff, which will be effective at 5:00 p.m. EST on the
Spinoff Date, GenTek and New GCG will be separate public companies: GenTek will
operate the performance products and manufacturing segments of General Chemical
Group; and New GCG will operate the Industrial Chemicals Business.
19
<PAGE> 30
The number and identity of shareholders of GenTek immediately after the
Spinoff generally will be the same as the number and identity of shareholders of
General Chemical Group on the Record Date. Immediately after the Spinoff, GenTek
expects to have approximately ___ holders of record of GenTek Common Stock and
approximately ___ shares of GenTek Common Stock outstanding, based on the
one-to-one distribution ratio of the Spinoff and the number of record
shareholders and issued and outstanding shares of Common Stock of General
Chemical Group as of the close of business on ______, 1999. The actual number of
shares of GenTek Common Stock to be distributed will be determined as of the
Record Date. In addition, a total of 9,758,421 shares of GenTek Class B Common
Stock will be distributed to holders of Class B Common Stock of General Chemical
Group (based on the current number of outstanding shares of Class B Common Stock
of General Chemical Group).
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain Federal income tax
consequences of the Spinoff and the Reorganization and does not purport to be a
complete analysis or description of all potential tax effects of these
transactions. The discussion assumes that holders of Common Stock of General
Chemical Group will hold their Common Stock as a capital asset as of the
effective date of the Spinoff. The discussion does not address all of the tax
consequences that may be relevant to particular shareholders in light of their
personal circumstances or to taxpayers subject to special treatment under the
Federal income tax laws (for example, insurance companies, financial
institutions, broker-dealers, tax-exempt organizations, foreign corporations,
foreign partnerships or other foreign entities and individuals who are not
citizens or residents of the United States), and does not address any aspects of
state, local or foreign tax law.
The following discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the U.S. Treasury Regulations
thereunder, and administrative rulings and judicial decisions in effect as of
the date of this Registration Statement. Subsequent legislative, administrative
or judicial changes or interpretations could affect the accuracy of the
statements or conclusions set forth herein. Any such change could apply
retroactively. Each stockholder of General Chemical Group is urged to consult
his or her own tax advisor as to the Federal, state, local and foreign tax
consequences of the transactions.
General Chemical Group will not effect the Spinoff and the
Reorganization unless General Chemical Group receives a private letter ruling
from the IRS to the effect that the Spinoff and the Reorganization generally
will be tax-free to General Chemical Group and its shareholders. The private
letter ruling, which will be dependent upon the accuracy of certain
representations made by General Chemical Group, will provide that, among other
things, for Federal income tax purposes:
(i) No gain or loss will be recognized by General Chemical Group as a
result of the Spinoff and the Reorganization except for gain attributable
to certain intercompany transactions.
(ii) No gain or loss will be recognized by the shareholders of General
Chemical Group as a result of the Spinoff and the Reorganization.
(iii) Each General Chemical Group shareholder's tax basis in the
General Chemical Group Common Stock he or she holds immediately prior to
the Spinoff will be allocated between such
20
<PAGE> 31
General Chemical Group Common Stock and the GenTek Common Stock that
the shareholder receives in the Spinoff in proportion to the respective
fair market values of each.
(iv) Each General Chemical Group shareholder's holding period in the
GenTek Common Stock that the stockholder receives in the Spinoff will
include the period he or she held the General Chemical Group Common Stock.
General Chemical Group will provide appropriate information to enable General
Chemical Group's stockholders to allocate their tax basis in their General
Chemical Group shares between their New GCG Common Stock and GenTek Common
Stock.
U.S. Treasury Regulations require each General Chemical Group shareholder
who receives GenTek Common Stock in the Spinoff to attach to his or her Federal
income tax return for the year in which the Spinoff occurs a detailed statement
setting forth such information as may be appropriate in order to show the
applicability of section 355 of the Code to the Spinoff. General Chemical Group
will provide the appropriate information to General Chemical Group's
stockholders after the Spinoff.
LISTING AND TRADING OF GENTEK AND NEW GCG COMMON STOCK
GENERAL
The Common Stock of GenTek is expected to be approved for listing (subject
to notice of issuance) on the New York Stock Exchange (the "NYSE") under the
symbol ____. After the Spinoff, the Common Stock of New GCG will continue to be
listed on the NYSE under the symbol "GCG".
Since General Chemical Group is separating itself into two public
companies through the Spinoff, the trading price of New GCG Common Stock should
reflect only the Industrial Chemicals Business and will initially be lower than
the trading price of Common Stock of General Chemical Group prior to the
Spinoff. In addition, there is currently no public trading market for GenTek
Common Stock. There can be no predictions, estimates or assurances about the
trading price for Common Stock of GenTek or of New GCG after the Spinoff. The
combined trading prices of GenTek Common Stock and New GCG Common Stock may
never equal or exceed the trading price of Common Stock of General Chemical
Group prior to the Spinoff. In addition, until GenTek Common Stock is fully
distributed, an orderly trading market develops and the market has fully
evaluated the separate operations of GenTek and New GCG, the trading prices of
their Common Stock may fluctuate significantly. The prices at which GenTek
Common Stock and New GCG Common Stock trade will be determined by the market and
may be influenced by many factors, including, among others, the depth and
liquidity of the market for such Common Stock, investor perception of the GenTek
Business or the Industrial Chemicals Business (as the case may be), the
financial results of GenTek or New GCG (as the case may be), the dividend
policies of the companies, sales of substantial amounts of GenTek Common Stock
or New GCG Common Stock (or the perception that such sales could occur) and
general economic and market conditions.
21
<PAGE> 32
LISTING AND TRADING BETWEEN RECORD DATE AND SPINOFF DATE
A when-issued trading market for GenTek Common Stock is expected to
develop on or about the Record Date and continue through the Spinoff Date. The
term "when-issued" means that shares are traded prior to the time certificates
are actually available or issued. Prices at which the GenTek Common Stock may
trade on a when-issued basis or after the time certificates are actually
available or issued cannot be predicted. During the period when GenTek Common
Stock is subject to when-issued trading, its symbol on the NYSE will be "____".
Even though when-issued trading may develop, none of these trades would settle
prior to the Spinoff Date, and if the Spinoff does not occur, all when-issued
trading will be null and void.
General Chemical Group Common Stock will continue to trade on a regular
basis and may also trade on a when-issued basis, reflecting an assumed
post-Spinoff value for New GCG Common Stock. When-issued trading in New GCG
Common Stock, if available, could last from on or about the Record Date through
the Spinoff Date. If when-issued trading in New GCG Common Stock is available,
General Chemical Group shareholders may trade their existing Common Stock prior
to the Spinoff Date in either the when-issued market or in the regular market
for Common Stock of General Chemical Group. If a shareholder trades in the
when-issued market, he will have no obligation to transfer to a purchaser of
Common Stock of General Chemical Group those shares of GenTek Common Stock that
such shareholder receives in the Spinoff. If a shareholder trades in the regular
market, the shares of General Chemical Group Common Stock traded will be
accompanied by "due bills", which are instruments evidencing the obligation of
the transferor of those shares to deliver the GenTek Common Stock to be
distributed in the Spinoff with respect to the shares being traded.
If a when-issued market for Common Stock of General Chemical Group
develops, an additional listing for such Common Stock, identifiable by the
trading symbol "GCGwi", will appear on the NYSE. Differences may exist during
this period between the price of Common Stock of General Chemical Group and the
combined value of when-issued GenTek Common Stock plus New GCG Common Stock.
Until the market has fully analyzed the operations of New GCG after the Spinoff
(i.e., without the operations of GenTek), the prices at which Common Stock of
New GCG trades may fluctuate significantly.
General Chemical Group understands that if when-issued trading in its
Common Stock is not available, the NYSE will require that shares of Common Stock
of General Chemical Group that are sold or purchased during the period from the
Record Date through the Spinoff Date be accompanied by due bills, and that
during such period neither Common Stock of General Chemical Group nor the due
bills may be purchased or sold separately.
AFFILIATES
Shares of GenTek Common Stock issued in the Spinoff will be freely
transferable, except for securities received by persons who may be deemed to be
affiliates of GenTek under the Securities Act of 1933 (the "Securities Act").
Persons who may be deemed to be affiliates of GenTek after the Spinoff generally
include individuals or entities that control, are controlled by, or are under
common control with GenTek and will include certain directors and executive
officers of GenTek. Persons who are affiliates of GenTek generally will be
permitted to sell their shares of GenTek Common Stock received in the Spinoff
only pursuant to Rule 144 under the Securities Act. As a result, GenTek Common
Stock
22
<PAGE> 33
received by GenTek affiliates pursuant to the Spinoff may be sold if certain
provisions of Rule 144 under the Securities Act are complied with (e.g., the
amount sold within a three-month period does not exceed the greater of one
percent of the outstanding GenTek Common Stock or the average weekly trading
volume for GenTek Common Stock during the preceding four week period, and the
securities are sold in "broker's transactions" and in compliance with certain
notice provisions under Rule 144).
REASONS FOR FURNISHING THIS DOCUMENT
This Information Statement is being furnished solely to provide
information to shareholders of General Chemical Group who will receive shares of
GenTek Common Stock in the Spinoff. It is not, and is not to be construed as, an
inducement or encouragement to buy or sell any securities of General Chemical
Group, GenTek or New GCG. The information contained in this Information
Statement is believed to be accurate as of the date set forth on its cover.
Changes may occur after that date, and General Chemical Group, GenTek and New
GCG will not update the information except in the normal course of their
respective public disclosures.
23
<PAGE> 34
CAPITALIZATION OF GENTEK
The following table sets forth, as of September 30, 1998, the historical
capitalization of the GenTek Business, and such capitalization on a pro forma
basis to reflect the Spinoff and related transactions, including the initial
borrowings under the GenTek Financing Facility and the application of a portion
of the proceeds of such borrowings to repay General Chemical Group's existing
borrowings from third parties. This table should be read in conjunction with the
GenTek Business Pro Forma Combined Financial Statements, and the GenTek Business
Combined Financial Statements and the notes thereto included in the "F-pages" of
this Information Statement. The as adjusted information set forth below does not
necessarily reflect what the capitalization of the GenTek Business would have
been if the GenTek Business had been a separate, stand-alone company at
September 30, 1998, or what its capitalization will be in the future.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
-----------------------------
HISTORICAL AS ADJUSTED (1)
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Current Maturities of Long-Term Debt ......... $ -- $ --
--------- ---------
Long-Term Debt ............................... 6,544 195,000(2)
--------- ---------
Divisional Net Equity ........................ 172,755 --
Stockholders' Equity
Common Stock ............................. -- 207
Additional Paid-in Capital ............... -- (878)
Retained Earnings ........................ -- --
--------- ---------
Total Stockholders' Equity ........... 172,755 (671)
--------- ---------
Total Capitalization ............... $ 179,299 $ 194,329
========= =========
</TABLE>
- ---------------
(1) Adjusted to give effect to the Spinoff and related transactions.
(2) Excludes incurrence of indebtedness for the financing of the acquisition of
Defiance.
24
<PAGE> 35
GENTEK BUSINESS:
SELECTED FINANCIAL DATA
The following selected financial data of the GenTek Business have been
derived from and should be read in conjunction with the GenTek Business
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the GenTek Business Combined Financial Statements and notes
thereto included in the "F-pages" of this Information Statement. For a
description of the basis of presentation of the historical financial data of the
GenTek Business, see note 1 to such Combined Financial Statements.
The statement of operations data set forth below for each of the three
years in the period ended December 31, 1997 and the balance sheet data at
December 31, 1997 and 1996 are derived from the audited GenTek Business Combined
Financial Statements and notes thereto included in the "F-pages" of this
Information Statement. The statement of operations data for the nine-month
periods ended September 30, 1998 and 1997 and the balance sheet data at
September 30, 1998 are derived from the GenTek Business' unaudited financial
statements included in the "F-pages" of this Information Statement. The balance
sheet data at December 31, 1995 are derived from the audited combined balance
sheet of the GenTek Business at December 31, 1995, which is not included in this
Information Statement. The statement of operations data for the years ended
December 31, 1994 and 1993 and the balance sheet data at December 31, 1994 and
1993 are derived from unaudited financial statements of the GenTek Business not
included in this Information Statement. The GenTek Business Combined Financial
Statements for the three years ended December 31, 1997 have been audited by
Deloitte & Touche LLP, independent auditors, and are included in the "F-pages"
of this Information Statement.
Because the GenTek Business did not actually operate as a separate,
stand-alone business during the periods depicted, it may have recorded different
results had it been operated independently of the Industrial Chemicals Business.
Therefore, the financial information presented below is not necessarily
indicative of the results of operations or financial position that would have
resulted if the GenTek Business had been a separate, stand-alone business during
the periods shown, or of its future performance as a separate, stand-alone
business. Results for interim periods are not necessarily indicative of full
year results. Per share data for net income has not been presented because the
GenTek Business was operated through General Chemical Group for the periods
presented.
25
<PAGE> 36
THE GENTEK BUSINESS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenues .................... $ 262,602 $ 275,767 $ 290,185 $ 330,120 $ 368,516 $ 271,669 $ 331,452
Cost of sales ................... 182,793 186,651 205,363 229,237 251,912 184,401 234,935
Gross profit .................... 79,809 89,116 84,822 100,883 116,604 87,268 96,517
Selling, general and
administrative expense ...... 41,503 51,835(7) 40,121 49,591 47,793 34,496 39,649
Operating profit ................ 38,306 37,281 44,701 51,292 68,811 52,772 56,868
Interest income ................. 1,463 1,578 1,922 1,404 1,475 1,136 678
Foreign currency transaction
(gains) losses ................ 899 2,110 (699) (83) 442 340 397
Other (income) expense .......... (237) 487 423 263 169 (86) 10
Income before interest,
income taxes and extra- ....... 39,107 36,262(7) 46,899 52,516(7) 69,675 53,654 57,139
ordinary item
Interest expense (2) ............ 20,607 20,813 12,927 10,747 8,855 6,575 10,186
Income before income taxes
and extraordinary item ........ 18,500 15,449(7) 33,972 41,769(7) 60,820 47,079 46,953
Income tax provision ............ 7,660 6,913 33,836(1) 19,441 26,769 20,936 19,280
Income before extraordinary
item .......................... 10,840 8,536(7) 136(1) 22,328(7) 34,051 26,143 27,673
Net income (3) .................. $ 9,777 $ 4,352(7) $ 136(1) $ 22,328(7) $ 34,051 $ 26,143 $ 25,623
========= ========= ========= ========= ========= ========= =========
OTHER DATA:
Capital expenditures ............ $ 16,109 $ 21,538 $ 24,842 $ 19,231 $ 26,203 $ 17,397 $ 22,185
Depreciation and
amortization (4) .............. 11,525 11,922 12,506 13,653 15,829 11,507 16,037
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash, cash equivalents and
short-term investments ........ 4,278 4,686 3,556 16,576 12,075 8,435 5,326
Total assets .................... 168,972 198,269 206,419 211,483 293,809 285,293 406,659
Long-term debt (5) .............. 2,352 16,750 13,995 -- -- -- 6,544
Total divisional equity (deficit) (18,342) (7,641) (7,651) 21,583 73,143 54,053 172,755
</TABLE>
26
<PAGE> 37
- --------------------
(1) The financial statements reflect a nonrecurring charge to income tax
expense of $17.1 million for all years prior to 1995 related to Internal
Revenue Service examinations. See Note 3 of Notes to the GenTek Business
Combined Financial Statements.
(2) Includes allocated interest expense from the General Chemical Group.
(3) During 1993, 1994 and the nine months ended September 30, 1998, the GenTek
Business recorded extraordinary losses of $1.1 million, $4.2 million and
$2.1 million respectively, related to the early retirement of certain
outstanding indebtedness.
(4) Consolidated depreciation and amortization excluding amortization of
deferred financing costs.
(5) Includes the current portion of long-term debt.
(6) Includes an allocated one-time charge of $6.8 million ($4.1 million after
tax) due primarily to awards made under a restricted unit plan, which
replaced certain prior equity programs.
(7) Includes a one-time charge of $9.0 million ($5.4 million after tax) due to
litigation related to an incident at one of the GenTek Business'
manufacturing facilities.
27
<PAGE> 38
GENTEK BUSINESS:
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet and statements
of operations have been derived from the historical financial statements of the
GenTek Business included elsewhere in this Information Statement. These
statements should be read in conjunction with the GenTek Business: Management's
Discussion and Analysis of Financial Condition and Results of Operations
beginning on page ___ and the GenTek Business Combined Financial Statements
included in the "F-pages" of this Information Statement.
The pro forma combined balance sheet of the GenTek Business has been
prepared assuming the Spinoff and all related transactions, including the
initial borrowings under the GenTek Financing Facility and the application of a
portion of the proceeds of such borrowings to repay certain indebtedness of
General Chemical Group to third parties, had occurred at September 30, 1998. The
pro forma combined statements of operations for the year ended December 31, 1997
and the nine-month period ended September 30, 1998 have been prepared assuming
the Spinoff and all related transactions had occurred as of January 1, 1997.
The pro forma adjustments, as described in the notes to the pro forma
combined balance sheet and combined statements of operations, are based on
currently available information and certain adjustments that the GenTek Business
believes are reasonable. This pro forma financial information does not purport
to represent what the financial position or results of operations of the GenTek
Business would actually have been, had the Spinoff and all related transactions
in fact occurred on such date, or as of the beginning of such periods or to be
indicative of its financial position or results of operations for any future
date or period.
28
<PAGE> 39
THE GENTEK BUSINESS
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 5,326(a) $ 13,030 (a) $ 18,356
Receivables, net ....................................... 66,383 -- 66,383
Inventories ............................................ 38,083 -- 38,083
Deferred income taxes .................................. 6,792 -- 6,792
Other current assets ................................... 2,486 -- 2,486
--------- --------- ---------
Total current assets ................................. 119,070 13,030 143,100
Property, plant and equipment, net ........................ 202,568 202,568
Other assets .............................................. 85,021 2,000 (a) 87,021
--------- --------- ---------
Total assets ......................................... $ 406,659 $ 15,030 $ 421,689
========= ========= =========
Current liabilities:
Accounts payable ....................................... $ 35,365 $ $ 35,365
Accrued liabilities .................................... 45,873 -- 48,873
Income taxes payable ................................... 2,800 -- 1,600
Total current liabilities ............................ 84,038 -- 85,838
Long-term debt ............................................ 6,544 188,456 (a) 195,000
Other liabilities ......................................... 143,322 -- 143,322
--------- --------- ---------
Total liabilities .................................... 233,904 188,456 422,360
Divisional equity (deficit) ............................... 172,755 (173,426)(a)
--------- 671 (b)
---------
Common stock .............................................. -- 207 (b) 207
Additional paid-in capital ................................ -- (878)(b) (878)
--------- --------- ---------
Total liabilities and equity (deficit) ............... $ 406,659 $ 15,030 $ 421,689
========= ========= =========
</TABLE>
- ------------------
(a) To record (i) the incurrence of an estimated $188.5 million of debt,
(ii) the repayment of an estimated $173.4 million of existing
indebtedness of General Chemical Group, and (iii) the payment of an
estimated $2.0 million of fees to obtain new borrowings.
(b) To capitalize divisional equity into paid-in capital and give effect to
the issuance of an estimated 20,700,000 shares of GenTek stock to be
issued to the stockholders of General Chemical Group as a dividend in
the Spinoff.
29
<PAGE> 40
THE GENTEK BUSINESS
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues ................................... $331,452 $ -- $331,452
Cost of sales .................................. 234,935 -- 234,935
Selling, general and administrative expense .... 39,649 1,500 (a) 41,149
-------- -------- --------
Operating profit ............................... 56,868 (1,500) 55,368
Interest expense ............................... 10,186 351 (b) 10,537
Interest income ................................ 678 -- 678
Foreign currency transaction losses ............ 397 -- 397
Other expense, net ............................. 10 -- 10
-------- -------- --------
Income before income taxes and extraordinary
item ........................................ 46,953 (1,851) 45,102
Income tax provision ........................... 19,280 (732)(c) 18,548
-------- -------- --------
Income before extraordinary item ............... 27,673 (1,119) 26,554
Extraordinary item - loss from extinguishment of
debt (net of tax) ........................... 2,050 2,050
-------- -------- --------
Net income ................................ $ 25,623 $ (1,119) $ 24,504
======== ======== ========
Net income per share ........................... $ 1.18(d)
========
</TABLE>
- ------------------
(a) To record estimated incremental general and administrative expenses
expected to be incurred as a result of the GenTek Business operating as
a stand-alone entity.
(b) To record an increase in interest expense from the amounts allocated in
the historical financial statements to reflect the estimated interest
expense based on the incurrence of $195 million in debt at an assumed
weighted average borrowing rate of 7% and to reflect the amortization
of debt issuance cost associated with the new borrowings. A fluctuation
of 0.125% in the assumed weighted average borrowing rate would change
the pro forma interest expense by $183,000.
(c) To reflect the estimated tax effect of the above-mentioned pro forma
adjustments.
(d) Pro forma earnings per share is computed on an estimated 20.7 million
shares of GenTek Common Stock to be issued in the Spinoff.
30
<PAGE> 41
THE GENTEK BUSINESS
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues ............................... $368,516 $ -- $368,516
Cost of sales .............................. 251,912 -- 251,912
Selling, general and administrative expense 47,793 2,000 (a) 49,793
-------- -------- --------
Operating profit ........................... 68,811 (2,000) 66,811
Interest expense ........................... 8,855 5,195 (b) 14,050
Interest income ............................ 1,475 -- 1,475
Foreign currency transaction losses ........ 442 -- 442
Other expense, net ......................... 169 -- 169
-------- -------- --------
Income before income taxes ................. 60,820 (7,195) 53,625
Income tax provision ....................... 26,769 (2,846)(c) 23,923
-------- -------- --------
Net income ............................ $ 34,051 $ (4,349) $ 29,702
======== ======== ========
Net income per share ....................... $ 1.43(d)
========
</TABLE>
- ------------------
(a) To record estimated incremental general and administrative expenses
expected to be incurred as a result of the GenTek Business operating as
a stand-alone entity.
(b) To record an increase in interest expense from the amounts allocated in
the historical financial statements to reflect the estimated interest
expense based on the incurrence of $188.5 million in debt at an assumed
weighted average borrowing rate of 7% and to reflect the amortization
of debt issuance cost associated with the new borrowings. A fluctuation
of 0.125% in the assumed weighted average borrowing rate would change
the pro forma interest expense by $244,000.
(c) To reflect the estimated tax effect of the above-mentioned pro forma
adjustments.
(d) Pro forma earnings per share is computed on an estimated 20.7 million
shares of GenTek Common Stock to be issued in the Spinoff.
31
<PAGE> 42
GENTEK BUSINESS:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The GenTek Business' performance products segment accounted for
approximately 71% and 72% of GenTek Business' revenues in 1997 and in the first
nine months of 1998, respectively. GenTek Business' manufacturing segment
accounted for approximately 29% and 28% of GenTek Business' revenues in 1997 and
in first nine months of 1998, respectively.
Since 1997, the GenTek Business has made various strategic
acquisitions:
- It recently entered into an agreement and has launched a
tender offer for the acquisition of Defiance in a
transaction that values Defiance's equity at approximately
$57 million. Defiance is a manufacturer of bearings for
the transportation industry and a provider of vehicle
testing services, tooling design and pre-production dies
and components primarily for the automotive industry.
- In April 1998, it acquired Reheis, Inc. ("Reheis"), a
world-wide leader in the manufacture of the active
chemical ingredients in antiperspirants and over-the-
counter-antacids.
- In July 1997, it acquired Peridot Holdings Inc.
("Peridot"), a leading manufacturer and supplier of
sulfuric acid and water treatment chemicals for the
industrial, pharmaceutical, water treatment, pulp and
paper and electronics markets. Peridot has since been
merged into a subsidiary of the GenTek Business.
- In February 1998, it acquired Sandco Automotive Ltd.
("Sandco Automotive"), a Canadian manufacturer of
stamped-automobile engine components, principally rocker
arms and roller followers.
These businesses, with combined annual revenues of nearly $200
million, have significantly expanded the GenTek Business' portfolio of assets.
These acquisitions have been, and the Defiance acquisition is being, funded
through existing cash and borrowings under General Chemical Group's credit
facility.
32
<PAGE> 43
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of
the GenTek Business for the three years ended December 31, 1997, 1996 and 1995,
and the nine months ended September 30, 1998 and 1997, and the percentage of the
net revenues of the GenTek Business for the relevant period presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ......................... $ 290.2 100% $ 330.1 100% $ 368.5 100% $ 271.7 100% $ 331.4 100%
Cost of sales ........................ 205.4 71 229.2 69 251.9 68 184.4 68 234.9 71
------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit ......................... 84.8 29 100.9 31 116.6 32 87.3 32 96.5 29
Selling, general and
administrative expense ............ 40.1 14 49.6(2) 15 47.8 13 34.5 13 39.6 12
------- --- ------- --- ------- --- ------- --- ------- ---
Operating profit ..................... 44.7 15 51.3 16 68.8 19 52.8 19 56.9 17
Interest expense ..................... 12.9 4 10.7 3 8.9 2 6.6 2 10.2 3
Interest income ...................... 1.9 -- 1.4 -- 1.5 -- 1.1 -- .7 --
Foreign currency transaction
(gains)/losses..................... (.7) -- (.1) -- .4 -- .3 -- .4 --
Other expense, net ................... .4 -- .3 -- .3 -- (.1) -- --
------- --- ------- --- ------- --- ------- --- ------- ---
Income before income taxes
and extraordinary item ............ 34.0 12 41.8 13 60.8 16 47.0 17 46.9 14
Income tax provision ................. 33.9(1) 12 19.4 6 26.8 7 20.9 8 19.3 6
------- --- ------- --- ------- --- ------- --- ------- ---
Income before extraordinary
item............................... .1 -- 22.3 7 34.0 9 26.1 9 27.6 8
Extraordinary item - loss from
extinguishment of debt
(net of tax) ...................... -- -- -- -- -- -- -- -- 2.0 --
------- --- ------- --- ------- --- ------- --- ------- ---
Net income ........................... $ .1 --% $ 22.3 7% $ 34.0 9% $ 26.1 9% $ 25.6 8%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
- --------------------
Note: Numbers may not add up due to rounding
(1) Includes nonrecurring charge to income tax expense of $17.1 million for
all years prior to 1995 related to IRS examinations. See note 3 to the
Consolidated Financial Statements.
(2) Includes a one-time charge of $6.8 million ($4.1 million after-tax) due
primarily to awards made under a restricted unit plan, which replaced
certain prior equity programs.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net revenues for the nine month period ended September 30, 1998
increased 22% to $331.4 million from $271.7 million for the same period in 1997.
This increase was due to higher sales in both the performance products and
manufacturing segments. The increase in the manufacturing segment primarily
reflects higher volumes. The increase in the performance products segment was
due primarily to revenues from Reheis, which was acquired on April 1, 1998, and
revenues from Peridot, which was acquired on July 1, 1997.
33
<PAGE> 44
Gross profit for the nine month period ended September 30, 1998
increased by 11% to $96.5 million from $87.3 million for the same period in
1997. This increase was primarily related to acquisition-related sales increases
and higher manufacturing segment sales.
Gross profit as a percentage of sales for the nine months ended
September 30, 1998 decreased to 29% from 32% for the same period in 1997. This
decrease was primarily due to product mix changes and the unfavorable economic
climate in Asia.
Selling, general and administrative expense increased by $5.1 million
for the nine-month period ended September 30, 1998 in comparison with the same
period in 1997. This increase was due primarily to the acquisitions of Reheis
and Peridot.
Interest expense for the nine month period ended September 30, 1998
was $10.2 million, which was $3.6 million higher than the prior year level as a
result of higher outstanding debt balances.
Net income was $25.6 million for the nine month period ended
September 30, 1998 versus $26.1 million for the prior year level. This decrease
was due to the foregoing reasons as well as the recording in the second quarter
of a $2.0 million extraordinary item related to the early extinguishment of debt
recorded during the second quarter of 1998.
1997 COMPARED WITH 1996
Net revenues were $368.5 million for 1997 compared with $330.1
million for 1996, representing an increase of 12%. This increase was principally
due to higher sales of the performance products segment as the result of the
acquisition of Peridot on July 1, 1997, as well as higher manufacturing segment
sales due to increased volume and product mix improvements toward
higher-value-added automotive engine components.
Gross profit of $116.6 million for 1997 was $15.7 million, or 16%
higher than the prior year level, principally due to the above-mentioned higher
sales levels. Gross profit as a percentage of sales was 32%, essentially at the
prior year level.
Selling, general and administrative expense as a percentage of net
revenues decreased from 15% in 1996 to 13% in 1997. This decrease was
principally due to the recording of a one-time charge in 1996 of $6.8 million
related primarily to a new General Chemical Group restricted unit plan which
replaced certain prior equity programs.
The $1.8 million decrease in interest expense for 1997 compared with
1996 was primarily due to lower outstanding debt balances during the first six
months of 1997.
Net income for 1997 was $34.0 million versus $22.3 million for 1996.
This increase in net income was driven by the foregoing factors.
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1996 COMPARED WITH 1995
Net revenues for 1996 were $330.1 million, which was $39.9 million or
14% higher than the 1995 level. Sales of the performance products segment
increased due to higher volumes across all product lines. Manufacturing segment
sales were higher as a result of volume and product mix improvements towards
higher-value-added automotive engine parts.
Gross profit increased 19% to $100.9 million for 1996 compared with
$84.8 million for 1995. Gross profit as a percentage of sales increased to 31%
in 1996, an increase of 2% from 1995, primarily due to higher volumes.
Selling, general and administrative expense as a percentage of net
revenues increased from 14% in 1995 to 15% in 1996. This increase was
principally due to the recording of a one-time charge in 1996 of $6.8 million
related primarily to a new General Chemical Group restricted unit plan which
replaced certain prior equity programs.
The $2.2 million decrease in interest expense for 1996 compared with
1995 was primarily due to lower outstanding debt balances.
The foreign currency transaction gain for 1996 was $0.1 million
compared with a $0.7 million gain in 1995, principally due to the impact of
exchange rate fluctuations on a $52.0 million U.S. dollar denominated loan of
General Chemical Group which was allocated to the GenTek Business. The impact of
these foreign currency transaction gains was non-cash.
Net income for 1996 was $22.3 million versus $0.1 million for 1995,
reflecting the foregoing factors and a nonrecurring charge to income tax expense
of $17.1 million recorded in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $5.3 million at September 30, 1998 as
compared with $12.1 million at December 31, 1997. During the first nine months
of 1998, the GenTek Business generated cash flow from operating activities of
$26.1 million, made capital expenditures of $22.2 million and received $74.0
million from its parent, which was used primarily to finance acquisitions.
Cash and cash equivalents were $12.1 million at December 31, 1997
compared with $16.6 million at December 31, 1996. During 1997 the GenTek
Business generated cash flow from operating activities of $55.4 million and
received $17.5 million from its parent, which was used to make capital
expenditures of $26.2 million, finance acquisitions for $30.1 million and to
repay long term debt of $21.1 million.
The GenTek Business had working capital of $35.0 million at September
30, 1998, compared with $19.0 million at December 31, 1997 and $18.6 million at
December 31, 1996. The increase of $16.0 at September 30, 1998 versus December
31, 1997 was principally due to the acquisition of Reheis partially offset by
lower cash balances. The $0.4 million increase in working capital at year-end
1997 from year-end 1996 reflects higher accounts receivable and inventory,
offset by lower cash balances coupled with higher accounts payable and accrued
liabilities.
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Since 1997, the GenTek Business has made various strategic
acquisitions. It purchased Peridot in July 1997, Sandco Automotive in February
1998 and Reheis in April 1998. The GenTek Business has entered into a merger
agreement for the acquisition of Defiance and has launched a cash tender offer
for all of Defiance's equity in a transaction that values Defiance's equity at
approximately $57 million. For a description of these businesses, see "The
GenTek Business." The GenTek Business has financed these acquisitions through
existing cash and borrowings under General Chemical Group's credit facility.
The GenTek Business' principal source of liquidity has been cash
generated from operations. General Chemical Group believes that future operating
cash flow will be sufficient to finance operating and capital expenditure
requirements. General Chemical Group expects that GenTek will use proceeds of
borrowings under the GenTek Financing Facility to finance future acquisitions
and investments (other than the proceeds of the initial borrowings which will be
used to repay a portion of General Chemical Group's existing borrowings from
third parties). In addition, General Chemical Group believes that, as a result
of the Spinoff, GenTek may be able to use its stock as acquisition currency. See
"The Spinoff--Reasons for the Spinoff" and "GenTek Business--Strategy."
To reflect the independent status of GenTek and New GCG after the
Spinoff, GenTek will have its own separate financing facilities, the proceeds of
the initial borrowings of which will be used to repay a portion of General
Chemical Group's existing borrowings from third parties. General Chemical Group
is currently discussing the terms of these financing facilities with banks and
other financial institutions and expects that these facilities will be in place
on or about the Spinoff Date.
At this time, management expects that GenTek will have financing
facilities of approximately $535 million and believes that approximately $195
million (or, if the Defiance acquisition is consummated, approximately $235
million) would be funded on or about the Spinoff Date. It is expected that $300
million will be available for borrowings after the Spinoff and the consummation
of the Defiance acquisition.
General Chemical Group has had ongoing discussions with a number of
banks and other financial institutions regarding GenTek's capital structure and
is continuing to explore financing alternatives to arrive at the most
advantageous debt financing structure for GenTek. In addition, the amount and
terms of GenTek's indebtedness after the Spinoff will depend on a number of
factors that are beyond the control of General Chemical Group, including market
conditions -- which have been volatile -- for debt financing at the time of the
Spinoff. As a result, no predictions can be made about terms of the financing
facilities that GenTek will ultimately obtain.
YEAR 2000 ISSUE
General Chemical Group has implemented a program to assess, mitigate
and remediate the potential impact of the "Year 2000" problem throughout the
GenTek and Industrial Chemicals Businesses. A "Year 2000" problem will occur
where date-sensitive software uses two digit year date fields, sorting the Year
2000 ("00") before the Year 1999 ("99"). The Year 2000 problem can arise in
hardware, software, or any other equipment or process that uses embedded
software or other technology. The failure of such systems to properly recognize
dates after December 31, 1999 could result in data corruption and processing
errors.
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Following the Spinoff, the GenTek and Industrial Chemicals Businesses
will continue to share MIS (management information systems) supported functions,
including MIS personnel, hardware and software. This sharing will remain in
effect through approximately December 31, 2000. During this period, GenTek will
provide to New GCG the services related to the mitigation and remediation of the
potential impact of Year 2000 problems on the Industrial Chemicals Business.
General Chemical Group completed its assessment of its Year 2000
compliance status in early 1998 and began work on its remediation program
immediately thereafter. General Chemical Group's remediation program has been
structured to address its information and non-information technology hardware,
software, facilities and equipment (collectively, "Systems"). Based on current
estimates, GenTek expects to spend approximately $1.0 million to replace or
reprogram existing Systems for both the GenTek and Industrial Chemicals
Businesses and complete its Year 2000 compliance program. Management expects all
material Systems to be Year 2000 compliant by March 31, 1999 and substantially
all Systems to be Year 2000 compliant by December 31, 1999. In the event that
GenTek's material Systems are not Year 2000 compliant, GenTek may experience
reductions or interruptions in operations which could have a material adverse
effect on GenTek's results of operations.
In addition, General Chemical Group has implemented a program to
determine the Year 2000 compliance status of its material vendors, suppliers,
service providers and customers, and based on currently available information,
GenTek does not anticipate any material impact to GenTek based on the failure of
such third parties to be Year 2000 compliant. However, the process of evaluating
the Year 2000 compliance status of material third parties is continually ongoing
and, therefore, no guaranty or warranty can be made as to such third parties'
future compliance status or its potential effect on the GenTek Business. General
Chemical Group believes there exists a sufficient number of suppliers of raw
materials for the GenTek Business so that if any supplier is unable to deliver
raw materials due to Year 2000 problems, alternate sources will be available and
that any supply interruption will not be material to the GenTek Business. There
can be no assurances, however, that the GenTek Business would be able to obtain
all of its supply requirements from such alternate sources in a timely manner or
on terms comparable with those of its current suppliers. In addition, the GenTek
Business relies heavily in its business on railroads and trucking companies to
ship finished product to its customers as well as to transport raw materials to
its manufacturing facilities. To the extent that the GenTek Business is unable
to ship finished product or transport raw materials as a result of such
railroads' or trucking companies' failure to be Year 2000 compliant, the GenTek
Business may not be able to arrange alternative and timely means to ship its
goods, which could lead to interruptions or slowdowns in its business. GenTek is
preparing for the possible use of alternative suppliers and means of
transportation, possible adjustment of raw material and product inventory levels
and contingencies with respect to potential energy source interruptions, all in
an effort to minimize the effects, if any, of Year 2000 related interruptions or
slowdowns caused by suppliers and transporters.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The GenTek Business does not currently expect to enter into financial
instruments for trading purposes. The GenTek Business anticipates periodically
entering into interest rate swap agreements to effectively convert all or a
portion of GenTek's floating-rate debt to fixed-rate debt in order to reduce the
GenTek Business' risk to movements in interest rates. Such agreements would
involve the exchange of fixed and floating interest rate payments over the life
of the agreement without the exchange of the underlying principal amounts.
Accordingly, the impact of fluctuations in interest rates on these interest
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rate swap agreements is expected to be fully offset by the opposite impact on
the related debt. Swap agreements will only be entered into with strong
creditworthy parties.
ENVIRONMENTAL MATTERS
The GenTek Business' various chemical production operations, which
have been conducted at a number of facilities for many years, are subject to
numerous laws and regulations relating to the protection of human health and the
environment in the U.S., Canada and Ireland. General Chemical Group believes
that the GenTek Business is in substantial compliance with such laws and
regulations. However, as a result of its operations, the GenTek Business is
involved from time to time in administrative and judicial proceedings and
inquiries relating to environmental matters. Based on information available at
this time with respect to potential liability involving these proceedings and
inquiries, General Chemical Group believes that any such liability would not
have a material adverse effect on the financial position or results of
operations of the GenTek Business. However, modifications of existing laws and
regulations or the adoption of new laws and regulations in the future,
particularly with respect to environmental and safety standards, or the
discovery of additional or unknown environmental contamination could require
expenditures which might be material to the results of operations or financial
condition of the GenTek Business. See also "The GenTek Business--Environmental
Matters."
The GenTek Business' accruals for environmental liabilities are
recorded based on current interpretation of environmental laws and regulations
when it is probable that a liability has been incurred and the amount of such
liability can be reasonably estimated. Accruals for environmental matters were
$16.2 million and $16.3 million at December 31, 1997 and December 31, 1996,
respectively. The GenTek Business maintains a comprehensive insurance program,
including customary comprehensive general liability insurance for bodily injury
and property damage caused by various activities and occurrences and significant
excess coverage to insure against catastrophic occurrences. However, it does not
maintain any insurance other than as described above for potential liabilities
related specifically to remediation of existing or future environmental
contamination, if any.
The GenTek Business has an established program to ensure that its
facilities comply with environmental laws and regulations. Expenditures made
pursuant to this program for 1997 amounted to $7.2 million (of which
approximately $1.6 million represented capital expenditures and approximately
$5.6 million related to ongoing operations and the management and remediation of
potential environmental contamination from prior operations). Expenditures for
1996 approximated $9.9 million (of which approximately $3.1 million represented
capital expenditures and approximately $6.8 million related to ongoing
operations and the management and remediation of potential environmental
contamination from prior operations). Management expects similar expenditures in
1999 for the GenTek Business to be in the range of $9.0 million to $11.0
million; however, should environmental laws and regulations affecting the GenTek
Business' operations become more stringent, the GenTek Business' costs for
environmental compliance may increase above such range.
OTHER MATTERS
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). The GenTek Business is required
to adopt FAS 131 in preparing its financial statements for its
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1998 fiscal year. Pursuant to this standard, GenTek will provide the required
information including the segment information for its performance products and
manufacturing segments.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that all
derivative instruments be measured at fair value and recognized in the balance
sheet as either assets or liabilities. The GenTek Business is currently
evaluating the impact FAS 133 will have on its consolidated financial
statements.
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THE GENTEK BUSINESS
GENERAL
Following the Spinoff, GenTek will own and operate the GenTek
Business, which consists of the performance products and manufacturing segments
of General Chemical Group.
- The GenTek Business' performance products segment provides a broad
range of value-added products and services to four principal
markets: Pharmaceutical and Personal Care, Environmental, Technology
and Chemical Processing. Its principal products include
antiperspirant and antacid active ingredients, water treatment
chemicals, specialty agrichemicals, advanced lithographic printing
plates and related pressroom chemicals, ultra-high-purity electronic
chemicals, and a range of chemical intermediates used in
photographic, pulp and paper and other applications. The GenTek
Business also provides "closed loop" sulfuric acid regeneration
services, which significantly reduce the waste streams generated by
certain refineries and chemical plants.
- The GenTek Business' manufacturing segment specializes in the
manufacture of stamped and machined rocker arms, roller rocker arms,
roller followers and other precision, highly-engineered components
for the automotive and industrial markets. The GenTek Business'
principal customers of these products are DaimlerChrysler, Ford and
General Motors. The manufacturing segment also produces
fluid-handling equipment for the automotive service market and for
industrial applications. The manufacturing segment is currently
undergoing a significant expansion to accommodate new business
awarded by U.S. auto manufacturers, as well as pursuing business in
markets outside the United States.
General Chemical Group has recently entered into an agreement and
launched a tender offer for the acquisition of Defiance, a
manufacturer of bearings for the transportation industry and a
provider of vehicle testing services, tooling design and
pre-production dies and components primarily for the automotive
industry. This acquisition will increase the range of products and
services provided by the manufacturing segment and provide for a
more complete product offering of valve-train-related components for
the automotive industry.
STRATEGY
The GenTek Business has built a strong customer base and enjoys a
significant market share for a majority of its product lines in both the
performance products and manufacturing segments. General Chemical Group believes
that the GenTek Business' strong market positions result from its competitive
strengths: its high-quality products and customer service; its technological,
marketing and distribution expertise, its low-cost manufacturing; and its
experienced and committed management team. These strengths provide an important
foundation for future growth.
The GenTek Business' strategy is to build on these strengths and
create additional shareholder value through a combination of acquisitions,
internal growth and operational improvements. These initiatives are discussed in
more detail throughout this section:
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PURSUE VALUE-ENHANCING ACQUISITIONS AND INVESTMENTS. The GenTek
Business intends to pursue a broad range of value-enhancing transactions,
including acquisitions of, or investments in, both related and unrelated
businesses. The GenTek Business will target acquisitions and investments that
will create value and enhance cash flow through the application of management's
unique blend of market focus, restructuring, turnaround and cost reduction
capabilities. The GenTek Business may also dispose of selected businesses from
time to time that do not meet its targeted return, profitability or strategic
objectives. Where GenTek disposes of businesses, it may attempt to structure the
sale in a manner that provides it with an equity interest, controlling or
otherwise, in the acquiring entity. Cash proceeds are expected to be retained by
GenTek and reinvested or used to finance acquisitions.
Since 1997, General Chemical Group has acquired three strategic
businesses and is in the process of acquiring a fourth: Defiance, a manufacturer
of automotive components and supplier of automotive testing and tooling
development services, with completion of this acquisition expected in February
1999; Reheis, a manufacturer of the active chemical ingredients in
antiperspirants and over-the-counter-antacids, acquired in April 1998; Peridot,
a manufacturer and supplier of sulfuric acid and water treatment chemicals for
the industrial, pharmaceutical, water treatment, pulp and paper and electronics
markets, acquired in July 1997; and Sandco, a Canadian manufacturer of
stamped-automobile engine components, principally rocker arms and roller
followers, acquired in February 1998. These businesses, with combined annual
revenues of nearly $200 million, have significantly expanded the GenTek
Business' portfolio of assets. GenTek believes that these acquisitions, combined
with others to be made in the future, will help expand its market leadership
positions and provide new growth opportunities. Consistent with its strategy,
the GenTek Business is currently reviewing a number of potential acquisitions
and investments. Except with respect to Defiance, however, the GenTek Business
currently has no commitments, understandings, or arrangements with respect to
any specific acquisitions.
In implementing its strategy, GenTek expects to capitalize on its
relationship with Latona Associates Inc. ("Latona"), a management company, which
provides the GenTek Business with strategic management, business and financial
advisory services. Similar to the current arrangements with General Chemical
Group, Latona will also continue to provide the GenTek Business with a full
range of merger and acquisition advisory services, including the identification,
structuring and negotiation of suitable acquisitions, divestitures and other
value-enhancing corporate transactions. Management believes that Latona's
relationships and experience in identifying acquisition opportunities and the
extensive knowledge of Latona's personnel with the GenTek Business will be of
significant advantage to GenTek in developing and executing its acquisition and
growth strategy. See "Certain Relationships and Affiliate Transactions."
CAPITALIZE ON FAVORABLE MARKET TRENDS. Management expects that the
current markets served by the GenTek Business will present a number of
attractive growth opportunities. For example, management believes that the
GenTek Business' water treatment products will benefit from stricter Federal
drinking water requirements, which include higher total organic carbon and
solids removal standards. The GenTek Business' sulfuric acid regeneration
services, which help refineries produce cleaner burning gasoline, may also
benefit from stricter state and Federal gasoline standards. For its personal
care and pharmaceutical products, the GenTek Business is looking to capitalize
on growth opportunities in Europe where consumer acceptance for antiperspirant
products continues to increase. The GenTek Business is also pursuing
opportunities to increase its pharmaceutical intermediate business and take
advantage of the growing trend by pharmaceutical companies to outsource
manufacturing of intermediates and other pharmaceutical components. In the
manufacturing segment, over the past several
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years, the GenTek Business' U.S. market share has significantly increased due to
the successful introduction of high-precision, high-volume stamped and machined
engine components. The volume gains have been further boosted by changing engine
technology, a trend management expects will continue in the future. As a
complement to the U.S. business, the GenTek Business is also pursuing
international opportunities in the motor vehicle market.
EXPAND AND DIVERSIFY PRODUCT LINES. The GenTek Business has recently
launched a number of new products which it believes will enhance profitability.
For example, Al+Clear(R), a new agrichemical product, improves poultry-house
sanitation and productivity and, in addition, benefits the environment by aiding
in the control of phosphorus runoff into rivers, streams, lakes and other water
bodies. With current annual U.S. poultry production today exceeding seven
billion broilers, the GenTek Business believes that Al+Clear(R) presents a
significant growth opportunity in the poultry market as well as in related
markets (such as swine, dairy and egg-laying). In addition, the GenTek Business
recently introduced Prisma(TM), a new computer-to-plate ("CTP") printing system,
which enables printers to reduce labor and material costs and achieve
exceptional print quality. The GenTek Business has increased the purity of many
of its electronic grade chemicals and developed and produced a new line of
coagulants and coagulant aids for its water treatment chemicals product line.
Management believes that these new products, as well as other products being
developed, present significant growth opportunities for the GenTek Business.
CONTINUE TO IMPROVE OPERATING EFFICIENCY. The GenTek Business
continually seeks opportunities to reduce operating costs. Ongoing efforts to
improve operating efficiency have resulted in average operating profit margins
of approximately 17% over the past five years. The GenTek Business is currently
evaluating additional cost reduction alternatives, such as cogeneration
opportunities, the use of alternative raw materials, and investments in new
equipment to further reduce plant costs and increase throughput.
PERFORMANCE PRODUCTS SEGMENT
PRODUCTS AND SERVICES
The GenTek Business' performance products segment provides a broad
range of value-added products and services to four principal market segments:
Pharmaceutical and Personal Care, Environmental, Technology and Chemical
Processing. Its principal products include antiperspirant and antacid active
ingredients, water treatment chemicals, specialty agrichemicals, advanced
lithographic printing plates and related pressroom chemicals, ultra-high-purity
electronic chemicals, and a range of chemical intermediates used in
photographic, pulp and paper and other applications. The GenTek Business also
provides "closed loop" sulfuric acid regeneration services, which significantly
reduce the waste streams generated by certain refineries and chemical plants.
The GenTek Business' activities in each of its principal market
segments are discussed below.
Pharmaceutical and Personal Care. The GenTek Business is a leading
supplier of a broad range of active chemical ingredients used in the manufacture
of over-the-counter ("OTC") and prescription pharmaceuticals, nutritional
supplements, nutraceuticals, veterinary health products and personal care
products. Its product line includes aluminum and zirconium complexes for use in
antiperspirants; aluminum hydroxide and magnesium hydroxide blends used in OTC
antacids for acid-
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neutralization; high-purity aluminum hydroxide for use as veterinary and human
vaccine adjuvants; potassium chloride used in electrolyte replacement
medications and intravenous solutions; sodium nitrite used as a reactant in the
production of artificial sweeteners; and pharmaceutical-grade sulfuric acid used
in the production of vitamin C tablets.
The GenTek Business maintains leadership positions in many of its
pharmaceutical and personal care products. In antiperspirant actives, for
example, the company is considered the industry's technical leader. Recent new
product introductions have included nonresidue-forming antiperspirant actives
designed for the growing clear stick/gel antiperspirant market and a line of
antiperspirant active ingredients designed to appeal to European consumer
preferences.
Environmental. The GenTek Business supplies a broad range of
products and services designed to address the important environmental issues
confronting the company's customers. These value-added products and services
provide cleaner-burning gasoline and cleaner drinking water; restore
algae-infested lakes; reduce damaging phosphorous runoff from agricultural
operations; and significantly reduce industrial waste streams.
The GenTek Business' water treatment products consist primarily of
aluminum sulfate ("alum"), polymer-based enhanced coagulants, and sodium and
ammonia salts and sulfites. With a network of 34 plants strategically located
throughout the United States and Canada, the GenTek Business is the largest
North American producer of alum, which is used as a flocculent and coagulant in
potable water and waste water treatment applications.
With the assistance of the company's Technical Center in Syracuse,
New York, the GenTek Business recently introduced A1+Clear(R), an agrichemical
product for the poultry market. When applied to the litter in poultry houses,
A1+Clear(R) not only improves sanitation and productivity, but also benefits the
environment by aiding in the control of phosphorous runoff. Phosphorous runoff
from agricultural activities has been linked to contamination in lakes, rivers,
streams and other water bodies.
In the environmental market, the GenTek Business also provides
sulfuric acid regeneration services to the refining and chemical industries, and
markets pollution abatement and sulfur recovery services to selected refinery
customers. Refineries use sulfuric acid as a catalyst in the production of
alkylate, a gasoline blending component with favorable performance and
environmental properties. The alkylation process contaminates and dilutes the
sulfuric acid. The GenTek Business transports the contaminated acid back to the
company's facilities for recycling and redelivers the fresh, recycled acid back
to customers. This "closed loop" process offers customers significant savings
versus alternative disposal methods and also benefits the environment by
significantly reducing refineries' waste streams. Similar regeneration services
are provided to manufacturers of ion exchange resins and silicone polymers. The
GenTek Business is expanding its pollution abatement services of treating and
removing other waste streams generated by refineries, including hydrogen sulfide
and sulfur dioxide.
Technology. In the technology market, the GenTek Business provides
CTP technology and bi-metal lithographic printing plates for high-quality
commercial printing applications, as well as ultra-high-purity electronic
chemicals for the semiconductor industry.
A GenTek Business subsidiary, Printing Developments Inc. ("PDI"),
recently introduced its Prisma(TM) CTP technology which allows printers to
transfer computer images directly to digitally
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imageable printing plates, thereby eliminating intermediate film processing and
reducing labor and material costs. PDI's proprietary bi-metal plating system
provides sharper color reproduction, greater durability and superior on-press
economics relative to the polymer plates offered by other industry participants.
The GenTek Business' electronic chemicals include ultra-high-purity
acids, caustics and etchants for use in the manufacture of semiconductor
processing chips. Within the past two years, the GenTek Business completed
construction of a new plant that produces ultra-high-purity sulfuric acid with
impurities measured in the parts-per-trillion range, and became the exclusive
U.S. licensee for the manufacture and sale of Spinetch(TM) etchants, a
proprietary product line developed by Merck KgaA of Germany.
Chemical Processing. The GenTek Business manufactures a broad range
of products that serve as chemical intermediates in the production of such
everyday products as newspapers, tires, paints, dyes and carpets. The company is
a leading producer of alum and polymer-based enhanced coagulants used in paper
manufacturing to impart water resistance. The GenTek Business' sodium and
ammonia sulfites are commonly used to produce fixing and developing solutions
for conventional film and x-ray processing. Sodium nitrite, of which the GenTek
Business is one of only two North American producers, is primarily used as a
reactant in the manufacture of dyes, pigments and rubber processing chemicals.
Additional chemical intermediate products include potassium fluoride and
fluoborate derivatives sold into the metal treatment, agrichemical, surfactant
and analytical reagent markets. The GenTek Business also produces sulfuric acid,
which is used in the manufacturing of titanium pigments, fertilizers, synthetic
fibers, steel, petroleum and paper, as well as many other products.
AVAILABILITY OF RESOURCES
The performance products segment's competitive cost position and
high-quality products are in part attributable to its control of certain raw
materials that serve as the feedstocks for many of its products. For its
sulfuric acid regeneration business, the GenTek Business has the ability to
manufacture sulfur dioxide and sulfuric acid relatively inexpensively. Sulfur
dioxide is a major raw material in the manufacture of many of the GenTek
Business' sodium salts and sulfites, and sulfuric acid is an important raw
material in the manufacture of aluminum sulfate as well as in the manufacture of
ultra-high-purity electronic chemicals. Consequently, major raw material
purchases are limited primarily to sulfuric acid where it is uneconomical for
the GenTek Business to supply itself due to distribution costs, soda ash (for
the manufacture of sodium salts, sulfites and nitrites), bauxite and hydrate
(for the manufacture of alum), sulfur (for the manufacture of sulfuric acid),
and aluminum (for the manufacture of printing plates). The GenTek Business has
the ability to purchase these raw materials from a number of suppliers and
believes that these raw materials will be available in sufficient supply on a
competitive basis for the foreseeable future.
COMPETITION
Although the performance products segment generally has significant
market shares in the product areas in which it competes, most of its end markets
are extremely competitive. The GenTek Business' major competitors are typically
segregated by end markets and include international, regional and, in some
cases, small independent producers. The GenTek Business' ability to compete
effectively depends on its ability to maintain competitive prices and to provide
reliable and responsible service to
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its customers. General Chemical Group believes that, with certain products which
have relatively higher freight costs, the proximity of the GenTek Business'
production facility to the end market user is a key factor in being price
competitive. In general, raising prices has been difficult over the past several
years and will likely continue to be so in the near future.
In the pharmaceuticals and personal care market, the GenTek Business
competes primarily with Giulini, Barcroft and Summit, which produce active
ingredients used in antacid and antiperspirants production. The GenTek Business'
competitors for its environmental market products and services include the
refineries that perform their own sulfuric acid regeneration, as well as DuPont,
Marsulex, Olin, PVS and Rhodia, which also have sulfuric acid regeneration
facilities that are generally located near their major customers. In addition,
the GenTek Business competes with Geo Specialty Chemicals, U.S. Aluminates and
other small market participants for water treatment services. Competitors in the
technology market include Kodak-Polychrome and Fuji, which also provide
printing-related products. With regard to electronic chemicals, the GenTek
Business' principal competitors are Ashland and Olin. Competitors in the
chemical processing market include BASF, Calabrian, U.S. Salt, Kerley, Rhodia
and Solvay S.A.
SALES AND DISTRIBUTION
The GenTek Business employs over 100 experienced sales, marketing,
distribution and customer service personnel in its performance products segment.
The sales force is divided into a general group and specialized groups which
focus on specific products, end-users and geographic regions, thereby providing
the GenTek Business with insight into industry trends and creating opportunities
for product development.
The sales force markets products and services both directly to
end-users and indirectly through independent distributors. Generally, sulfuric
acid regeneration services are only sold directly to end-users, often pursuant
to long-term contracts. In addition, the GenTek Business contracts with an
extensive network of independent distributors both in the United States and
internationally. Distributors typically promote a full-line or focused range of
products to a larger market or to a market focused on specific end-users or
regions. The GenTek Business' sales contracts with its end-users and
distributors are usually for one- to three-year periods.
CUSTOMERS; SEASONALITY; BACKLOGS
The performance products segment does not have any single customer,
or a small number of customers, which if lost would have a material adverse
effect on the performance products segment or the GenTek Business. The business
of the performance products segment is generally not seasonal. Due to the nature
of the performance products segment's business, there are no significant
backlogs.
MANUFACTURING SEGMENT
The GenTek Business' manufacturing segment produces stamped and
machined metal components for use in automotive and industrial markets as well
as fluid transport and handling equipment for the automotive service market and
for industrial applications.
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AUTOMOTIVE
The GenTek Business' stamped and machined engine components improve
engine efficiency by reducing engine friction and component mass. These
components are used in the increasingly popular single and double overhead cam
(OHC) engines automakers are installing in cars, light trucks and sport utility
vehicles (such as Ford Expedition and F-150, Lincoln Navigator and
DaimlerChrysler Minivan). The increased use of these OHC engines has resulted in
significant volume growth through market share gains, as vehicle manufacturers
are able to obtain better fuel economy and higher horsepower using OHC engines.
Management believes that this OHC trend is projected to continue. Additionally,
the GenTek Business has participated in the automakers' conversion of
traditional overhead valve engines to reduced-friction valve train components
(using bearings) to obtain some of the efficiency of OHC engines. The manu-
facturing segment's products compare favorably with other technologies by
providing comparable performance characteristics at a lower delivered cost. This
reduced cost is a function of lower raw material cost as well as lower machining
cost. In addition, these products have received increased acceptance as
automakers strive to reduce vehicle weight and improve performance at a
reasonable cost.
On January 7, 1999, General Chemical Group entered into an agreement
for the acquisition of Defiance and expects to consummate this transaction in
February 1999. Defiance, headquartered in Cleveland, Ohio, manufactures
specialty anti-friction bearings and metal prototype dies and parts and provides
testing and tooling development services for the automotive industry. See
"GenTek Business: Managements' Discussion and Analysis of Financial Condition
and Results of Operations."
Defiance's bearings are used primarily in the valve trains of
automotive and truck engines. In addition, Defiance manufactures
production-intent prototype metal parts which are used by its customers for
prototype and short production runs of automotive systems.
Defiance's testing and tooling services group provides
computer-aided design, engineering and simulation services for automotive
structural and mechanical systems. Defiance provides services on a wide range of
systems from single sub-systems, such as chassis, suspensions, seats and seating
assemblies, to entire vehicles. Defiance's engineering and simulation services
provide customers with finite element modeling, kinematics, crash and variation
simulation analyses, experimental dynamics and vehicle development programs, and
allows its customers to test their automotive products for durability, stress,
noise, vibration and environmental considerations.
INDUSTRIAL
GenTek's fluid transport and handling equipment is used in the
automotive service industry (by customers such as Jiffy Lube and automotive
service bays in tire stores and auto dealerships) as well as in the machine tool
industry (primarily for delivering cutting fluids to the cutting surface in
metal-cutting equipment manufactured by such companies as Bridgeport, Mori Seiki
and Cincinnati Milicron). The GenTek Business' long history and in-depth
applications knowledge has resulted in the production of quality products with a
solid reputation among end-users and systems integrators. The GenTek Business
also produces stamped and machined metal products and components for a wide
range of industrial applications, such as machine cranks, hose reels, metal
fasteners and components for bulldozer treads.
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SUPPLIERS; CUSTOMERS
The GenTek Business purchases its major raw materials for its
manufacturing segment from a number of suppliers and believes that these raw
materials will be available in sufficient supply on a competitive basis for the
foreseeable future. In addition, management believes that alternative sources
are available to fulfill the manufacturing segment's major raw material
requirements.
The manufacturing segment deals primarily with the automotive
industry, including DaimlerChrysler, Ford and General Motors. Automotive
manufacturers generally award business to their suppliers by individual engine
line, often for multiple-model years, and the loss of any of these engine
contracts would not be material to the GenTek Business. However, the loss by
GenTek of any one of these customers in its entirety, an economic downturn in
the automotive industry as a whole or other events (e.g., labor disruptions)
resulting in significantly reduced operations of any of these customers could
have a material adverse impact on the operating results or financial condition
of the GenTek Business.
SEASONALITY; BACKLOGS; COMPETITION
The manufacturing segment's business is generally not seasonal. Due
to the nature of the manufacturing segment's business, there are no significant
backlogs. The GenTek Business' manufacturing segment competes with other
automotive engine component manufacturers based on a number of factors including
design and engineering capabilities, quality, delivery terms and price.
Competitors include Eaton, Hitchiner, INA and captive OEMs.
ENVIRONMENTAL MATTERS
The GenTek Business' various chemical manufacturing operations,
which have been conducted at a number of facilities for many years, are subject
to numerous laws and regulations relating to the protection of human health and
the environment in the U.S., Canada and Ireland. GenTek believes that it is in
substantial compliance with such laws and regulations. However, as a result of
its operations, GenTek is involved from time to time in administrative and
judicial proceedings and inquiries relating to environmental matters. These
include several currently pending administrative proceedings concerning alleged
environmental violations at GenTek's facilities. Based on information available
at this time with respect to potential liability involving these facilities,
GenTek believes that any such liability will not have a material adverse effect
on its financial condition or results of operations. However, modifications of
existing laws and regulations or the adoption of new laws and regulations in the
future, particularly with respect to environmental and safety standards, or
discovery of any additional or unknown environmental contamination, if any,
could require capital expenditures which may be material or otherwise adversely
impact GenTek's operations.
The Comprehensive Environmental Response Compensation and Liability
Act of 1980 ("CERCLA") and similar state statutes have been construed as
imposing joint and several liability on present and former owners and operators
of contaminated sites and transporters and generators of hazardous substances
regardless of fault. General Chemical Group has received written notice from the
Environmental Protection Agency (the "EPA") that it has been identified as a
potentially responsible party ("PRP") under CERCLA at four Superfund sites.
General Chemical Group does not believe that its liability, if any, for these
sites will be material to its results of operations or financial condition.
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At any time, GenTek may be involved in proceedings with various
regulatory authorities which could require GenTek to pay various fines and
penalties due to violations of environmental laws and regulations at its sites,
remediate contamination at some of these sites, comply with applicable standards
or other requirements, or incur capital expenditures to modify certain pollution
control equipment or processes at its sites. Again, although the amount of any
liability that could arise with respect to these matters cannot be accurately
predicted, GenTek management believes that the ultimate resolution of these
matters will have no material adverse effect on GenTek's results of operations
or financial condition. See also "--Legal Proceedings" below.
Avtex Site at Front Royal, Virginia. On March 22, 1990, the EPA
issued to General Chemical Group a Notice of Potential Liability pursuant to
Section 107(a) of CERCLA (the "Notice") with respect to a site located in Front
Royal, Virginia (the "Avtex Site"), owned at the time by Avtex Fibers Front
Royal, Inc., which has filed for bankruptcy. A sulfuric acid plant adjacent to
the main Avtex Site was previously owned and operated by the GenTek Business. On
September 30, 1998, the EPA issued an administrative order under Section 106 of
CERCLA (the "Order"), which requires General Chemical Group, AlliedSignal, Inc.
and Avtex to undertake certain removal actions at the acid plant. On October 19,
1998, General Chemical Group delivered to the EPA written notice of its
intention to comply with the Order, subject to numerous defenses. The
requirements of the Order include preparation of a study to determine the extent
of any contamination at the acid plant site. The GenTek Business has provided
for the estimated costs of $1.6 million for these activities in its accrual for
environmental liabilities relating to the Order. General Chemical Group is
working cooperatively with the EPA with respect to compliance with the Order and
believes that such compliance will not have a material effect on the GenTek
Business' results of operations or financial condition.
EMPLOYEES/LABOR RELATIONS
As of November 30, 1998, the GenTek Business had approximately 1,750
employees, approximately 750 of whom were full-time salaried employees, 550 were
full-time hourly employees (represented by nine different unions) and 450 were
hourly employees working in nonunion facilities. Defiance has reported that it
has 368 employees, 259 of whom are hourly employees represented by one union.
The GenTek Business' union contracts have durations which vary from
two to four years. Since 1986, the GenTek Business has been involved in numerous
labor negotiations, only three of which have resulted in work disruptions.
During these disruptions, management operated the plants and supplied customers
without interruption until the labor disruptions were settled and new contracts
were agreed upon. Certain union contracts will be up for renewal during 1999.
PROPERTIES
The GenTek Business has offices, storage facilities and
manufacturing facilities at numerous locations throughout the United States,
Canada and Ireland. GenTek's headquarters are located in Hampton, New Hampshire.
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The locations and uses of certain major properties of the GenTek
Business are as follows:
<TABLE>
<CAPTION>
LOCATION SEGMENT USE
-------- ------- ---
<S> <C> <C>
United States
Pittsburg, California Performance Products Production Facility
Richmond, California Performance Products Production Facility
North Claymont, Performance Products Production Facility, Offices and Warehouse
Delaware
Augusta, Georgia Performance Products Production Facility
Berkeley Heights, Performance Products Production Facility, Offices and Warehouse
New Jersey
Newark, New Jersey Performance Products Production Facility
Hampton, Offices (1) Offices
New Hampshire
Parsippany, New Jersey Offices (1) Offices
Solvay, New York Performance Products Production Facility
Toledo, Ohio Manufacturing Production Facility
Marcus Hook, Performance Products Production Facility, Offices and Warehouse
Pennsylvania
Midlothian, Texas Performance Products Production Facility
Anacortes, Washington Performance Products Production Facility
Racine, Wisconsin Performance Products Production Facility and Offices
Canada
Valleyfield, Quebec Performance Products Production Facility
Waterdown, Ontario Manufacturing Production Facility
Ireland
Dublin Performance Products Production Facility, Offices and Warehouse
</TABLE>
- ---------------------------
(1) Leased.
Defiance, which is being acquired by General Chemical Group and will
be part of the manufacturing segment of the GenTek Business, is headquartered in
Cleveland, Ohio. It operates manufacturing facilities in Defiance and Upper
Sandusky, Ohio and St. Clair Shores, Michigan, and leases other production and
testing facilities in the Detroit, Michigan area.
LEGAL PROCEEDINGS
General. The GenTek Business is involved in claims, litigation
administrative proceedings and investigations of various types, including the
Milwaukee and Delaware Valley litigation discussed below and certain
environmental proceedings previously discussed. Although the amount of any
liability that could arise with respect to these actions cannot be accurately
predicted, the opinion of management based
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upon currently-available information is that any such liability not covered by
insurance will have no material adverse effect on GenTek's results of operations
or financial condition.
Milwaukee Litigation. In March 1993, an outbreak of cryptosporidia
occurred in the public water supply of the City of Milwaukee. As a result of
that incident, several lawsuits have been filed with the Milwaukee County
Circuit Court against one or more of the City of Milwaukee, its Department of
Public Works, Sara Lee Corporation ("Sara Lee"), E.D. Wesley Co., Peck Foods
Corporation, certain hotels, numerous insurance companies, several
municipalities and General Chemical Group. The principal allegations against
General Chemical Group are that a water treatment chemical sold to the City of
Milwaukee by General Chemical Group should have removed certain bacteria
contained in the water supply and failed to do so and that General Chemical
Group consulted with the City concerning the water purification.
One of the suits (Markwiese, et al. v. Peck Foods Corporation, et
al. filed in 1993) had been certified, prior to the service of a complaint
against General Chemical Group, as a class action in favor of all persons who
sustained damage as a result of the wrongful acts of the various defendants. An
appeal of this class certification was filed by General Chemical Group and the
City of Milwaukee, and in a March 13, 1998 hearing, a new trial judge ruled from
the bench that this matter shall not proceed as a class action. If this matter
proceeds to trial, it is possible that lawyers for the plaintiffs could appeal
this ruling after conclusion of the trial. In addition to the Markwiese action,
several other lawsuits have since been filed by the same lead attorneys in the
Circuit Court of Milwaukee County against the same basic group of defendants. In
total, General Chemical Group believes the total number of individual plaintiffs
in all suits filed to date is approximately 700. The unspecified damages sought
by these various complaints is alleged to be "far in excess of $1.0 million
dollars" for personal injury, economic loss, emotional distress, pain and
suffering, medical expenses and punitive damages.
On September 17, 1998, the court preliminarily approved a class
action settlement with Sara Lee, whereby Sara Lee would pay to the plaintiffs
$250,000 to cover certain expenses related to the litigation. Final approval of
the settlement was granted by the court on December 17, 1998. The remaining
parties in the litigation, including General Chemical Group, are continuing in
the discovery phase of the litigation.
General Chemical Group has denied all material allegations of the
complaints and will continue to defend these lawsuits vigorously. Management
further believes that the GenTek Business' available insurance should provide
adequate coverage in the event of an adverse result in this matter, and that
this matter will not have a material adverse effect on GenTek's results of
operations or financial condition.
Delaware Valley Litigation. In April 1998, approximately 40
employees (and their respective spouses) of the Sun Company, Inc. refinery in
Marcus Hook, Pennsylvania, filed lawsuits in the Court of Common Pleas, Delaware
County, Pennsylvania, against General Chemical Group, alleging that sulfur
dioxide and sulfur trioxide releases from the GenTek Business' Delaware Valley
facility caused various respiratory and pulmonary injuries. Unspecified damages
in excess of $50,000 for each plaintiff are sought. General Chemical Group has
answered the complaints, and the litigation has entered the discovery phase. The
GenTek Business believes that this claim is without merit and will vigorously
defend itself in this matter. Management further believes that the GenTek
Business' current accruals and available insurance should provide adequate
coverage in the event of an adverse result in this matter and
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that, based on currently-available information, this matter will not have a
material adverse effect on GenTek's results of operations or financial
condition.
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GENTEK BUSINESS:
MANAGEMENT
MANAGEMENT
The following table sets forth the current directors and executive
officers of GenTek. The Board of Directors and management of GenTek will be
reconstituted before the Spinoff Date. Prior to the Spinoff, General Chemical
Group, as GenTek's sole shareholder will elect the Directors of GenTek as of the
Spinoff. Following such election, the Board of Directors will designate the
executive officers of GenTek as of the Spinoff. The senior management of GenTek
will include the executive officers of General Chemical Group currently
responsible for the GenTek Business.
After the identity of the Directors and executive officers of GenTek
as of the Spinoff has been determined, GenTek will, in an amendment to this
Information Statement and the Form 10 (which includes this Information
Statement), set forth the names of, and biographical information for, such
persons.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul M. Meister 46 Director and President
Todd M. DuChene 35 Director, Vice President and Secretary
</TABLE>
Mr. Meister has been the Vice Chairman of the Board of Directors of
the General Chemical Group since May 1998 and a Director since 1996. He is the
Vice Chairman of the Board of Directors, Executive Vice President, Chief
Financial Officer and Treasurer of Fisher Scientific International Inc. Mr.
Meister is also a member of the Board of Directors of M&F Worldwide Corporation
and Minerals Technologies Inc.
Mr. DuChene has been the Secretary of General Chemical Group since
March 1998. He is also the Vice President, General Counsel and Secretary of
Fisher Scientific International Inc.
COMMITTEES OF THE BOARD
The Board of Directors of GenTek will have two standing committees:
an Audit Committee and a Compensation Committee.
The Audit Committee will consist of ________, ________ and ________,
with ________ serving as Chairman. It will be responsible for recommending the
firm to be appointed as independent accountants to audit GenTek's financial
statements and to perform services related to the audit; reviewing the scope and
results of the audit with the independent accountants; reviewing with the
management and the independent accountants GenTek's year-end operating results;
considering the adequacy of the internal accounting and control procedures of
GenTek; reviewing the non-audit services to be performed by the independent
accountants, if any; and considering the effect of such performance on the
accountants' independence.
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The Compensation Committee will consist of ________, ________ and
________, with ________ serving as Chairman. It will be responsible for review
and recommendation regarding compensation arrangements for the Chief Executive
Officer and the four other most highly compensated executive officers. A
subcommittee of the Compensation Committee, comprised solely of "outside
directors" (as such term is used in Section 162(m) of the Code) who are also
"Non-Employee Directors" (as such term is defined in Rule 16b-3 of the Exchange
Act), will have exclusive authority to approve any awards of stock or options to
directors of GenTek (other than Non-Employee Directors) or other individuals who
are "officers" of GenTek for purposes of Section 16 of the Exchange Act under
GenTek's Long-Term Incentive Plan (described below) and to administer elements
of GenTek's 1998 Annual Performance Incentive Plan (also described below)
covered by Section 162(m) of the Code. The subcommittee will also be responsible
for determining whether the performance goals under the Annual Plan (as defined
herein) have been met. In the remainder of this Information Statement,
references to the Compensation Committee shall be deemed to be references to the
subcommittee in all cases where Section 162(m) of the Code or Section 16 of the
Exchange Act would require that action be taken by the subcommittee rather than
the full Compensation Committee.
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GENTEK BUSINESS:
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
The Non-Employee Directors of GenTek will be entitled to receive
cash and other compensation pursuant to the plans described below.
Cash Compensation. Non-Employee Directors of GenTek will receive
compensation of $_______ per year, with no additional fees for attendance at the
company's Board or committee meetings. Employee Directors will not be paid any
fees or additional compensation for service as members of GenTek's Board or any
of its committees. All Directors are reimbursed for expenses incurred in
connection with attending GenTek's Board and committee meetings.
Restricted Unit Plan for Non-Employee Directors. Prior to the
Spinoff, GenTek will adopt, effective as of the Spinoff, a Restricted Unit Plan
for Non-Employee Directors, pursuant to which each Non-Employee Director of
GenTek (other than _________ and __________), upon becoming a Director of
GenTek, will receive a one-time grant of ______ restricted units under the
Restricted Unit Plan for Non-Employee Directors evidencing a right to receive
shares of GenTek Common Stock, subject to certain restrictions. GenTek will
maintain a memorandum account for each Director who received the grant of
restricted units and credit to such account the amount of any cash dividends and
shares of stock of any subsidiary distributed on the shares of GenTek Common
Stock ("Dividend Equivalents") underlying such Director's restricted units from
the date of grant until the payment date described below. No shares of GenTek
Common Stock will be issued at the time restricted units are granted, and GenTek
will not be required to set aside a fund for any such grant or for amounts
credited to the memorandum account. Pursuant to the terms of the Plan neither
the restricted units nor the memorandum account may be sold, assigned, pledged
or otherwise disposed of. ___ percent of the restricted units and the related
Dividend Equivalents will vest for each year of service as a Director of GenTek.
Vested restricted units and the related Dividend Equivalents will not be payable
until the Director ceases to be a member of GenTek's Board. At that time, the
Director will receive one share of GenTek Common Stock for each vested
restricted unit, provided that a Director may elect, prior to the date on which
restricted units vest, to have payment deferred to a later date. Any restricted
units and related Dividend Equivalents that have not vested at the time the
Director ceases to be a Director of GenTek will be canceled unless service has
terminated because of death or disability, in which event all such restricted
units and related Dividend Equivalents will vest immediately. When payment of
restricted units is made, Non-Employee Directors (other than ___________ and
___________) will also receive cash and securities equal to the related Dividend
Equivalents, together with interest on the cash based upon the average quoted
rate for ten-year U.S. Treasury Notes. In the event of a stock dividend, stock
split, recapitalization, merger, liquidation or similar event, the Board, in its
sole discretion, may make equitable adjustments in outstanding awards and the
number of shares of GenTek Common Stock reserved for issuance under the plan.
EXECUTIVE COMPENSATION
In general, compensation for executive officers and other key
employees of GenTek will consist of base salary, annual bonus awards (a portion
of which may be payable in restricted stock) and long-term incentive awards of
options or restricted stock that may be made from time to time under the GenTek
Inc. Long-Term Incentive Plan (described below).
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ANNUAL PERFORMANCE INCENTIVE PLAN
Prior to the consummation of the Spinoff, the Board of GenTek will
adopt, and General Chemical Group, as sole shareholder of GenTek will approve,
effective upon the consummation of the Spinoff, a GenTek Inc. Annual Performance
Incentive Plan (the "GenTek Annual Plan"), pursuant to which executive officers
and key employees of GenTek and its subsidiaries will be eligible to receive
annual or other periodic bonuses. The GenTek Annual Plan will be administered by
the GenTek Compensation Committee. Non-Employee Directors will not be eligible
for awards under the GenTek Annual Plan.
Each year GenTek will establish target incentive bonuses for
participants in the GenTek Annual Plan. Bonuses will be payable under the GenTek
Annual Plan for a year if GenTek meets the performance objectives for such year
selected for a participant or group of participants by the Compensation
Committee. The performance objectives may be based upon either company-wide or
operating unit performance in the following areas: earnings per share, revenues,
operating cash flow, operating earnings, working capital to sales ratio and
return on capital.
In addition, notwithstanding the foregoing, the Compensation
Committee will have the right, in its discretion, to pay to any participant an
annual bonus based on individual performance or any other criteria that the
Committee deems appropriate and, in connection with the hiring of any person or
otherwise, the Compensation Committee may provide for a minimum bonus amount in
any calendar year, regardless of whether performance objectives are attained.
The GenTek Annual Plan is expected to vest broad powers in the
Compensation Committee to administer and interpret the Plan. The Compensation
Committee's powers are expected to include authority, within the limitations set
forth in the Annual Plan, to select the persons to be granted awards, to
determine the time when awards will be granted, to determine and certify whether
objectives and conditions for earning awards have been met, to determine whether
payment of an award will be made at the end of an award period or deferred, and
to determine whether an award or payment of an award should be reduced or
eliminated. The GenTek Annual Plan is also expected to generally vest broad
powers in the Compensation Committee to amend and terminate the GenTek Annual
Plan.
LONG-TERM INCENTIVE PLAN
Prior to the consummation of the Spinoff, the Board of Directors of
GenTek will adopt and General Chemical Group, as sole stockholder of GenTek will
approve, effective upon the consummation of the Spinoff, the GenTek Inc.
Long-Term Incentive Plan (the "LTIP"). The LTIP provides for the grant of any or
all of the following types of awards: (i) stock options, including incentive
stock options; (ii) stock appreciation rights ("SARs"); (iii) restricted stock
and restricted units; (iv) incentive stock and incentive units; and (v) deferred
stock units (each, an "Award").
The LTIP will also provide for the grant of conversion and
replacement of General Chemical Group equity-related incentive awards held by
employees of GenTek in connection with the Spinoff. See General Chemical Group
Stock Option and Restricted Unit Conversion.
LTIP awards may be granted to key employees, including executive
officers of GenTek, its subsidiaries and affiliates, but may not be granted to
any director who is not also an employee of
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GenTek, its subsidiaries or affiliates. The number of employees participating in
the LTIP will vary from year to year. Initially, shares of GenTek
Common Stock will be authorized to be issued under the LTIP.
If shares subject to an option under the LTIP cease to be subject to
such option, or if shares awarded under the LTIP are forfeited or if an award
otherwise terminates without a payment being made to the participant in the form
of GenTek Common Stock, such shares will again be available for future award
under the LTIP. In the event of certain changes in GenTek's capital structure
affecting GenTek Common Stock, the Compensation Committee may make appropriate
adjustments in the number of shares that may be awarded and in the number of
shares covered by options and other awards then outstanding under the LTIP, and,
where applicable, the exercise price of outstanding awards under the LTIP. The
LTIP will be administered by the Compensation Committee.
STOCK OPTIONS
The Compensation Committee may grant options to purchase shares of
GenTek Common Stock that are either "qualified," which includes those awards
that satisfy the requirements of Section 422 of the Code for incentive stock
options, or "nonqualified," which includes those awards that are not intended to
satisfy the requirements of Section 422 of the Code. Under the terms of the
LTIP, the exercise price of the options will, unless the Compensation Committee
determines otherwise, not be less than GenTek Common Stock's fair market value
at the time of grant. The exercise price of the option is payable in cash or its
equivalent or, as permitted by the Compensation Committee, by exchanging shares
of GenTek Common Stock owned by the participant, or by a combination of the
foregoing.
The options will generally have a term of ten years, unless the
Compensation Committee specifies a shorter term, and, unless the Compensation
Committee otherwise determines, will become exercisable in four equal annual
installments commencing on the first anniversary of the date of grant. If an
option holder ceases employment with GenTek as a result of the holder's (i)
death, (ii) disability, (iii) early retirement with the consent of the
Compensation Committee or (iv) normal retirement, the holder (or his or her
beneficiary or legal representative) may exercise any option, regardless of
whether then exercisable, for a period of one year (or such greater or lesser
period as determined by the Compensation Committee at or after grant), but in no
event after the date the option otherwise expires. If an option holder's
employment is terminated for any other reason, all of his or her options will
immediately terminate, regardless of whether then exercisable (unless determined
otherwise by the Compensation Committee). The Compensation Committee may provide
that a participant who delivers shares of GenTek Common Stock to exercise an
option when the market value of the GenTek Common Stock exceeds the exercise
price of the option will be automatically granted new options for the number of
shares delivered to exercise the option ("reload options"). Reload options will
be subject to the same terms and conditions as the related option except that
the exercise price will be the fair market value on the date the reload option
is granted and such reload options will not be exercisable for six months.
STOCK APPRECIATION RIGHTS
The LTIP authorizes the Compensation Committee to grant SARs in
tandem with a stock option, in addition to a stock option, or freestanding and
unrelated to a stock option. SARs entitle the participant to receive the excess
of the fair market value of a stated number of shares of GenTek Common Stock on
the date of exercise over the base price of the SAR. The base price may not be
less
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than 100% of the fair market value of the GenTek Common Stock on the date the
SAR is granted. The Committee shall determine when an SAR is exercisable, the
method of exercise, and whether settlement of the SAR is to be made in cash,
shares of GenTek Common Stock or a combination of the foregoing.
RESTRICTED STOCK AND RESTRICTED UNITS
The LTIP authorizes the Compensation Committee to grant Awards in
the form of restricted stock and restricted units. For purposes of the LTIP,
restricted stock is an Award of GenTek Common Stock and a restricted unit is a
contractual right to receive GenTek Common Stock (or cash based on fair market
value of GenTek Common Stock). Such awards will be subject to such terms and
conditions, if any, as the Compensation Committee deems appropriate. Unless
otherwise determined by the Compensation Committee, participants will be
entitled to receive either currently or at a future date, dividends or other
distributions paid with respect to restricted stock and, if and to the extent
determined by the Compensation Committee, either will be credited with or
receive, currently an amount equal to dividends paid with respect to the
corresponding number of shares covered by restricted units. Restricted stock and
restricted units become vested and nonforfeitable and the restricted period will
lapse pro rata on each of the first four anniversaries of the date of grant
unless the Compensation Committee determines otherwise. If a participant's
employment terminates because of death, disability, early retirement (with the
Compensation Committee's consent) or normal retirement, during the period in
which the transfer of shares is restricted, the restricted stock or restricted
units will become vested and nonforfeitable as to that percentage of the shares
based upon the days worked as a percentage of total days in the restricted
period (or such greater percentage as the Compensation Committee may determine).
Unless nonforfeitable on the date of termination or otherwise determined by the
Compensation Committee, a restricted stock or restricted unit award will be
forfeited on termination of employment.
INCENTIVE STOCK AND INCENTIVE UNITS
The LTIP allows for the grant of Awards in the form of incentive
stock and incentive units. For purposes of the LTIP, incentive stock is an Award
of GenTek Common Stock and an incentive unit is a contractual right to receive
GenTek Common Stock (or cash based on fair market value of GenTek Common Stock).
Such awards will be contingent upon the attainment, in whole or in part, of
certain performance objectives over a period to be determined by the
Compensation Committee. With regard to a particular performance period, the
Compensation Committee will have the discretion, subject to the LTIP's terms, to
determine the terms and conditions of such Awards, including the performance
objectives to be achieved during such period and the determination of whether
and to what degree such objectives have been attained. Unless otherwise
determined by the Compensation Committee, participants will be entitled to
receive, either currently or at a future date, all dividends and other
distributions paid with respect to the incentive stock and, if and to the extent
determined by the Compensation Committee, either to be credited with or receive
currently an amount equal to dividends paid with respect to the corresponding
number of shares covered by the incentive units. If a participant's employment
terminates because of death, disability, early retirement (with the Compensation
Committee's consent) or normal retirement during the measurement period, an
Award of incentive stock or incentive units will become vested and
nonforfeitable as to that percentage of the award that would have been earned
based on the attainment of performance objectives for the days worked as a
percentage of total days in the performance period (or such greater percentage
as the Compensation Committee may determine). Unless the Compensation Committee
determines otherwise, any incentive stock or incentive unit award will be
forfeited on termination of employment.
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<PAGE> 68
DEFERRED STOCK
An Award of deferred stock confers upon a participant the right to
receive shares of GenTek Common Stock at the end of a specified deferral period.
On such date or dates established by the Compensation Committee and subject to
such terms and conditions as determined by the Compensation Committee, a
participant may be permitted to defer receipt of all or a portion of his or her
annual salary and/or annual incentive bonus ("Deferred Annual Amount") and
receive the equivalent amount in elective units based on the fair market value
of GenTek Common Stock on the date of grant. To the extent determined by the
Compensation Committee, a participant may also receive supplemental stock units
for a percentage of the Deferred Annual Amount. Deferred stock units carry no
voting rights until the shares have been issued. The Compensation Committee will
determine whether any dividend equivalents attributable to deferred units are to
be paid currently or credited to the participant's account and deemed reinvested
in deferred stock units. Deferred stock units and dividend equivalents with
respect thereto are fully vested at all times. Unless the Compensation Committee
provides otherwise, supplemental stock units and dividend equivalents with
respect thereto will become fully vested on the fourth anniversary of the date
the corresponding deferred amount would have been paid and free standing stock
units and dividend equivalents with respect thereto will become fully vested on
the third anniversary of the corresponding GenTek Common Stock in lieu of cash
Award.
If there is a "Change in Control", all Awards that are not then vested
will become vested and any restrictions or limitations will lapse. For these
purposes, a "Change in Control" shall mean the occurrence of any of the
following events: (1) the members of the Board at the beginning of any
consecutive twenty-four calendar month period (the "Incumbent Directors") cease
for any reason other than death to constitute at least a majority of the Board,
provided that any director whose election, or nomination for election by
GenTek's stockholders, was approved by a vote of at least a majority of the
members of the Board then still in office who were members of the Board at the
beginning of such twenty-four calendar month period, other than as a result of a
proxy contest, or any agreement arising out of an actual or threatened proxy
contest, will be treated as an Incumbent Director; or (2) any "person",
including a "group" (as such terms are used in Sections 13(d) and 14(d)(2) of
the Exchange Act), but excluding GenTek, any subsidiary of GenTek or any
employee benefit plan of GenTek or any subsidiary of GenTek is or becomes the
"beneficial owner" (as defined in Rule 13(d)(3) under the Exchange Act),
directly or indirectly, of securities of GenTek representing 20% or more of the
combined voting power of GenTek's then outstanding securities; or (3) the
stockholders of GenTek approve a definitive agreement (A) for the merger or
other business combination of GenTek with or into another corporation, a
majority of the directors of which were not directors of GenTek immediately
prior to the merger and in which the stockholders of GenTek immediately prior to
the effective date of such merger own a percentage of the voting power in such
corporation that is less than one-half of the percentage of the voting power
they owned in GenTek immediately prior to such transaction or (B) for the sale
or other disposition of all or substantially all of the assets of GenTek to any
other entity; provided, in each case, that such transaction has been
consummated; or (4) the purchase of GenTek Common Stock pursuant to any tender
or exchange offer made by any "person", including a "group" (as such terms are
used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than GenTek, any
subsidiary of GenTek, or an employee benefit plan of GenTek or any subsidiary of
GenTek, for 20% or more of the Stock of GenTek. Notwithstanding the foregoing, a
"Change in Control" will not be deemed to occur in the event GenTek files for
bankruptcy, liquidation or reorganization under the United States Bankruptcy
Code.
The Board or the Compensation Committee may amend, suspend or
terminate the LTIP.
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<PAGE> 69
OTHER BENEFIT PLANS AND ARRANGEMENTS
The GenTek Business' employees will continue to participate in the
General Chemical Corporation Salaried Employees Pension Plan (the "Pension
Plan") -- of which GenTek will continue to be the sponsor following the Spinoff
- -- on the same terms and conditions as before the Spinoff, as well as in the
other benefit plans and arrangements that GenTek will establish pursuant to the
Employee Benefits Agreement. For further information on the Employee Benefit
Agreement to be entered into by GenTek and New GCG on the Spinoff Date, see the
section "Arrangements Between GenTek and New GCG Relating to the Spinoff --
Employee Benefits Agreement."
A participating employee's annual retirement benefit is determined by
the employee's credited service under the Pension Plan and average annual
earnings during the five years of the final ten years of service credited under
the Pension Plan for which such employees' earnings were highest. Annual
earnings include principally salary, overtime and short-term incentive
compensation. The Pension Plan provides that a participating employee's right to
receive benefits under the Pension Plan becomes fully vested after five years of
service. Under the Pension Plan, benefits are adjusted by a portion of the
social security benefits received by participants.
In addition, it is anticipated that GenTek's key executives will
participate in an unfunded nonqualified excess benefit plan which pays benefits
which would otherwise accrue in accordance with the provisions of the Pension
Plan, but which are not payable under the Pension Plan by reason of certain
benefit limitations imposed by the Code.
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<PAGE> 70
The table below indicates the estimated maximum annual retirement
benefit a hypothetical participant would be entitled to receive under the
Pension Plan and the excess benefit plan (without regard to benefit limitations
imposed by the Code) before any deduction for social security benefits if the
retirement occurred December 31, 1997, at the age of 65, after the indicated
number of years of credited service and if average annual earnings equaled the
amounts indicated.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE(2)
-----------------------------------------------------------------------
AVERAGE ANNUAL EARNINGS(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- -------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 200,000.......................... $ 60,000 $ 80,000 $100,000 $100,000 $105,000
250,000.......................... 75,000 100,000 125,000 125,000 131,250
300,000.......................... 90,000 120,000 150,000 150,000 157,500
400,000.......................... 120,000 160,000 200,000 200,000 210,000
500,000.......................... 150,000 200,000 250,000 250,000 262,500
600,000.......................... 180,000 240,000 300,000 300,000 315,000
700,000.......................... 210,000 280,000 350,000 350,000 367,500
800,000.......................... 240,000 320,000 400,000 400,000 420,000
900,000.......................... 270,000 360,000 450,000 450,000 472,500
1,000,000.......................... 300,000 400,000 500,000 500,000 525,000
</TABLE>
(1) Compensation qualifying as annual earnings under the Pension Plan
approximate the amounts set forth as Salary and Bonus in the Summary
Compensation table for the individuals listed on such table.
(2) The number of years of credited service under the Pension Plan for
________is approximately __, __ and __, respectively.
SUMMARY COMPENSATION TABLE
After the identity of the executive officers of GenTek has been
determined, GenTek will, in an amendment to this Information Statement and the
Form 10 (which includes this Information Statement), provide the information
contemplated by the following table.
The following summary compensation table sets forth information
concerning compensation awarded to, earned by, or paid to GenTek's Chief
Executive Officer and its four highest compensated executive officers who were
serving as executive officers at the end of fiscal year 1998 (collectively, the
"Named Executive Officers") for services rendered to General Chemical Group in
fiscal year 1998. The compensation was paid by General Chemical Group and all
stock compensation was in the form of General Chemical Group common stock or
options to purchase General Chemical Group common stock.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- --------------------------
ALL OTHER
NAME AND FISCAL SALARY BONUS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ------------------ ------ ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
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<PAGE> 71
OPTION GRANTS IN LAST FISCAL YEAR
After the identity of the executive officers of GenTek has been
determined, GenTek will, in an amendment to this Information Statement and the
Form 10 (which includes this Information Statement), provide the information
contemplated by the following table.
The following table sets forth information concerning individual
grants of stock options by General Chemical Group to Named Executive Officers
during fiscal year 1998 for the purchase of General Chemical Group Common Stock.
For a discussion of the treatment of General Chemical Group stock option plans
in connection with the Spinoff with respect to the executive officers of GenTek,
see "--Executive Compensation" above.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS VALUED AT ASSUMED
SECURITIES GRANTED TO ANNUAL RATES OF STOCK
UNDERLYING EMPLOYEES EXERCISE OR PRICE APPRECIATION
OPTIONS IN FISCAL BASE PRICE EXPIRATION FOR OPTION TERM
NAME GRANTED (#) YEAR (%) ($/SH) DATE 5% ($) 10% ($)
- ---- ----------- --------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
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<PAGE> 72
GENERAL CHEMICAL GROUP STOCK OPTION AND RESTRICTED UNIT CONVERSION
Pursuant to the Employee Benefits Agreement, effective on the Spinoff
Date, holders of outstanding options to purchase General Chemical Group common
stock and holders of restricted stock units will have their interests adjusted
as described below.
Stock Options. Employees of GenTek who hold General Chemical Group
stock options will have such General Chemical Group stock options entirely
converted into GenTek stock options under the GenTek LTIP. The number of shares
covered by such a converted stock option award, and the exercise price per
share, will be determined in a manner that preserves (i) the difference between
the exercise price and value of the shares covered by the General Chemical Group
stock option and (ii) the ratio of the exercise price per share to the fair
market value of the share covered by the option. Employees of New GCG who hold
General Chemical Group stock options will retain their options, which shall be
adjusted in the manner described above. All other terms of such converted or
adjusted options will remain unchanged.
Restricted Units. Each restricted unit, whether held by employees of
GenTek or New GCG, will, following the Spinoff Date, represent a similar award
with respect to a share of each of GenTek and New GCG.
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<PAGE> 73
BENEFICIAL OWNERSHIP OF GENTEK
AND GENERAL CHEMICAL GROUP COMMON STOCK
The table below sets forth, to the best knowledge and belief of
GenTek and General Chemical Group as of March 1, 1998, certain information
regarding the beneficial ownership of shares of Common Stock of General Chemical
Group by each person who beneficially owns more than 5% of such shares. After
the identity of the Directors and executive officers of GenTek as of the Spinoff
has been deter mined, GenTek will, in an amendment to this Information Statement
and the Form 10 (which includes this Information Statement), provide certain
information regarding the beneficial ownership of shares of Common Stock of
GenTek as of the Spinoff by such Directors and executive officers. See "GenTek
Business: Management."
The ownership information presented below: (a) reflects the
distribution ratio of one share of GenTek Common Stock for every share of Common
Stock of General Chemical Group and one share of GenTek Class B Common Stock for
every share of Class B Common Stock of General Chemical Group; and (b) assumes
no change in record ownership of Common Stock of General Chemical Group since
March 1, 1998, except as described in note (5) to the following table.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
BENEFICIAL OWNERSHIP OF GENTEK GENERAL CHEMICAL GROUP
-------------------------------------------- ------------------------------------------------------
CLASS B CLASS B
NAME OF COMMON PERCENT OF COMMON PERCENT OF COMMON PERCENT OF COMMON PERCENT OF
BENEFICIAL OWNER STOCK CLASS (1) STOCK (2) CLASS STOCK CLASS (1) STOCK (2) CLASS
- ---------------- --------- ---------- --------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul M. Montrone(3)
(4)(5)(6)................... 9,811,421 47.4% 9,758,421 100% 9,811,421 47.4% 9,758,421 100%
1996 and February
1998 GRATs(4)(6)............ 7,283,344 35.2 7,283,344 74.6 7,283,344 35.2 7,283,344 74.6
C.A. Delaney Capital
Management Ltd.(7).......... 1,032,152 5.0(13) -- -- 1,032,152 5.0(13) -- --
J.P. Morgan & Co.
Incorporated(8)............. 947,000 4.6(13) -- -- 947,000 4.6(13) -- --
Franklin Resources,
Inc.(9)..................... 887,600 4.3(13) -- -- 887,600 4.3(13) -- --
Thomas Horstmann &
Bryant, Inc.(10)............ 690,100 3.3(13) -- -- 690,100 3.3(13) -- --
Equitable Life
Assurance Society(11)....... 650,000 3.1(13) -- -- 650,000 3.1(13) -- --
Network Fund III,
Ltd. (12)................... 600,000 2.9(13) -- -- 600,000 2.9(13) -- --
</TABLE>
63
<PAGE> 74
- ----------
(1) The percentage ownership of Common Stock of each company has been
calculated assuming the conversion of all outstanding shares of Class B
Common Stock into Common Stock. The percent age ownership of Common Stock
has been calculated assuming 20,692,744 shares of Common Stock are issued
and outstanding.
(2) Holders of Class B Common Stock of each company may convert each such share
of Class B Common Stock at any time and from time to time into one
fully-paid and non-assessable share of Common Stock of that company. See
"Description of Capital Stock of GenTek."
(3) Includes the shares owned by the 1996 GRAT, the February 1998 GRAT and the
December 1998 GRAT. By virtue of his position as co-trustee of the December
1998 GRAT and his relationship with the trustee of the 1996 GRAT and the
February 1998 GRAT, as well as his status as the settlor and annuity
beneficiary of such GRATs, Mr. Montrone may be deemed beneficial owner of
all the shares held by such GRATs. The shares of Class B Stock beneficially
owned by Mr. Montrone represent 88.6% of the combined voting power of the
outstanding shares of voting stock of each of GenTek and General Chemical
Group. The address for Mr. Montrone is c/o The General Chemical Group Inc.,
Liberty Lane, Hampton, New Hampshire 03842.
(4) A grantor retained annuity trust formed in 1996 (the "1996 GRAT") owns
3,283,344 shares of Class B Common Stock. A grantor retained annuity trust
formed in February 1998 (the "February 1998 GRAT") owns 4,000,000 shares of
Class B Common Stock. Mr. Paul Montrone was the settlor, and is the annuity
beneficiary, of both the 1996 GRAT and the February 1998 GRAT. Sandra G.
Montrone, the wife of Mr. Montrone, is the sole trustee of the 1996 GRAT
and the sole trustee with investment and voting discretion of the February
1998 GRAT. Wilmington Trust Company is the administrative trustee of the
February 1998 GRAT. The address for the 1996 GRAT and the February 1998
GRAT is c/o Sandra G. Montrone, as trustee, Liberty Lane, Hampton, New
Hampshire 03842.
By virtue of her position as sole trustee, Ms. Montrone may be deemed the
beneficial owner of all shares held by the 1996 GRAT and the February 1998
GRAT. In April 1996, General Chemical Group entered into a Stockholder
Agreement with the 1996 GRAT pursuant to which the 1996 GRAT granted to the
company a right of first refusal with respect to any transfer of shares of
Common Stock by the 1996 GRAT through March 1, 2001. In exchange, General
Chemical Group agreed to register for sale under the Securities Act at any
time beginning on March 1, 1997 and ending on March 1, 2001 shares of
Common Stock which the 1996 GRAT may from time to time distribute to Mr.
Montrone or his assignees, although Mr. Montrone would not be obligated to
sell any such shares of Common Stock of General Chemical Group. Prior to
the Spinoff, GenTek will enter into a substantially identical agreement
with respect to the Common Stock of GenTek distributed to the 1996 GRAT in
the Spinoff.
(5) A grantor retained annuity trust, formed in December 1998 (the "December
1998 GRAT"), of which Mr. and Ms. Montrone are co-trustees, owns 2,000,000
shares of Class B Common Stock. Wilmington Trust Company is the
administrative trustee of the December 1998 GRAT. By virtue of their
position as co-trustees, each of Mr. and Ms. Montrone may be deemed
beneficial owner of all shares held by the December 1998 GRAT.
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<PAGE> 75
(6) Does not include 100,000 shares of Common Stock held by a charitable
foundation, of which Mr. Montrone is a Director and Ms. Montrone is a
Director and officer. By virtue of their positions with the charitable
foundation, Mr. and Ms. Montrone may be deemed to be beneficial owners of
the shares of Common Stock held by the charitable foundation. Mr. and Ms.
Montrone disclaim any beneficial ownership of the 100,000 shares of Common
Stock held by the charitable foundation.
(7) The information presented herein is based solely upon a Schedule 13G filing
made with the SEC by C.A. Delaney Capital Management Ltd. ("Delaney
Capital") on February 13, 1998. According to such filing, Delaney Capital
possesses sole voting and dispositive over 1,032,152 of the above shares.
Also according to such filing, the registered holders of such shares are
Spectrum United Canadian Growth Fund and Private Clients, for which Delaney
Capital acts as the investment manager. The address of Delaney Capital is
BCE Place, Canada Trust Tower, 161 Bay Street, P.O. Box 713, Suite 5100,
Toronto, Ontario, Canada M5J 251.
(8) The information presented herein is based solely upon a Schedule 13G/A
filing made with the SEC by J.P. Morgan & Co. Incorporated ("J.P. Morgan")
on February 13, 1998. According to such filing, J.P. Morgan possesses sole
voting power over 871,200 of the above shares and sole dispositive power of
947,000 of the above shares. The address of J.P. Morgan is 60 Wall Street,
New York, NY 10260.
(9) The information presented herein is based solely upon a Schedule 13G filing
made with the SEC by Franklin Resources, Inc. ("Franklin") on February 4,
1998. According to such filing, Franklin filed such Schedule 13G on behalf
of the following group of individuals: (i) Franklin itself (parent holding
company); (ii) Mr. Charles B. Johnson (principal shareholder of parent
holding company); (iii) Mr. Rupert H. Johnson, Jr. (principal shareholder
of parent holding company); and (iv) Franklin Mutual Advisors, Inc.
(investment advisor). According to the Schedule 13G filing, Franklin Mutual
Advisors, Inc. possesses sole voting power over 887,600 of the above shares
and sole dispositive power over 887,600 of the above shares. Neither
Franklin nor Messrs. Charles or Rupert Johnson possess sole voting or sole
dispositive power over any of the above shares. The address of Franklin,
Mr. Charles B. Johnson and Mr. Rupert H. Johnson, Jr. is 777 Mariners
Island Boulevard, 6th Floor, San Mateo, CA 94404. The address of Franklin
Mutual Advisers, Inc. is 51 John F. Kennedy Parkway, Short Hills, NJ 07078.
(10) The information presented herein is based solely upon a Schedule 13G filing
made with the SEC by Thomas Horstmann Bryant, Inc. ("Horstmann") on March
13, 1998. According to such filing, Horstmann as sole voting power over
436,900 of the above shares, shared voting power over 10,000 of the above
shares and sole dispositive power over 690,100 of the above shares. The
address of Horstmann is Park 80 West, Plaza Two, Saddle Brook, New Jersey
07663.
(11) The information presented herein is based solely upon a Schedule 13D filing
made with the SEC by Equitable Life Assurance Society ("Equitable") on May
2, 1997. According to such filing, Equitable possesses sole voting and sole
dispositive power over all of such shares. The address of Equitable is City
Place House, 55 Basinghall Street, London EC2V 5DR, England.
(12) The information presented herein is based solely upon a Schedule 13D filing
made with the SEC on May 2, 1997 by Network Fund III, Ltd. ("Network") on
behalf of itself and Mr. John W. Gildea,
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<PAGE> 76
a director of General Chemical Group. According to such filing, Network is
a mutual fund managed by Gildea Management Company, of which Mr. Gildea is
the Chairman of the Board of Directors, Chief Executive Officer and sole
stockholder. Also, according to such filing, Network possesses sole voting
power over 500,000 shares of such shares and sole dispositive power over
500,000 of such shares while Mr. Gildea possesses sole voting and sole
dispositive power over all 600,000 shares. The address of Mr. Gildea is c/o
Gildea Management Co., 115 East Putnam Avenue, Greenwich, CT 06830. The
address for Network is P.O. Box 219, Butterfield House, Grand Cayman,
Cayman Islands, BWI.
(13) The percentage ownership of Common Stock has been calculated assuming the
conversion of all outstanding shares of Class B Common Stock into Common
Stock. Prior to such conversion, the percentage ownership of Common Stock
for each of Delaney Capital, J.P. Morgan, Franklin, Horstmann, Equitable
and Network is 9.4%, 8.7%, 8.1%, 6.3%, 5.9% and 5.5%, respectively.
66
<PAGE> 77
CERTAIN RELATIONSHIPS AND AFFILIATE TRANSACTIONS
AGREEMENTS WITH LATONA
Mr. Paul M. Montrone, the controlling stockholder and Chairman of the
Board of General Chemical Group, also controls Latona, a management company. In
addition, Mr. Paul M. Meister, a director of General Chemical Group and GenTek,
is a Managing Director of Latona. Since 1995, Latona has been providing General
Chemical Group with strategic management, business and financial advisory
services, including guidance and advice related to financings, security
offerings, recapitalizations and restructurings, tax, corporate secretarial,
employee benefit services and other administrative services. Following the
Spinoff, Latona will continue to provide such services to each of GenTek and New
GCG.
General Chemical Group paid Latona $5.8 million of fees for such
services in 1998. In 1998 General Chemical Group also paid Latona $500,000 for
additional services provided in connection with the acquisition of Reheis and
will pay Latona $600,000 for additional services provided in connection with the
acquisition of Defiance. General Chemical Group will pay Latona $______ for
additional services provided for the Spinoff. After the Spinoff, GenTek and New
GCG will pay Latona an annual fee of $_____ and $_____, respectively, payable
quarterly in advance, adjusted annually after 1999 for increases in the U.S.
Department of Labor, Bureau of Labor Statistics, Consumer Price Index. In
addition, each company will agree to pay Latona additional fees in connection
with any acquisition or business combination for which Latona advises it,
comparable to those received by investment banking firms for such services
(subject to the approval of a majority of such company's independent directors).
Latona's agreements with GenTek and General Chemical Group will be
substantially similar to Latona's current agreement with General Chemical Group.
Both GenTek's and New GCG's agreement extends through _______. The agreements
may be terminated by GenTek or New GCG (as the case may be) or Latona if the
other party ceases, or threatens to cease, to carry on its business, or commits
a material breach of the agreement which is not remedied within 30 days of
notice of such breach. Each of GenTek and New GCG may terminate its agreement if
Mr. Montrone ceases to hold, directly or indirectly, shares of its capital stock
constituting at least 20% of the aggregate voting power of its capital stock.
The terms of the agreement between each of GenTek and New GCG and
Latona will not be the result of arm's length negotiations. While there can be
no assurance that the amount of fees to be paid by each of GenTek and New GCG to
Latona will not exceed the amount that these companies would have to pay to
obtain from unaffiliated third parties the services to be provided by Latona,
each of GenTek and New GCG believes that the employees of Latona have extensive
knowledge concerning its respective business which would be impractical for a
third party to obtain. As a result, GenTek and New GCG have not compared the fee
payable to Latona with fees that might be charged by third parties for similar
services. Proposals regarding amendments to, waivers of, extensions of or other
changes in the terms of the agreement with Latona, as well as any transactions
perceived to involve potential conflicts of interest, will be dealt with on a
case-by-case basis, taking into account relevant factors including the
requirements of the NYSE and prevailing corporate practices.
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<PAGE> 78
STOCKHOLDER AGREEMENTS
Mr. Montrone, who will hold or control (including through trusts of
which he is the settlor and a co-trustee or of which he is the settlor and his
wife is the sole trustee with investment and voting discretion) all of the Class
B Common Stock and approximately 47.4% of the outstanding shares of Common Stock
of each of GenTek and New GCG (assuming conversion of all outstanding Class B
Common Stock into Common Stock) upon completion of the Spinoff, may from time to
time acquire shares of Common Stock or warrants, options or rights to acquire
shares of Common Stock of each company in the open market or in private
transactions. General Chemical Group has agreed not to interfere with any such
acquisitions. Prior to the Spinoff, GenTek will enter into a substantially
identical agreement with Mr. Montrone. See "Beneficial Ownership of GenTek and
General Chemical Group Common Stock."
In April 1996, General Chemical Group entered into a Stockholders
Agreement with the 1996 GRAT, of which Ms. Montrone is the sole trustee.
Pursuant to this Stockholders Agreement, New GCG will have a right of first
refusal on any transfer of shares of Common Stock of New GCG by the 1996 GRAT
through March 1, 2001. In exchange, General Chemical Group has to register for
sale under the Securities Act, at any time beginning on March 1, 1997 and ending
on March 1, 2001, shares of Common Stock of General Chemical Group which the
1996 GRAT may from time to time distribute to Mr. Montrone or his assignees,
although Mr. Montrone would not be obligated to sell any such shares of Common
Stock. Prior to the Spinoff, GenTek will enter into a substantially identical
agreement with respect to Common Stock of GenTek distributed to the 1996 GRAT in
the Spinoff.
See "Beneficial Ownership of GenTek and General Chemical Group Common
Stock" and "Special Factors--Control by and Relationship with Principal
Stockholder; Potential Conflicts of Interest."
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<PAGE> 79
ARRANGEMENTS BETWEEN
GENTEK AND NEW GCG
RELATING TO THE SPINOFF
After the Spinoff, GenTek and New GCG will not own any securities in
each other and will be separate, stand-alone public companies.
The general terms and conditions of the Spinoff will be set forth in
a Separation Agreement between General Chemical Group and GenTek (the
"Separation Agreement"). In addition, General Chemical Group and GenTek expect
to enter into the agreements described in this section to facilitate the
separation of the GenTek and Industrial Chemicals Businesses and an orderly
transition in establishing GenTek and New GCG as separate, stand-alone
companies. The agreements summarized below have been filed as exhibits to the
Form 10 filed under the Exchange Act. The following summarizes the material
terms of such agreements but is qualified by reference to the filed agreements.
SEPARATION AGREEMENT
The Separation Agreement provides for, among other things, the
principal corporate transactions required to effect the Spinoff, the conditions
that must be satisfied prior to the Spinoff Date and the allocation between
GenTek and New GCG of certain assets and liabilities. The Separation Agreement
also contemplates the execution by the parties of the following additional
agreements that address particular matters related to the Spinoff: Employee
Benefits Agreement; Transition Support Agreement; Sublease Agreements; Tax
Sharing Agreement; and License Agreement.
Reorganization. The Separation Agreement will set forth the corporate
transactions to be accomplished at or before the Spinoff to separate the GenTek
Business from the Industrial Chemicals Business. Following a series of
pre-Spinoff intra-group transactions, the GenTek Business will be held by
General Chemical Group through GenTek and the Industrial Chemicals Business will
be held by General Chemical Group through New Hampshire Oak and General Chemical
Industrial Products Inc.
Distribution. On or before the Spinoff Date, General Chemical Group
will deliver to the Distribution Agent a certificate or certificates
representing all of the shares of GenTek Common Stock, and will instruct the
Distribution Agent to distribute to each holder of record of Common Stock of
General Chemical Group on the Record Date a certificate or certificates
representing one share of GenTek Common Stock for each share of Common Stock of
General Chemical Group so held. In addition, shares of Class B Common Stock of
GenTek will be distributed, at a ratio of one-for-one, to the holders of record
of Class B Common Stock of General Chemical Group on the Record Date.
Satisfaction of Conditions; Termination. The Board of Directors of
General Chemical Group has the sole discretion to establish and change the
Record Date, the Spinoff Date and any appropriate procedures in connection with
the Spinoff. The Board of Directors of General Chemical Group may amend, modify
or abandon the Spinoff at any time prior to the Spinoff Date. The Spinoff will
not occur unless the following conditions have been satisfied: (i) all necessary
regulatory approvals have been received; (ii) the Form 10 has become effective
under the Exchange Act; (iii) the persons mentioned under "GenTek Business:
Management" as members of the Board of Directors of GenTek have been elected as
directors, and the GenTek Articles of Incorporation and Bylaws are in effect;
(iv) the necessary changes to the composition of the Board of Directors of
General Chemical Group have been made so that
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the composition of the Board of Directors of New GCG shall, after the Spinoff,
be as described in the section entitled "Summary"; (v) GenTek's Common Stock has
been approved for listing on the NYSE, subject to official notice of issuance;
(vi) the IRS private letter ruling concerning the tax-free nature of the Spinoff
has been issued and has not been subsequently withdrawn or modified; (vii)
GenTek and New GCG have entered into new financing facilities, and the proceeds
of borrowings under those facilities have been applied to repay debt of General
Chemical Group; (viii) the Board of Directors of General Chemical Group has
received a report of an independent appraiser confirming that General Chemical
Group's surplus is sufficient to permit, without violation of Section 170 of the
Delaware General Corporation Law, the distribution of GenTek Common Stock and
Class B Common Stock; and (ix) no order, injunction or decree issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing consummation of the Spinoff shall be in effect.
Separation of Assets and Liabilities. The Separation Agreement
provides that the following will become exclusively the assets of GenTek at or
prior to the Spinoff: (i) the capital stock of Reheis, Defiance (assuming
consummation of its pending acquisition), Toledo Technologies Inc., Balcrank
Products Inc. and PDI; (ii) the capital stock of General Chemical Corporation;
and (iii) any assets that are not used principally in the Industrial Chemicals
Business (collectively, the "GenTek Assets"). Pursuant to the Separation
Agreement, New GCG will hold exclusively the following assets: (i) the capital
stock of New Hampshire Oak, General Chemical Industrial Products Inc. and
General Chemical Canada Ltd.; (ii) all of General Chemical Corporation's 51%
interest in General Chemical (Soda Ash) Partners ("GCSAP"), and all rights of
the Managing Partner of such partnership; and (iii) all assets used principally
in the Industrial Chemicals Business (collectively, the "Industrial Assets").
The Separation Agreement further provides that, as of the Spinoff,
all liabilities of the GenTek Business will become exclusively the liabilities
of GenTek (collectively, the "GenTek Liabilities"), including all liabilities:
(i) of GenTek arising under the Separation Agreement or any other agreements
with New GCG relating to the Spinoff; (ii) incurred in the conduct or operation
of GenTek Business or the ownership or use of GenTek Assets, whether arising
before, at or after the Spinoff; (iii) arising under or in connection with the
Form 10, but only to the extent such liabilities relate to statements in, or
omissions from, the Form 10 regarding GenTek or the GenTek Business; (iv) set
forth on the balance sheet of the GenTek Business as of the Spinoff; and (v)
undertaken by General Chemical Group in connection with its purchase of
Defiance, Reheis, Peridot and Sandco Automotive. All liabilities of General
Chemical Group, other than the GenTek Liabilities (collectively, the "Industrial
Liabilities"), will remain exclusively the liabilities of New GCG, including all
liabilities: (i) of New GCG arising under the Separation Agreement or any other
agreements with GenTek relating to the Spinoff; (ii) incurred in the conduct or
operation of Industrial Chemicals Business or the ownership or use of Industrial
Assets; (iii) arising under or in connection with the Form 10, except for
liabilities relating to information or statements in, or omissions from, the
Form 10 regarding GenTek or the GenTek Business; (iv) set forth on the balance
sheet of the Industrial Chemicals Business as of the Spinoff; and (v) of General
Chemical Group relating to any business formerly owned or operated by it or
arising out of the sale thereof.
Payments Received. From and after the Spinoff Date, both GenTek and
New GCG will promptly transfer to the other, from time to time, any property
received that is an asset of the other. Funds received by one upon the payment
of accounts receivable that belong to the other will be paid promptly to the
other party.
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Intellectual Property. After the Spinoff, New GCG will have the
rights to and interest in the copyrights, trademarks, trade secrets and other
intellectual property (the "Intellectual Property") of General Chemical Group
used prior to the Spinoff primarily in the Industrial Chemicals Business, and
GenTek will have the rights to and interest in all other Intellectual Property
of General Chemical Group. As of the Spinoff, each of GenTek and New GCG will
license to the other party, on a non-exclusive basis, those items of
Intellectual Property that it owns and the other party needs to use for the
continued operations of its business, subject to certain limitations set forth
in the Separation Agreement and the Transition Support Agreement. The ownership
and use of the General Chemical name and logo will be subject to the License
Agreement described below under "--License Agreement."
Amendments; Further Assurances. The Separation Agreement may only be
amended or rights thereunder waived by an instrument signed by the party to be
charged with the amendment or waiver. GenTek and New GCG will use their
reasonable efforts to (i) execute and deliver such further instruments and
documents and take such actions as the other party may reasonably request in
order to effectuate the purposes of the Separation Agreement and their other
agreements relating to the Spinoff, and (ii) take all actions and do all things
reasonably necessary under applicable laws and agreements or otherwise to
consummate and make effective the transactions contemplated by the Separation
Agreement and their other agreements relating to the Spinoff.
No Representations or Warranties. Except as stated in the Separation
Agreement or other agreements entered into for the Spinoff, no party to such
agreements or any other agreement or document contemplated by the Separation
Agreement or any other agreements entered into for the Spinoff has or shall be
deemed to have made any representation or warranty as to (i) the assets,
businesses or liabilities retained, transferred or assumed as contemplated
thereby, (ii) any consents or approvals required in connection with the transfer
or assumption by such party of any asset or liability contemplated by the
Separation Agreement, (iii) the value of or freedom from any lien, claim, equity
or other encumbrance of, or any other matter concerning, any assets of such
party, or (iv) the absence of any defenses or right of setoff or freedom from
counterclaim with respect to any claim or other asset of any party. Except as
may expressly be set forth in the Separation Agreement or other agreements
entered into for the Spinoff, all such assets were, or are being, transferred,
or are being retained, on an "as is," "where is" basis and the respective
transferees will bear the economic and legal risks that any conveyance will
prove to be insufficient to vest in the transferee a title that is free and
clear of any lien, claim or other encumbrance.
Guaranteed Liabilities. GenTek will use all reasonable efforts
(excluding payment of money) to obtain as promptly as practicable after the
Spinoff Date the release of New GCG from its obligations regarding the GenTek
Liabilities on which New GCG is an obligor by reason of any guarantee or
contractual commitment (the "Guaranteed GenTek Liabilities"). New GCG will use
all reasonable efforts (excluding the payment of money) to obtain as promptly as
practicable after the Spinoff Date the release of GenTek from its obligations
with respect to the Industrial Liabilities on which GenTek is an obligor by
reason of any guarantee or contractual commitment (the "Guaranteed Industrial
Liabilities"). Unless otherwise agreed from time to time, GenTek and New GCG
will not extend the term of any Guaranteed GenTek Liabilities or Guaranteed
Industrial Liabilities, as the case may be, or modify any such guaranteed
liability in any way that would increase the liability guaranteed thereunder
unless the guarantee of New GCG or GenTek, as the case may be, is released as to
any extended or released liability of obligations under such guaranteed
liabilities or the other party otherwise consents in writing. If GenTek or New
GCG, is required to pay any Guaranteed Industrial Liabilities or Guaranteed
GenTek
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Liabilities, as the case may be, GenTek or New GCG (as the case may be) will be
entitled to all the rights of the payee in any property of the other party
pledged as security for such guaranteed liabilities.
Cross Indemnification. At and after the Spinoff, New GCG will
indemnify, defend and hold harmless GenTek and its directors, officers,
employees and agents (the "GenTek Indemnitees") from and against any and all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any and all actions or threatened actions) (collectively, the
"Indemnifiable Losses") incurred or suffered by any of the GenTek Indemnitees
and arising out of, or due to the failure of New GCG to pay, perform or
otherwise discharge, any of the Industrial Liabilities. At and after the
Spinoff, GenTek will indemnify, defend and hold harmless New GCG and its
directors, officers, employees and agents (the "Industrial Indemnitees") from
and against any and all Indemnifiable Losses incurred or suffered by any of the
Industrial Indemnitees and arising out of, or due to the failure of GenTek to
pay, perform or otherwise discharge, any of the GenTek Liabilities. In
circumstances in which the indemnity is unavailable or insufficient, for any
reason, to hold harmless an indemnified party in respect of any Indemnifiable
Losses, each indemnifying party, in order to provide for just and equitable
contribution, will contribute to the amount paid or payable by such indemnified
party as a result of such Indemnifiable Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party or parties
on the one hand and the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in such
Indemnifiable Losses, as well as any other relevant equitable considerations. In
addition, New GCG will agree to use its efforts to maintain directors' and
officers' liability insurance coverage at least equal to General Chemical
Group's current directors' and officers' liability insurance coverage for a
period of five years for directors and officers of General Chemical Group who
will become directors and officers of GenTek as of the Spinoff Date for their
acts as directors and officers of General Chemical Group for periods prior to
the Spinoff Date.
Non-Competition. GenTek will covenant that, prior to the fifth
anniversary of the Spinoff Date, it will not, directly or indirectly, engage in
or conduct any activity or operation that competes with the Industrial Chemicals
Business as conducted on the Spinoff Date. Similarly, New GCG will covenant
that, prior to the fifth anniversary of the Spinoff Date, it will not, directly
or indirectly, engage in or conduct any activity or operation that competes with
the GenTek Business as conducted on the Spinoff Date.
Expenses of the Spinoff. The Separation Agreement will provide that
all costs and expenses incurred in the consummation of the Spinoff and the
transactions contemplated thereby will be borne by New GCG.
EMPLOYEE BENEFITS AGREEMENT
In connection with the Spinoff, New GCG and GenTek will enter into an
employee benefits agreement (the "Employee Benefits Agreement") that will
separate the assets and liabilities under General Chemical's employee benefit
plans and other employment-related liabilities between New GCG and GenTek. As a
general matter, New GCG and GenTek will each (i) continue to employ their
respective employees and (ii) assume the liabilities existing at the time of the
Spinoff for their respective employees and former employees. The Employee
Benefits Agreement also will provide for the treatment of certain retirement
plans, investment and savings programs, medical and life insurance benefits,
retiree medical and life insurance benefits and stock awards.
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GenTek will, effective as of the date of the Spinoff, establish or
maintain pension plans, health and welfare plans, a savings (401(k)) plan, and
executive compensation plans to mirror the plans that General Chemical Group or
its subsidiaries currently sponsor for their employees. The Employee Benefits
Agreement will provide for the separation of the amounts necessary to fund the
projected benefit obligations under the General Chemical Group pension plans of
GenTek's current and former employees, on the one hand, and New GCG's current
and former employees, on the other hand, determined on an equitable basis in
accordance with the actuarial assumptions used by the applicable General
Chemical Group pension plan with respect to its last completed actuarial report.
Similar principles will apply with respect to any employee benefit plan
maintained outside of the United States.
GenTek will establish the LTIP pursuant to which stock options, stock
appreciation rights, and other equity-related incentive awards, as well as cash
performance awards, may be granted. Outstanding General Chemical Group
equity-related awards held by current or former employees of GenTek will be
converted into similar awards with respect to GenTek stock, based on formulas
that preserve the inherent value of such awards at the time of the Spinoff
(except that restricted units will be split between GenTek and New GCG).
Replacement awards generally will have the same other terms and conditions as
the original awards.
TRANSITION SUPPORT AGREEMENT
Pursuant to the Transition Support Agreement, for a period of up to
twelve months following the Spinoff, GenTek will agree to provide New GCG with
tax, legal, accounting, treasury, purchasing services, human resources,
insurance management and claims administration, and certain other administrative
services, and New GCG will agree to provide GenTek with certain services as
agreed upon by GenTek and General Chemical Group prior to the Spinoff. GenTek
and New GCG will charge each other for such services on a shared-cost basis
consistent with current methods of allocating internal costs. In addition, after
the Spinoff, the GenTek and Industrial Chemicals Businesses will continue to
operate using primarily shared MIS and related functions, including MIS
personnel, hardware and software systems at least through December 31, 2000. As
a result, during that period, GenTek will provide MIS services and the services
of related functions to New GCG for an arm's length fee. See also "GenTek
Business Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Year 2000 Issue" and "New General Chemical Group: The
Industrial Chemicals Business."
Upon not less than 60 days prior written notice, either GenTek or New
GCG may direct the other to discontinue any services provided under the
Transition Support Agreement, except with respect to MIS and related functions.
The Transition Support Agreement may be terminated by either party for a
material uncured breach by the other party, the insolvency of the other party,
or the change of control of the other party. The agreement will also provide
that generally neither party will be liable to the other party for any costs,
losses, damages or claims related to services provided by it under the
Transition Services Agreement, other than for fraud or wilful misconduct.
SUBLEASE AGREEMENT
As of the Spinoff, New GCG will use a portion of the office space
located in Parsippany, New Jersey pursuant to an agreement (the "Sublease
Agreement") for the sublease by General Chemical Corporation (a subsidiary of
GenTek after the Spinoff) to General Chemical Industrial Products Inc. The
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sublease payments will reflect a pro rata allocation, based upon the square
footage of the subleased premises, of General Chemical Corporation's overall
rental and other occupancy costs. The Sublease Agreement will also provide for
customary maintenance and ancillary services.
TAX SHARING AGREEMENT
Prior to the Spinoff, General Chemical Group and GenTek will enter
into a tax sharing agreement (the "Tax Sharing Agreement") which will provide,
among other things, that (i) except for taxes described in clauses (ii) and
(iii) below, GenTek will be responsible for, and will indemnify and hold New GCG
and its subsidiaries harmless from and against, all taxes of the affiliated
group filing consolidated Federal income tax returns of which General Chemical
Group is the common parent, and of any consolidated, combined or unitary state,
local or foreign tax group that includes GenTek or any of its subsidiaries, to
the extent that such taxes are attributable to periods ending on or before the
Spinoff Date; (ii) New GCG and GenTek generally will each be responsible for,
and will hold one another harmless from and against, 50% of any taxes
attributable to the Spinoff or the Reorganization, including any taxes resulting
from the application of section 355(e) of the Code to the Spinoff or the
Reorganization, except that each of GenTek and New GCG will be responsible for,
and will indemnify and hold the other harmless from and against, 100% of such
taxes if such taxes are attributable to an act of such company or any of its
subsidiaries; (iii) GenTek will make a payment to New GCG equal to its share of
current taxes (including estimated taxes) of the affiliated group filing
consolidated Federal income tax returns of which General Chemical Group is the
common parent, and of any consolidated, combined or unitary state, local or
foreign tax group that includes GenTek or any of its subsidiaries, for all
periods ending on or before the Spinoff Date, to the extent not already paid
under the existing General Chemical Group tax sharing agreement; and (iv) all
separate company taxes will be borne by the company that is responsible for such
taxes under local law. The Tax Sharing Agreement will also establish, as between
GenTek and New GCG, procedures for the conduct and settlement of certain tax
audits and related proceedings and the determination of the amount of the tax
sharing payments described above. The Tax Sharing Agreement will not be binding
on the IRS or any other taxing authority and will not affect the several
liability of GenTek and New GCG and their respective subsidiaries to the IRS for
Federal income taxes of the General Chemical Group consolidated group relating
to periods beginning prior to the Spinoff Date.
The Tax Sharing Agreement will also restrict the ability of GenTek
and New GCG to take certain actions which could adversely affect the tax-free
nature of the Spinoff and the Reorganization, including as a result of the
recognition of gain under section 355(e) of the Code. In particular, the Tax
Sharing Agreement will provide that GenTek and New GCG generally will be
prohibited from entering into any transaction or series of transactions, on or
prior to the second anniversary of the date of the Spinoff, pursuant to which
one or more persons would acquire, directly or indirectly, a 50% or greater
interest, by vote or value, in GenTek or New GCG, respectively. The Tax Sharing
Agreement will provide that each of GenTek and New GCG may enjoin the other
company from engaging in any such restricted action.
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LICENSE AGREEMENT
General Chemical Corporation, a wholly-owned subsidiary of GenTek
after the Spinoff, will enter into a license agreement (the "License Agreement")
with New GCG regarding the General Chemical name and logo (the "Licensed
Property"). General Chemical Corporation, which owns the Licensed Property, will
grant to New GCG, for a one-time up-front fee, a perpetual license to use the
Licensed Property in connection with the soda ash and calcium chloride
activities and operations of the Industrial Chemicals Business, including as the
trading name of New GCG and with respect to General Chemical Industrial Products
Inc.'s functions as the Managing Partner of GCSAP. General Chemical Corporation
has the right to terminate the license under certain circumstances.
PURCHASES OF SODA ASH AND CALCIUM CHLORIDE
The GenTek Business currently is, and after the Spinoff will continue
to be, an end user of soda ash. After the Spinoff, GenTek expects to continue to
purchase soda ash and calcium chloride from the Industrial Chemicals Business to
meet its own supply needs as well as to fill out orders of certain customers who
purchase soda ash or calcium chloride together with other products of the GenTek
Business. In connection with the Spinoff, the parties will enter into a supply
agreement for such purchases of soda ash and calcium chloride.
Currently, General Chemical Corporation, which will be a subsidiary
of GenTek after the Spinoff, is party to contracts to end users and distributors
of soda ash and calcium chloride. In connection with the pre-Spinoff
reorganization, General Chemical Corporation will use reasonable efforts to
assign all of its soda ash and calcium chloride sales contracts to General
Chemical Industrial Products Inc., except for contracts with distributors that
also cover products of the GenTek Business. Any contracts that are not assigned
to General Chemical Industrial Products Inc. prior to the Spinoff will remain
with General Chemical Corporation. General Chemical Industrial Products Inc.
will provide soda ash and calcium chloride to GenTek to enable it to satisfy any
such unassigned contracts, on terms substantially similar to those provided in
the unassigned contracts. Once these contracts with end users and distributors
expire, it is anticipated that, if acceptable to these customers, New GCG will
enter into new contracts with them directly.
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SPECIAL FACTORS
In addition to the other information in this Information Statement,
the following factors should be carefully considered in evaluating GenTek and
the GenTek Business.
CYCLICALITY
The results of operations of each of the GenTek Business' performance
products segment and manufacturing segment are subject to fluctuations based on
general economic conditions. During prior recessionary periods, or general
economic downturns, in the U.S. or worldwide, the performance products and
manufacturing industries have been adversely affected. There can be no assurance
that any future recessionary period or general economic downturn would not
materially and adversely affect GenTek's operating results or financial
condition.
COMPETITION
Although the GenTek Business' performance products segment generally
has leading market share positions in the end markets in which it competes, most
of these end markets are highly competitive. Therefore, raising prices has been
difficult over the past several years and will likely continue to be so in the
near future. The major competitors of the GenTek Business' performance products
segment are typically segregated by end markets and include several large
multinational competitors, such as BASF, Solvay S.A. and Rhodia, as well as some
regional and small independent producers. See "The GenTek Business--Performance
Products Segment."
The GenTek Business' manufacturing segment competes with other
automotive engine component manufacturers based on a number of factors,
including design and engineering capabilities, quality, delivery terms and
price. Competitors include Eaton, Hitchiner, INA and captive OEMs. See "The
GenTek Business--Manufacturing Segment."
ENVIRONMENTAL CONSIDERATIONS
The GenTek Business' various chemical manufacturing operations, which
have been conducted at a number of facilities for many years, are subject to
numerous laws and regulations relating to the protection of human health and the
environment in the U.S., Canada and Ireland. The GenTek Business believes that
it is in substantial compliance with such laws and regulations. However, due to
the nature of its operations, the GenTek Business is involved from time to time
in administrative and judicial proceedings and inquiries relating to
environmental matters. Based on information available at this time with respect
to potential liability involving these proceedings and inquiries, GenTek
believes that any such liability would not have a material adverse effect on its
financial position or results of operations. However, modifications of existing
laws and regulations or the adoption of new laws and regulations in the future,
particularly with respect to environmental and safety standards, or the
discovery of additional or unknown environmental contamination could require
expenditures which might be material to GenTek's results of operations or
financial condition.
Additionally, CERCLA and similar state Superfund statutes have been
construed as imposing joint and several liability on present and former owners
and operators of contaminated sites and transporters and generators of hazardous
substances for remediation of contaminated properties
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regardless of fault. General Chemical Group has received written notice from the
EPA that it has been identified as a PRP under CERCLA at four Superfund sites.
General Chemical Group does not believe that its liability, if any, arising
therefrom will be material to its results of operations or financial condition.
See "GenTek Business: Management's Discussion and Analysis of Financial
Condition and Results of Operations--Environmental Matters" and "The GenTek
Business--Environmental Matters."
OPERATING HAZARDS
The GenTek Business' revenues are dependent on the continued
operation of its various manufacturing facilities. In particular, the operation
of chemical manufacturing plants involves many risks, including the breakdown,
failure or substandard performance of equipment, natural disasters, the need to
comply with directives of government agencies and dependence on the ability of
railroads and other shippers to transport raw materials and finished products in
a timely manner. The occurrence of material operational problems, including but
not limited to these events, may have a material adverse effect on the
productivity and profitability of a particular manufacturing facility or for
certain facilities, the GenTek Business as a whole, during the period of such
operational difficulties.
In particular, the GenTek Business' operations are also subject to
various hazards incident to the production of chemicals, including the use,
handling, processing, storage and transportation of certain hazardous materials.
These hazards can cause personal injury and loss of life, severe damage to and
destruction of property and equipment, environmental damage and suspension of
operations.
LABOR RELATIONS
As of November 30, 1998, approximately 550 of GenTek Business' 1,750
employees were represented by nine different unions. As a result, the GenTek
Business has been involved in work stoppages, strikes or other labor
disruptions. Since 1986, the GenTek Business has been involved in numerous labor
negotiations, only three of which have resulted in work disruptions. Certain
union contracts of the GenTek Business will be up for renewal during 1999.
Although GenTek believes that it will be able to negotiate new labor agreements
on satisfactory terms, there can be no assurance that the negotiation process
will not involve material disruptions to its business. See "The GenTek
Business--Employees; Labor Relations."
YEAR 2000
General Chemical has implemented a program to assess, mitigate and
remediate the potential impact of the "Year 2000" problem throughout the GenTek
Business. General Chemical Group completed its assessment of its Year 2000
compliance status in early 1998 and began work on its remediation program
immediately thereafter. General Chemical Group's remediation program has been
structured to address its Systems. In the event that GenTek's material Systems
are not Year 2000 compliant, GenTek may experience reductions or interruptions
in operations which could have a material adverse effect on GenTek's results of
operations. See "GenTek Business: Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Issue."
In addition, General Chemical Group has implemented a program to
determine the Year 2000 compliance status of its material vendors, suppliers,
service providers and customers, and based on currently available information,
GenTek does not anticipate any material impact to GenTek based on the
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failure of such third parties to be Year 2000 compliant. However, the process of
evaluating the Year 2000 compliance status of material third parties is
continually ongoing and, therefore, no guaranty or warranty can be made as to
such third parties' future compliance status and its potential effect on the
GenTek Business. GenTek believes there exists a sufficient number of suppliers
of raw material for its business so that if any supplier is unable to deliver
raw materials due to Year 2000 problems, alternate sources will be available and
that any supply interruption will not be material to the GenTek Business. There
can be no assurances, however, that GenTek would be able to obtain all of its
supply requirements from such alternate sources in a timely way or on terms
comparable with those of its current suppliers. In addition, GenTek relies
heavily in its business on railroads and trucking companies to ship finished
product to its customers as well as to transport raw materials to its
manufacturing facilities. To the extent the GenTek Business is unable to ship
finished product or transport raw materials as a result of such railroads' or
trucking companies' failure to be Year 2000 compliant, the GenTek Business may
not be able to arrange alternative and timely means to ship its goods, which
could lead to interruptions or slowdowns in its business. GenTek is preparing
for the possible use of alternative suppliers and means of transportation,
possible adjustment of raw material and product inventory levels and
contingencies with respect to potential energy source interruptions, all in an
effort to minimize the effects, if any, of Year 2000 related interruptions or
slowdowns caused by suppliers and transporters.
RISKS ASSOCIATED WITH ACQUISITIONS
GenTek intends to pursue value-enhancing acquisitions to increase its
cash flow, expand its product portfolio and leverage its low-cost manufacturing
position. The GenTek Business will devote substantial time and resources to
acquisition-related activities. Identifying appropriate acquisition candidates
and negotiating and consummating acquisitions can be a lengthy and costly
process. GenTek cannot predict whether or when suitable acquisition candidates
will become available, the likelihood that any acquisition will be completed or
whether the acquisitions will be consummated on terms favorable to GenTek. If
GenTek is able to identify and consummate acquisitions, the integration of such
acquisitions may be a difficult, costly and lengthy process; GenTek may
encounter substantial unanticipated costs or other problems associated with such
integration. Although management believes that GenTek is qualified to pursue an
acquisition-driven growth strategy (as evidenced by its recent acquisitions),
the risks associated with acquisitions could have a material adverse effect on
GenTek's business, financial condition or operating results. See "The GenTek
Business--Strategy."
LEVERAGE AND DEBT SERVICE REQUIREMENTS
After giving pro forma effect to the Spinoff and an initial borrowing
under the GenTek Financing Facility, GenTek's long-term debt is expected to be
approximately $195 million (or, if the acquisition of Defiance had been
completed, approximately $235 million). While GenTek believes that future
operating cash flow, together with financing arrangements, will be sufficient to
finance current operating requirements, it is possible that GenTek's leverage
and debt service requirements will make it more vulnerable to economic
downturns. GenTek's indebtedness may restrict its ability to obtain additional
financing in the future. Also, GenTek may be more leveraged than certain of its
competitors which may put it at a competitive disadvantage. In addition, GenTek
expects that the GenTek Financing Facility will have covenants that will impose
operating and financial restrictions on GenTek. These covenants could adversely
affect GenTek's ability to finance its future operations, potential acquisitions
or capital needs or to engage in business activities that may be in its
interest. See "GenTek Business:
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<PAGE> 89
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
NO OPERATING HISTORY AS INDEPENDENT ENTITY
The GenTek Business has never operated as a separate, stand-alone
entity and has historically shared with the Industrial Chemicals Business
various financial, administrative and managerial expertise relevant to operating
as an independent public company. The Industrial Chemicals Business will have no
obligation to support the GenTek Business after the Spinoff, except to the
extent described in "Arrangements Between GenTek and New GCG Relating to the
Spinoff." After the Spinoff, the GenTek Business will maintain its own lines of
credit and banking relationships and be responsible for its own financial
reporting and control functions. There can be no assurance that, as a separate,
stand-alone company, the GenTek Business' results and profits will be comparable
to those before the Spinoff. See "Arrangements Between GenTek and New GCG
Relating to the Spinoff."
FEDERAL INCOME TAX CONSEQUENCES OF CHANGES IN CONTROL FOLLOWING THE SPINOFF
If the Spinoff is considered part of a plan or a series of related
transactions pursuant to which one or more persons acquire, directly or
indirectly, a 50% or greater interest, by vote or value, in either New GCG or
GenTek, New GCG and, possibly, GenTek will recognize gain under section 355(e)
of the Code. The amount of such gain would be substantial and would result in
significant tax liabilities to New GCG and/or GenTek. As a result of such
possible adverse tax consequences, following the Spinoff, New GCG and GenTek may
be restricted in their ability to effect certain acquisitions, stock issuances
and other transactions that would result in a change of control of either of
them.
ABSENCE OF A PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There currently is no public trading market for the Common Stock of
GenTek. Although GenTek Common Stock is expected to be approved for listing
(subject to notice of issuance) on the NYSE under the symbol ___, there can be
no predictions, estimates or assurances about the trading price of the GenTek
Common Stock after the Spinoff. The combined trading prices of the New GCG
Common Stock and the GenTek Common Stock may be less than, equal to or greater
than the trading price of Common Stock of General Chemical Group prior to the
Spinoff. In addition, until the GenTek Common Stock is fully distributed, an
orderly trading market develops and the market has fully evaluated the separate
operations of New GCG and GenTek, the trading price of GenTek Common Stock, as
well as that of New GCG Common Stock, may fluctuate significantly.
In addition, recently the stock market has experienced extreme price
and volume fluctuations which have affected the market price for many companies
in similar industries. These broad market fluctuations may adversely affect the
market price of GenTek Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of GenTek Common Stock in the public
market, in addition to those currently outstanding, could adversely affect the
market price of such Common Stock. Mr. Montrone will hold or control (including
through trusts of which he is the settlor and a co-trustee or of which he is the
settlor and his wife is the sole trustee with investment and voting discretion)
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<PAGE> 90
50,000 shares of Common Stock and 9,758,421 shares of the Class B Common Stock.
Although shares of Class B Common Stock are subject to significant restrictions
on transfer, their holders can convert them into Common Stock, on a one-for-one
basis, at any time. If such stockholders sell or otherwise dispose of a
substantial amount of the Common Stock in the public market, the prevailing
market price for the Common Stock could be adversely affected.
CONTROL BY AND RELATIONSHIP WITH PRINCIPAL STOCKHOLDER; POTENTIAL CONFLICTS OF
INTEREST
Holders of GenTek Common Stock are entitled to one vote per share and
holders of Class B Common Stock of GenTek are entitled to ten votes per share.
Upon completion of the Spinoff, Paul M. Montrone, Chairman of the Board of
Directors of GenTek, will beneficially own 100% of the outstanding Class B
Common Stock and 47.4% of the total number of outstanding Common Stock and Class
B Common Stock of GenTek. These holdings represent 88.6% of the combined voting
power of the outstanding shares of Common Stock and Class B Common Stock of
GenTek. Therefore, Mr. Montrone alone will have sufficient voting power (without
the consent of any other stockholder) to elect the entire Board of Directors of
GenTek and, in general, to determine the outcome of any corporate transactions
or other matters submitted to the stockholders for approval, including mergers
and sales of assets, and to prevent, or cause, a change of control of GenTek.
Mr. Montrone's control of GenTek will deter non-negotiated tender offers or
other efforts to obtain control of GenTek, thereby depriving shareholders of
opportunities to sell shares at prices higher than those prevailing in the
market. See "Beneficial Ownership of GenTek and General Chemical Group Common
Stock," "Certain Relationships and Affiliate Transactions" and "Description of
Capital Stock of GenTek."
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<PAGE> 91
DESCRIPTION OF CAPITAL STOCK OF GENTEK
As of the Spinoff, the authorized, issued and outstanding capital
stock of GenTek will be substantially identical to those of General Chemical
Group. The following section describes the capital stock of GenTek as of the
Spinoff Date. The terms and conditions of the capital stock of GenTek will be
identical to those of General Chemical Group.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
As of the Spinoff, the authorized capital stock of GenTek will
consist of ________ shares of Common Stock, ________ shares of Class B Common
Stock and ________ shares of undesignated preferred stock issuable in series by
the Board of Directors (the "Preferred Stock"). As of the Spinoff, ________
shares of Common Stock and ________ shares of Class B Common Stock will be
issued and outstanding, and no shares of Preferred Stock will be issued or
outstanding. As of the Spinoff, all outstanding shares of Common Stock and Class
B Common Stock will be fully paid and nonassessable. The following summary
description of the capital stock of GenTek is qualified in its entirety by
reference to its Amended and Restated Certificate of Incorporation (the
"Certificate"), and its Bylaws, as amended (the "Bylaws"), copies of which are
filed as exhibits to the Form 10.
COMMON STOCK AND CLASS B COMMON STOCK
Except for the disparity in voting power, the conversion provisions
and the transfer restrictions, shares of Common Stock and Class B Common Stock
are substantially identical, including their participation in dividends and in
liquidating distributions.
Voting. Each share of Common Stock entitles the holder of record to
one vote and each share of Class B Common Stock entitles the holder to ten votes
at each annual or special meeting of stockholders, in the case of any written
consent of stockholders, and for all other purposes. The holders of Common Stock
and Class B Common Stock will vote as a single class on all matters submitted to
a vote of the stockholders, except as otherwise provided by law. Neither the
holders of Common Stock nor the holders of Class B Common Stock have cumulative
voting or preemptive rights. GenTek may, as a condition to counting the votes
cast by any holder of Class B Common Stock at any annual or special meeting of
stockholders, in the case of any written consent of stockholders, or for any
other purpose, require such holder to furnish such affidavits or other proof as
it may reasonably request to establish that the Class B Common Stock held by
such holder has not, by virtue of the provisions of the Certificate, been
automatically converted into Common Stock, as discussed below.
Dividends. The holders of Common Stock and Class B Common Stock will
be entitled to receive dividends and other distributions as may be declared
thereon by the Board of Directors out of assets or funds legally available
therefor, subject to the rights of the holders of any series of Preferred Stock
and any other provision of the Certificate. The Certificate provides that if at
any time a cash dividend or other distribution in cash or other property is paid
on either the Common Stock or the Class B Common Stock, an equivalent dividend
or other distribution in cash or other property will also be made with respect
to the Class B Common Stock or Common Stock, as the case may be. The Certificate
provides that if dividends are declared that are payable in shares of Common
Stock or Class B Common Stock, such dividends shall be payable at the same rate
on both classes of stock, provided that the dividends payable in shares of
Common Stock shall be payable only to holders of Common Stock
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<PAGE> 92
and the dividends payable in shares of Class B Common Stock shall be payable
only to holders of Class B Common Stock. The Certificate provides that shares of
Common Stock or Class B Common Stock may not be split up, subdivided, combined
or reclassified, unless at the same time the shares of the other class are also
split up, subdivided, combined or reclassified in a manner which maintains the
same proportionate equity ownership between the holders of Common Stock and
Class B Common Stock as existed immediately prior to the transaction.
Liquidation. In the event of any liquidation, dissolution or winding
up, the holders of Common Stock and the holders of Class B Common Stock will be
entitled to receive the assets and funds available for distribution after
payments to creditors and to the holders of any Preferred Stock that may at the
time be outstanding, in proportion to the number of shares held by them,
respectively, without regard to class.
Equal Per Share Consideration Upon Merger. In the event of any
corporate merger, consolidation, purchase or acquisition of property or stock or
other reorganization in which any consideration is to be received by the holders
of Common Stock or Class B Common Stock, the holders of Common Stock and Class B
Common Stock will be entitled to receive an equal amount of consideration for
each share tendered in such merger, consolidation, purchase or acquisition or
other reorganization.
Transfer Restrictions of Class B Common Stock. The Certificate
provides that no person holding record or beneficial ownership of shares of
Class B Common Stock (a "Class B Holder") may transfer shares of Class B Stock,
except to a Permitted Transferee. A Permitted Transferee generally means an
affiliate of the Class B Holder. In certain circumstances, changes in ownership
or control of a Class B Holder will result in the automatic conversion of such
holder's Class B Common Stock into Common Stock. The Certificate also provides
that GenTek may require as a condition to registering the transfer of any shares
of its Class B Common Stock the furnishing of such affidavits and other proof as
GenTek reasonably may request to establish that such proposed transferee is a
Permitted Transferee. In addition, upon any purported transfer of shares of
Class B Common Stock not permitted under the Certificate, all shares of Class B
Common Stock purported to be so transferred will be deemed to be converted into
shares of Common Stock, and stock certificates formerly representing such shares
of Class B Common Stock will thereafter represent an identical number of shares
of Common Stock.
Conversion Rights of Class B Holders. Class B Holders may convert
each share of such Class B Common Stock at any time and from time to time into
one fully paid and nonassessable share of Common Stock. The Certificate requires
that GenTek reserve sufficient shares of Common Stock for issuance in connection
with such conversion rights.
All outstanding shares of Class B Common Stock automatically convert
into shares of Common Stock on a share-for-share basis if the total number of
shares of issued and outstanding Class B Stock is less than 10% of the total of
all shares of Common Stock and Class B Common Stock then issued and outstanding.
Upon any such conversion, stock certificates formerly representing shares of
Class B Common Stock will thereafter represent an identical number of shares of
Common Stock.
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<PAGE> 93
UNDESIGNATED PREFERRED STOCK
The Board of Directors is authorized to issue up to 10,000,000 shares
of Preferred Stock in classes or series and to fix the designations, powers,
preferences and the relative, participating, optional or other special rights of
the shares of each series and any qualifications, limitations and restrictions
thereon as set forth in the Certificate. Any such Preferred Stock may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock.
The purpose of authorizing the Board of Directors to issue Preferred
Stock is, in part, to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of Preferred Stock could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring or seeking to acquire, a significant portion of the
outstanding stock of the company.
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<PAGE> 94
CERTAIN PROVISIONS OF CERTIFICATE OF
INCORPORATION AND BYLAWS OF GENTEK
GENERAL
The Certificate and Bylaws of GenTek are substantially identical to
the Amended and Restated Certificate and the Bylaws, as amended, of General
Chemical Group.
A number of provisions of the Certificate and Bylaws deal with
matters of corporate governance and the rights of stockholders. Certain of these
provisions may be deemed to have an anti-takeover effect and may discourage
takeover attempts not first approved by the Board of Directors (including
takeovers which certain stockholders may deem to be in their best interests). To
the extent takeover attempts are discouraged, temporary fluctuations in the
market price of the Common Stock of each company, which may result from actual
or rumored takeover attempts, may be inhibited. These provisions, together with
the staggered nature of the Board of Directors, also could delay or frustrate
the removal of incumbent directors or the assumption of control by stockholders,
even if such removal or assumption would be beneficial to stockholders of the
company. These provisions also could discourage or make more difficult a merger,
tender offer or proxy contest, even if they could be favorable to the interests
of stockholders, and could potentially depress the market price of the Common
Stock. The Board of Directors believes that these provisions are appropriate to
protect the interests of the company and all of its stockholders. The Board of
Directors has no present plans to adopt any other measures or devices which may
be deemed to have an "anti-takeover effect".
MEETINGS OF STOCKHOLDERS
The Certificate and Bylaws provide that a special meeting of
stockholders may be called only by the Chairman of the Board of Directors, the
President or a majority of directors, unless otherwise required by law. The
Certificate and Bylaws provide that only those matters set forth in the notice
of the special meeting may be considered or acted upon at that special meeting,
unless otherwise provided by law. In addition, the Bylaws set forth certain
advance notice and informational requirements and time limitations on any
director nomination or any new business which a stockholder wishes to propose
for consideration at an annual meeting of stockholders.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Bylaws provide that directors and officers shall be, and at the
discretion of the Board of Directors, nonofficer employees may be, indemnified
by the company to the fullest extent authorized by Delaware law, as it now
exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with service for or on behalf of the company
and further permits the advancing of expenses incurred in defending claims. The
Bylaws also provide that the right of directors and officers to indemnification
shall be a contract right and shall not be exclusive of any other right now
possessed or hereafter acquired under any Bylaw, agreement, vote of stockholders
or otherwise. The Certificate contains a provision permitted by Delaware law
that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director has
breached his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation Law
or
84
<PAGE> 95
obtained an improper personal benefit. This provision does not alter a
director's liability under the Federal securities laws. In addition, this
provision does not affect the availability of equitable remedies, such as an
injunction or rescission, for breach of fiduciary duty.
AMENDMENT OF THE CERTIFICATE
The Certificate provides that an amendment thereof must first be
approved by a majority of the members of the Board of Directors and (with
certain exceptions) thereafter approved by the affirmative vote of a majority of
the total votes eligible to be cast by holders of voting stock, voting together
as a single class; provided, however, that the affirmative vote of 80% of the
total votes eligible to be cast by the holders of voting stock, voting together
as a single class, is required to amend provisions relating to the limitation of
liability of directors and amendments to the Certificate.
AMENDMENT OF BYLAWS
The Certificate provides that the company's Bylaws may be adopted,
amended or repealed by the Board of Directors and any Bylaws adopted by the
directors may be altered, amended or repealed by the Directors or by the
stockholders. Such action by the Board of Directors requires the affirmative
vote of a two-thirds of the directors then in office. Such action by the
stockholders requires the affirmative vote of at least eighty percent of the
total votes eligible to be cast by holders of voting stock.
STATUTORY BUSINESS COMBINATION PROVISION
Although the Certificate and the Bylaws contain provisions with the
anti-takeover effects mentioned above, the Certificate includes an election not
to be governed by Section 203 of the Delaware General Corporation Law ("Section
203"), which prohibits certain business combinations with certain stockholders
for a period of three years after they acquire 15% or more of the outstanding
voting stock of a corporation.
DIVIDENDS
After the Spinoff, the Board of Directors of GenTek will be
responsible for deciding if a dividend will be paid and the amount of the
dividend. The payment and level of cash dividends, if any, declared by GenTek to
holders of its Common Stock and Class B Common Stock after the Spinoff, will be
subject to the discretion of its Board of Directors. Dividend decisions will be
based on a number of factors, including the operating results and financial
requirements of GenTek.
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<PAGE> 96
THE SECTIONS "THE INDUSTRIAL CHEMICALS BUSINESS: UNAUDITED PRO FORMA
FINANCIAL STATEMENTS" AND "NEW GENERAL CHEMICAL GROUP: THE INDUSTRIAL CHEMICALS
BUSINESS", ON PAGES ___ THROUGH ___, SET FORTH CERTAIN INFORMATION ABOUT NEW
GENERAL CHEMICAL GROUP AND THE INDUSTRIAL CHEMICALS BUSINESS AFTER THE SPINOFF.
THE INDUSTRIAL CHEMICALS BUSINESS:
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet and statement
of operations have been derived from, and should be read in conjunction with,
General Chemical Group's Consolidated Financial Statements and notes thereto
included in the "F-pages" of this Information Statement.
The pro forma consolidated balance sheet has been prepared assuming that
the Spinoff and all related transactions, including the initial borrowing under
the New GCG Financing Facility and the repayment of General Chemical Group's
existing borrowings from third parties, had occurred at September 30, 1998. The
pro forma consolidated statements of operations for the year ended December 31,
1997 and the nine months ended September 30, 1998 have been prepared assuming
the Spinoff and related transactions had occurred as of January 1, 1997.
The pro forma adjustments, as described in the notes to the pro forma
balance sheet and statement of operations, are based on currently available
information and certain adjustments that General Chemical Group believes are
reasonable. This pro forma financial information does not purport to represent
what the financial position or results of operations of the Industrial Chemicals
Business would actually have been had the Spinoff in fact occurred on such date
or as of the beginning of such period or to be indicative of the Industrial
Chemicals Business financial position or results of operation for any future
date or period.
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<PAGE> 97
THE INDUSTRIAL CHEMICALS BUSINESS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------
INDUSTRIAL
CHEMICALS
GCG GENTEK HISTORICAL AS ADJUSTED BUSINESS
HISTORICAL BUSINESS (a) ELIMINATIONS(f) HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ --------------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ........... $ 47,444 $ (5,326) $ -- $ 42,118 $159,000 (b) $ 20,882
173,426 (c)
(348,544)(d)
(2,700)(d)
(2,418)(e)
Receivables, net ..................... 125,950 (66,383) 59,567 59,567
Inventories .......................... 58,775 (38,083) 20,692 20,692
Deferred income taxes ................ 11,323 (6,792) 4,531 4,531
Other current assets ................. 5,907 (2,486) 3,421 3,421
--------- -------- -------- --------- --------- ---------
Total current assets .............. 249,399 (119,070) -- 130,329 (21,236) 109,093
Property, plant and equipment, net ...... 344,871 (202,568) 142,303 142,303
6,000 (b)
Other assets ............................ 97,609 (85,021) 4,893 17,481 (2,343)(d) 21,138
--------- -------- -------- --------- --------- ---------
Total assets ................. $ 691,879 $(406,659) $ 4,893 $ 290,113 $ (17,579) $ 272,534
========= ========= ======== ========= ========= =========
Current liabilities:
Accounts payable ..................... $ 58,797 $ (35,365) $ -- $ 23,432 $ $ 23,432
Accrued liabilities .................. 73,300 (45,873) 27,427 27,427
Income taxes payable ................. 9,058 (2,800) 6,258 6,258
Current portion of long-term debt .... 51,044 -- 51,044 (51,044)(d) --
--------- --------- -------- --------- --------- ---------
Total current liabilities ........ 192,199 (84,038) 108,161 (51,044) 57,117
Long-term debt .......................... 304,044 (6,544) -- 297,500 165,000 (b)
(297,500)(d) 165,000
Other liabilities ....................... 219,017 (143,322) 4,893 80,588 -- 80,588
--------- --------- --------- --------- --------- ---------
Total liabilities ................... 715,260 (233,904) 4,893 486,249 (183,544) 302,705
Minority interest ....................... 44,524 -- 44,524 44,524
Stockholders' equity (deficit) ......... (67,905) (172,755) (240,660) 173,426 (c) (74,695)
--------- --------- -------- ---------
(5,043)(d)
(2,418)(e)
Total liabilities and equity --------- ---------
(deficit) ........................... $ 691,879 $(406,659) $ 4,893 $ 290,113 $ 17,579 $ 272,534
========= ========= ======== ========= ========= =========
</TABLE>
- ----------
(a) To adjust the historic financial statements for the impact of the
distribution of the GenTek Business to stockholders.
(b) To record the incurrence of an estimated $165 million of new debt the
proceeds of which will be used to repay existing indebtedness. In
addition, to record $6.0 million of fees to obtain the new borrowings.
(c) To record the receipt of $173.4 million from the GenTek Business which
will be used to repay existing indebtedness.
(d) To record the retirement of existing indebtedness and extraordinary
loss related to the early extinguishment.
(e) To record estimated costs to be incurred prior to the Spinoff which are
directly attributable to the Spinoff and related transactions ($4.0
million, $2.4 million net of tax).
(f) To record the historical consolidating elimination entries.
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<PAGE> 98
THE INDUSTRIAL CHEMICALS BUSINESS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------------------
INDUSTRIAL
CHEMICALS
GCG GENTEK HISTORICAL AS ADJUSTED BUSINESS
HISTORICAL BUSINESS (a) ELIMINATION (b) HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ --------------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues ....................... $525,030 $(331,452) $ 4,024 $197,602 $ -- $197,602
Cost of sales ...................... 383,558 (234,935) 4,024 152,647 -- 152,647
Selling, general and administrative
expense........................... 51,821 (39,649) 12,172 750 (c) 12,922
-------- --------- ------- -------- -------- --------
Operating profit ................... 89,651 (56,868) 0 32,783 (750) 32,033
Interest expense ................... 19,426 (10,186) 9,240 4,035 (d) 13,275
Interest income .................... 1,246 (678) 568 568
Foreign currency transaction (gains)
losses............................ 529 (397) 132 -- 132
Other expense, net ................. 187 (10) -- 177 -- 177
-------- --------- ------- -------- -------- --------
Income before minority interest and
income taxes...................... 70,755 (46,953) 0 23,802 (4,785) 19,017
Minority interest .................. 11,766 -- -- 11,766 -- 11,766
-------- --------- ------- -------- -------- --------
Income before income taxes and
extraordinary income ............. 58,989 (46,953) 0 12,036 (4,785) 7,251
Income tax provision ............... 22,676 (19,280) -- 3,396 (1,892) (e) 1,504
-------- --------- ------- -------- -------- --------
Income before extraordinary item ... 36,313 (27,673) 0 8,640 (2,893) 5,747
Extraordinary item - loss from
extinguishment of debt (net of tax) 3,661 (2,050) 1,611 -- 1,611
-------- --------- ------- -------- -------- --------
Net income ...................... $ 32,652 $ (25,623) $ 0 $ 7,029 $ (2,893) $ 4,136
======== ========= ======= ======== ======== ========
Earnings per common share:
Basic ........................... $ 1.55 $ .20
======== ========
Diluted ......................... $ 1.49 $ .19
======== ========
</TABLE>
- -----------
(a) To adjust the historical financial statements for the impact of the
Spinoff of the GenTek Business to stockholders.
(b) To eliminate the historical consolidating elimination entries.
(c) To record estimated incremental general and administrative expenses
expected to be incurred as a result of the Spinoff.
(d) To record the estimated change in interest expense based upon an
estimated $165 million of debt expected to be outstanding at the date
of the Spinoff, at an assumed borrowing rate of 10% and reflect the
amortization of debt issuance costs associated with the new borrowings.
A fluctuation in the assumed borrowing rate of 0.125% would change pro
forma interest expense by $155,000.
(e) To reflect the estimated tax effect of the pro forma adjustments.
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<PAGE> 99
THE INDUSTRIAL CHEMICALS BUSINESS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------------
INDUSTRIAL
CHEMICALS
GCG GENTEK HISTORICAL AS ADJUSTED BUSINESS
HISTORICAL BUSINESS (a) ELIMINATION(b) HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ -------------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues ....................... $652,977 $(368,516) $ 5,239 $ 289,700 $ -- $289,700
Cost of sales ...................... 451,442 (251,912) 5,239 204,769 -- 204,769
Selling, general and administrative
expense........................... 64,443 (47,793) 16,650 1,000 (c) 17,650
-------- --------- ------- --------- -------- --------
Operating profit ................... 137,092 (68,811) 0 68,281 (1,000) 67,281
Interest expense ................... 21,602 (8,855) 12,747 4,953 (d) 17,700
Interest income .................... 2,504 (1,475) 1,029 -- 1,029
Foreign currency transaction (gains)
losses............................ 627 (442) 185 -- 185
Other expense, net ................. 454 (169) 285 -- 285
-------- --------- ------- --------- -------- --------
Income before minority interest and
income taxes...................... 116,913 (60,820) 0 56,093 (5,953) 50,140
Minority interest .................. 24,253 -- -- 24,253 -- 24,253
-------- --------- ------- --------- -------- --------
Income before income taxes ......... 92,660 (60,820) 0 31,840 (5,953) 25,887
Income tax provision ............... 36,345 (26,769) 9,576 (2,354)(e) 7,222
-------- --------- ------- --------- -------- --------
Net income .................... $ 56,315 $ (34,051) $ 0 $ 22,264 $ (3,599) $ 18,665
======== ========= ======= ========= ======== ========
Earnings per common share:
Basic ........................... $ 2.63 $ .87
======== ========
Diluted ......................... $ 2.50 $ .83
======== ========
</TABLE>
- ---------------
(a) To adjust the historical financial statements for the impact of the
Spinoff of the GenTek Business to stockholders.
(b) To eliminate the historical consolidating elimination entries.
(c) To record estimated incremental general and administrative expenses
expected to be incurred as a result of the Spinoff.
(d) To record the estimated change in interest expense based upon an
estimated $165 million of debt expected to be outstanding at the date
of the Spinoff, at an assumed borrowing rate of 10% and reflect the
amortization of debt issuance costs associated with the new borrowings.
A fluctuation in the assumed borrowing rate of 0.125% would change pro
forma interest expense by $206,000.
(e) To reflect the estimated tax effect of the pro forma adjustments.
89
<PAGE> 100
NEW GENERAL CHEMICAL GROUP:
THE INDUSTRIAL CHEMICALS BUSINESS
OVERVIEW
Following the Spinoff, New GCG will own and operate the Industrial
Chemicals Business, a leading North American supplier of soda ash and calcium
chloride to a broad range of industrial and municipal customers. The primary end
markets for soda ash include glass production, sodium-based chemicals,
detergents, pulp and paper and water treatment. Calcium chloride is mainly used
for dust control and roadbed stabilization during the summer and melting ice
during the winter.
The Industrial Chemicals Business produces natural soda ash by refining
mined trona deposits at its plant in Green River, Wyoming. The Green River
basin, where all but one of the U.S. producers of natural soda ash are located,
contains the largest known, economically recoverable trona deposits in the
world. The Industrial Chemicals Business' Green River facilities, including the
plants and leases for mining trona ore, are owned and operated through GCSAP, a
partnership in which New GCG has a 51% partnership interest and of which it is
the Managing Partner. See--"General Chemical (Soda Ash) Partners" below.
The Industrial Chemicals Business also produces synthetic soda ash and
calcium chloride using the Solvay process at its plant in Amherstburg, Ontario.
The Solvay process produces low density light soda ash, which is preferred in
certain detergent and chemical processes. This production process, which is
energy and labor intensive, is considerably more costly than refining natural
soda ash. The Amherstburg plant remains profitable due to its operating
efficiency, the successful marketing of the co-product calcium chloride and its
proximity to major Canadian and eastern U.S. markets.
The Industrial Chemicals Business has an estimated 23% share of the North
American soda ash market, achieved principally as a result of the superior
operating efficiency of its facilities, the production of soda ash at the Green
River basin, its superior distribution capabilities resulting from its extensive
storage and distribution networks, experienced sales force and extensive network
of specialty distributors, and the favorable freight rates of its Amherstburg
operation to the Canadian and eastern U.S. soda ash markets.
The Industrial Chemicals Business has never operated as a separate,
stand-alone entity and has historically shared with the GenTek Business various
financial, administrative and managerial expertise relevant to operating as an
independent public company. The GenTek Business will have no obligation to
support the Industrial Business after the Spinoff, except to the extent
described in "Arrangements Between GenTek and New GCG Relating to the Spinoff."
After the Spinoff, the GenTek Business will maintain its own relationships and
be responsible for its own financial reporting and control functions. There can
be no assurance that, as a separate, stand-alone company, the Industrial
Chemicals Business' results and profits will be comparable to those before the
Spinoff.
STRATEGY
The Industrial Chemicals Business' primary business strategy is to enhance
its market position and improve its profitability by continued efforts to:
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REDUCE COSTS AND IMPROVE OPERATING EFFICIENCY. The Industrial Chemicals
Business continually seeks opportunities to reduce operating costs. Since taking
control in 1986, management has renegotiated energy, raw material and labor
contracts and has invested capital to improve productivity, capacity and
quality. Over this time period, production per employee has approximately
doubled.
CAPITALIZE ON FIRMER SODA ASH MARKETS. The U.S. soda ash industry, with
significant export volume, has been negatively impacted by recent economic
downturns in Asia and Latin America, two primary growth markets. Since the
United States is the world's low-cost producer of soda ash, New GCG expects that
as the economies in these regions recover, export sales of soda ash will serve
as a foundation for improved profitability. In addition, New GCG expects growth
in export volumes to occur as the older, uneconomical international synthetic
soda ash plants continue being shut down.
BENEFIT FROM STRATEGIC PARTNERS. The Industrial Chemicals Business'
partners in GCSAP are subsidiaries of ACI International Limited and TOSOH
Corporation ("TOSOH"). ACI International Limited, itself a major producer of
container glass and a customer of GCSAP, was recently acquired by
Owens-Illinois, Inc. ("Owens-Illinois"), a worldwide producer of packaging
materials. The Industrial Chemicals Business expects significant increased sales
to Owens-Illinois as a result of this acquisition. Owens-Illinois is one of the
largest single purchasers of soda ash in the world with annual domestic and
international requirements of approximately two million tons. TOSOH is a leading
Japanese chemical company whose operations previously included a 300,000-ton
synthetic soda ash facility in Nanyo, Japan. In 1997, TOSOH closed its synthetic
soda ash facility and began purchasing soda ash primarily through American
Natural Soda Ash Corp. ("ANSAC"), an export cooperative formed by U.S. soda ash
producers.
INCREASE END USES AND ACCESS NEW MARKETS. Management has undertaken a
number of initiatives to improve the Industrial Chemicals Business' product
lines. The Industrial Chemicals Business has developed technology to assist
customers in switching from caustic soda to soda ash and diversified its product
lines by adding specialty product grades, such as food-grade soda ash and
calcium chloride. The Industrial Chemicals Business has introduced new products
such as Corguard(TM) and Cal-Dry(TM), two calcium chloride-based products now
being marketed for freeze-proofing and related winter applications and
petroleum refining, respectively. In addition, major growth opportunities for
calcium chloride include roadbed stabilization and dust control markets in Latin
America and distillate-drying and oil field services applications in the
domestic, Middle East and African markets.
PURSUE STRATEGIC ACQUISITIONS AND JOINT VENTURES. The Industrial Chemicals
Business believes that selective strategic acquisition and joint venture
opportunities are available to increase its profitability and enhance its
leadership position. The Industrial Chemicals Business intends to study
strategic acquisitions and alliances that will complement its existing business
by adding other industrial chemicals to its product lines, improve its
profitability through economies of scale and synergies, and facilitate its
penetration of new business and geographic areas.
MARKETS FOR SODA ASH AND CALCIUM CHLORIDE
The Industrial Chemicals Business' product lines consist of soda ash and
calcium chloride. Soda ash is used for glass production, sodium-based chemicals,
detergents, pulp and paper, water treatment and numerous other applications.
Calcium chloride is used for dust control and roadbed stabilization during
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the summer, melting ice during the winter and industrial applications in markets
such as newsprint recycling, oil field services, cement and food processing.
SODA ASH
Total industry production of soda ash in the U.S. and Canada during 1998
was approximately 11.7 million tons with U.S. producers estimated to have
exported about 4.0 million tons. The total annual world market for soda ash
currently is estimated at 34 million tons. Almost all of the soda ash produced
outside the United States is synthetic soda ash, which involves significantly
higher production costs than the natural process used in the United States.
The following table sets forth the 1998 end-market breakdown, by volume,
for soda ash produced in the United States(1):
<TABLE>
<S> <C>
Glass production..................................... 31%
Chemicals............................................ 17
Detergents........................................... 7
Pulp and paper, water treatment and other............ 10
Exports.............................................. 35
</TABLE>
----------
(1) Developed from industry sources.
Glass Production. Approximately one-half of the domestic soda ash industry
demand is attributable to glass production. The glass production market is
comprised of manufacturers of bottles and other containers, commercial,
residential and automobile windows, mirrors, fiberglass, television tubes,
lighting ware, tableware, glassware and laboratory ware.
Within the glass sector, container glass is the major end use and
comprises the majority of current demand. Historically, domestic consumption of
soda ash in the glass container industry has been adversely affected by the
increasing use of cullet (broken, recycled glass) and competition from aluminum
containers and plastic containers made of polyethylene terephthalate ("PET") and
polyethylene napathalate ("PEN"). Although management believes that the use of
plastic containers and cullet will continue to negatively impact the growth in
demand for soda ash, this trend has slowed over the last several years. The
Industrial Chemicals Business believes that, since the rate of recycling has
leveled off, there should be reduced growth in use of cullet. As most of the
conversions from glass to plastic containers has taken place, management expects
that the market erosion of glass versus plastic will decelerate. Although there
is a risk that additional alternative packaging technologies may emerge and
thereby take further market share from glass containers, management believes
that the continued growth of specialty uses for glass containers will
substantially offset any such decline. For example, the continued growth of
microbrew specialty beers should provide additional opportunities for producers
of glass containers.
Chemicals. Sales of soda ash into the sodium-based chemicals market
represent approximately one-fourth of domestic consumption. The chemical
industry uses soda ash as a source of sodium ions and as a fluxing agent where
it is mainly used in the production of sodium bicarbonate, sodium phosphates,
sodium silicates and chrome chemicals. Many of these products ultimately find
use in high growth, specialty applications in the beverage, coatings, food and
personal care sectors.
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Detergents. In the detergent market, soda ash is used as a component of
powdered detergents. This market represents approximately one-eighth of domestic
soda ash consumption. Soda ash is often the prime alkali used to make phosphates
and silicates for dry detergent applications. Due to product reformulation by
select customers, the Industrial Chemicals Business has seen an increasing
demand for the low-density (or "light" soda ash) product that is only produced
in North America by the Industrial Chemicals Business at its Amherstburg plant.
Light soda ash is preferred in some markets such as detergents due to its lower
bulk density, higher absorptivity rates and faster rates of reaction.
Pulp and Paper and Water Treatment. Additional markets for soda ash
include pulp and paper and water treatment. In the pulp and paper market, soda
ash supplies the sodium ion required in the pulping of wood fiber. In the water
treatment market, soda ash can be used to control pH levels and also provides
the sodium ion needed for water softening. In this market, soda ash competes
with caustic soda, which is manufactured as a co-product with chlorine. Due to
strong demand for chlorine in recent years, caustic soda has been oversupplied
and its prices have fallen. In the past year, however, chlorine demand has begun
to slow, which in the past has resulted in higher caustic soda prices.
Exports. Because in the U.S. soda ash is produced naturally, the U.S.
producers have significantly lower costs than non-U.S. producers who produce
soda ash using the synthetic process. This production cost differential is great
enough that U.S. producers can compete effectively with synthetically produced
overseas products, despite the freight costs for the U.S. produced soda ash.
Due to the low-cost position of the U.S. soda ash producers, U.S. exports
of soda ash have more than doubled since 1987, increasing from 2.2 million tons
in 1987 to 4.6 million tons in 1997 before declining to approximately 4.0
million tons in 1998 due principally to the Asian economic crisis. The
Industrial Chemicals Business expects, however, that in the future U.S.
producers will continue to capitalize on both the growth in world markets and
the closure of older, uneconomical synthetic soda ash plants outside of North
America. In this regard, since 1993, nine producers have announced the closure
of fourteen plants outside of North America with an aggregate capacity of 2.9
million tons of soda ash.
In spite of the breadth of export markets, U.S. producers' shipments into
the Western European market during 1998 totaled only 0.3 million tons, after
peaking at more than 0.6 million tons in 1992, while total Western European
demand for soda ash is estimated at 7.0 million tons annually. The lower exports
are attributable to the stronger U.S. dollar, more aggressive pricing by local
producers and the leveling of provisional antidumping duties by the European
Commission against five of the six U.S. soda ash producers, including General
Chemical Group. The provisional antidumping duties were removed in November
1997, which should permit U.S. producers to be more competitive in shipping soda
ash into Western Europe.
GCSAP, along with the other five U.S. producers of natural soda ash, is a
member of ANSAC, a soda ash export cooperative organized in 1984 pursuant to an
exemption from U.S. antitrust laws provided under the Webb-Pommerene Act.
Through ANSAC, the six U.S. producers export soda ash to all parts of the world
except Canada and Western Europe. Each individual member's allocation of ANSAC
volume is based on the member's total nameplate capacity, with any member's
expansion phased-in over a multi-year period for allocation purposes. ANSAC is
the exclusive distributor of the soda ash exports of its members; however,
members can distribute soda ash directly to their affiliates in other countries,
but only for those affiliates' own consumption. Certain countries, however, have
from time to time considered limiting or prohibiting sales of products through
export cooperatives such as
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ANSAC on grounds that they are anti-competitive, though management is not aware
of any pending or threatened activity in this regard that would be material to
the results of operations or financial condition of New GCG.
CALCIUM CHLORIDE
In addition to soda ash, the Industrial Chemicals Business produces
calcium chloride which is sold predominantly into the highway and road
maintenance and the oil field services markets. Calcium chloride, a co-product
of the synthetic soda ash process utilized by the Industrial Chemicals Business'
Amherstburg plant, is used primarily on Canada's extensive network of unpaved
roads for dust control and roadbed stabilization during the summer and on U.S.
highways and roads for melting ice during the winter. Other applications include
retail ice control, concrete additives, water treatment, newsprint recycling and
food processing.
The Industrial Chemicals Business' major growth opportunities in calcium
chloride include roadbed stabilization and dust control markets in Latin America
and distillate-drying and oil field services applications in both the domestic
and export markets and road stabilization in the U.S. For example, the
Industrial Chemicals Business began shipments of calcium chloride to the Middle
East in 1998 and management expects to realize additional growth in its Middle
East oil field-related business in the coming years.
SODA ASH PRICING AND CAPACITY UTILIZATION
The Industrial Chemicals Business' principal product is soda ash, and the
profitability of its operations is affected by the market price of soda ash more
than any other factor. The price of soda ash has fluctuated in recent years and
is affected by numerous factors beyond General Chemical Group's control, such as
increases in industry capacity, decreases in demand for soda ash in either the
U.S. or the export market (or its end-use products such as glass, sodium-based
chemicals and detergents) and the change in price and/or availability of
substitute products. U.S. domestic demand for soda ash has been subject to
fluctuations based on, among other factors, general economic conditions,
particularly due to the use of soda ash for glass production by the cyclical
construction and automotive industries. Historically, the price of soda ash has
fluctuated based on the rate of industry capacity utilization by U.S. producers.
In general, over time, profitability increases and decreases with concomitant
increases and decreases in the industry utilization rate. For the past ten
years, estimated realizable capacity utilization has ranged from a high of 99%
in 1989 to a low of 86% in 1998.
General Chemical Group believes that export growth, the closure of
additional synthetic soda ash facilities outside North America, new customer
applications for soda ash and customer utilization of soda ash in place of
caustic soda (soda ash can be used as a substitute for caustic soda in pulp and
paper and certain other chemical applications) will increase demand for U.S.
soda ash thus increasing industry utilization rates and soda ash prices,
although there can be no assurances that this will take place.
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CAPACITY UTILIZATION
The soda ash industry was destabilized in 1982, when a new producer
entered the market by starting up a 1.0 million-ton-per-year plant at a time
when the economy was depressed, glass manufacturers were consolidating
facilities and the export market was still being developed. This combination of
events resulted in industry soda ash prices decreasing from an average of $91
per ton in 1981 to $65 per ton in 1986.
From 1986 to 1991, industry soda ash prices recovered to $84 per ton,
mainly due to the surge in exports. From 1991, soda ash prices declined to a low
of $70 per ton in 1994 because of a number of capacity expansions before again
increasing to $83 per ton in 1996 on the continued growth of exports. Since
1996, industry soda ash prices have fallen to an estimated $73 per ton,
primarily due to expansions totaling 1.2 million tons brought onstream in late
1996, including a 700,000 ton expansion by FMC Corporation and a 300,000 ton
expansion by Solvay Minerals combined with the reduced export demand resulting
from the Asian crisis. For 1999, General Chemical Group expects industry soda
ash prices to approximate $67 per ton.
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The following chart indicates the average industry price of soda ash per
ton and U.S. capacity utilized during the period from 1981 to 1998.
<TABLE>
<CAPTION>
AVERAGE
PRICE U.S. CAPACITY
YEAR PER TON(1) UTILIZATION(2)
- --------------------------------- ---------- --------------
<S> <C> <C>
1981............................. $91 84%
1982............................. 88 74
1983............................. 77 80
1984............................. 67 80
1985............................. 68 80
1986............................. 65 84
1987............................. 67 89
1988............................. 67 97
1989............................. 77 99
1990............................. 83 97
1991............................. 84 95
1992............................. 81 92
1993............................. 74 86
1994............................. 70 89
1995............................. 74 94
1996............................. 83 89
1997............................. 77 93
1998 (estimated)................. 73 86
</TABLE>
- -------------
(1) Based on data from the U.S. Geological Survey (not adjusted for
inflation), FOB production facility.
(2) Based on announced capacity (as reported by the U.S. Geological Survey)
adjusted to 95% which management believes better approximates onstream
capacity.
CAPACITY EXPANSIONS
Since 1982, no new natural soda ash plants have been built in North
America. During this period, capacity expansion in the United States has been
achieved by expansion of existing facilities and improved operating efficiencies
with such new natural soda ash capacity generally being offset by the closure of
older, uneconomical synthetic soda ash plants outside the United States.
Recently, however, American Soda, LLP, a joint venture between American Alkalia
and the Williams Company, has announced its intention to solution mine nahcolite
reserves in White River, Colorado, for processing into soda ash and sodium
bicarbonate. The reported capacity of soda ash production at this facility will
be up to 1.0 million tons per year. While there can be no assurance that this
plant will not proceed, its construction is contingent upon obtaining all of the
necessary regulatory approvals and permits and mineral leases.
Regarding existing soda ash producers, at the end of 1998, Oriental
Chemical completed an 800,000 ton expansion of its Green River facility. Upon
completion of the expansion, due to current soda ash market conditions Oriental
Chemical "mothballed" 900,000 tons of previously constructed capacity at the
facility. Separately, management believes that in the future, Oriental Chemical
may also
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close its 350,000 ton synthetic soda ash facility in Korea, although there can
be no assurances that this will take place. In addition, Solvay Minerals
announced the delay of its previously planned 400,000 ton U.S. expansion,
originally scheduled for completion in late 1998, until the fourth quarter of
2001.
COMPETITION
The U.S. and Canadian soda ash industry is comprised of the companies
listed below. General Chemical Group, FMC Corporation, Oriental Chemical Co. and
Solvay Minerals all have joint venture partners.
<TABLE>
<CAPTION>
1998
ANNUAL
NAMEPLATE
CAPACITY
OWNER/MANAGING PARTNER LOCATION IN TONS PARTNER(S)
- ----------------------------------- -------- --------- ----------------------------------------
<S> <C> <C> <C>
General Chemical Group............. Wyoming 2,800 ACI (25%)(1), TOSOH (24%)
Amherstburg 500
------
3,300
FMC Corporation.................... Wyoming 3,550 Sumitomo (10%), Nippon Sheet Glass (10%)
Oriental Chemical Co. (2).......... Wyoming 2,200 Union Pacific Resources Corp. (49%)
Solvay Minerals, Inc............... Wyoming 2,300 Asahi Glass (20%)
IMC Global(3)...................... California 1,500
Tg Soda Ash, Inc.(4)............... Wyoming 1,300
------
Total U.S. and Canadian 14,150
======
Capacity.....................
</TABLE>
- ------------
(1) Acquired by Owens-Illinois in April 1998.
(2) Excludes 900,000 tons of mothballed capacity. See "--Capacity
Expansion" above.
(3) Currently held by IMC Global through its wholly-owned subsidiary, North
American Chemical Company. In December 1998, IMC Global announced that
it intends to sell 60% of North American Chemical Company to Mincorp
LLC.
(4) Currently, 100% owned by Elf Aquitaine S.A. In January 1999, FMC
Corporation announced that it had signed a letter of intent for the
purchase of Tg Soda Ash, Inc.
Due to the low-cost position of soda ash production at the Green River
basin and increasing worldwide demand for soda ash, both international customers
and producers have been making substantial investments in the Green River
facilities. In May 1992 , Solvay Minerals, a subsidiary of Solvay S.A., the
world's largest producer of soda ash with synthetic capacity in excess of 5.0
million tons, purchased an 80% interest in the 2.0 million-ton Green River
facility previously owned by Tenneco Inc. In 1995, Sumitomo Corporation and
Nippon Sheet Glass collectively purchased a 20% stake in the FMC Corporation's
facility. Finally, in 1996, Oriental Chemical Co., a diversified Korean chemical
producer, purchased Rhone-Poulenc's 51% interest in its soda ash facility.
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More recently, in December 1998, Mincorp LLC, a holding company formed by
Citigroup Venture Capital, agreed to purchase 60% of North American Chemical
Company, which operates a soda ash production facility in California, from IMC
Global. Citigroup Venture Capital also owns Brunner Mond, a United Kingdom
manufacturer of soda ash. In January 1999, FMC Corporation, the largest Wyoming
producer of soda ash, announced that it has signed a letter of intent to
purchase another Wyoming producer, Tg Soda Ash, Inc.
Regarding calcium chloride, the Industrial Chemicals Business, with
450,000 tons of capacity, is the largest producer of calcium chloride in Canada.
Its major competitors are Dow Chemical, Ambar and Tetra Technologies in the
U.S., and Dow Chemical and local producers in Canada. In the United States, the
Industrial Chemicals Business is the third largest distributor of calcium
chloride behind Dow Chemical and Tetra Technologies. It is estimated that Dow
Chemical has 700,000 tons of capacity. The next largest U.S. producer is Tetra
Technologies, which operates four plants with estimated total capacity of
350,000 tons. In addition, Ambar Inc., an oil services company, purchased an
existing salt evaporation facility in Michigan for conversion to calcium
chloride production. During 1997, the facility came onstream with announced
capacity of 250,000 tons, although the Industrial Chemicals Business believes
actual production may be less, and some portion of this production will be used
by Ambar for internal consumption in its oil service business in the Gulf Coast
region. General Chemical Group believes its long standing reputation and
service, strategic location, size and extent of its storage and distribution
facilities and use of its sales force and specialty distributors will allow it
to maintain its leading market share positions in the highway and road
maintenance market, although no assurances can be given that this will occur.
PROPERTIES
PRODUCTION FACILITIES
The Industrial Chemicals Business produces soda ash at two facilities:
GCSAP's plant in Green River, Wyoming, which produces natural soda ash; and its
100%-owned plant in Amherstburg, Ontario, which produces synthetic soda ash.
Annual nameplate capacity at the Green River plant totals 2.8 million
tons and at the Amherstburg plant totals 500,000 tons of soda ash. The
Amherstburg plant also produces calcium chloride, with an annual nameplate
capacity of 450,000 tons. Since 1986, the Industrial Chemicals Business has
instituted operating improvements at the Green River facility that have
substantially increased the efficiency at the plant, with production per
employee approximately doubling since 1985. Production improvements have
included the complete elimination of labor-intensive conventional mining
techniques through the purchase of bore mining equipment. Additional significant
cost savings have also been realized through reductions in utility and
transportation costs. In its ongoing effort to boost production and operating
efficiency, the Industrial Chemicals Business commenced a capital program in
1996 to improve the "on stream" reliability of the Green River facility. The
capital program was completed in 1998, increasing capacity from 2.4 million tons
to 2.8 million tons.
The Industrial Chemicals Business' plant in Amherstburg produces soda ash
and calcium chloride using the synthetic process, also known as the Solvay
process. The production of synthetic soda ash, which is energy and labor
intensive, is significantly more costly than refining natural soda ash. The
higher-cost synthetic process is utilized outside the U.S. due to the lack of
economically recoverable
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trona deposits in the rest of the world. All other North American synthetic soda
ash operations have been shut down in the face of competition from lower-cost
natural soda ash operations. Management believes that the Amherstburg plant is
one of the world's most efficient synthetic soda ash plants. It remains
profitable due to its operating efficiency, the successful marketing of the
coproduct calcium chloride and its proximity to major Canadian and eastern U.S.
soda ash markets.
In February 1993, the Industrial Chemicals Business' commitment to quality
was recognized as Green River became the first U.S. soda ash facility to be
awarded ISO 9002 certification by the International Standards Organization.
Management believes that ISO 9002 certification, an internationally recognized
standard of quality in manufacturing, will become increasingly important to
future market penetration in Western Europe. In 1997, the Green River plant
became the first soda ash facility to receive QS-9000 certification, a more
rigorous quality program than ISO 9002 which is geared toward the automotive
industry. The Amherstburg facility was awarded ISO 9002 certification in May,
1994.
General Chemical Group's headquarters are, and following the Spinoff will
continue to be, located in Hampton, New Hampshire. The locations and uses of
certain major properties of the Industrial Chemicals Business are as follows:
<TABLE>
<CAPTION>
LOCATION USE
-------------------------- -------------------------------------------
<S> <C> <C>
United States....... Parsippany, New Jersey (1) Offices
Green River, Wyoming Trona Mine and Manufacturing Facility
Canada.............. Amherstburg, Ontario Manufacturing Facility and Undeveloped Lots
Brooks, Ontario Calcium Chloride Brine Wells
Mississauga, Ontario (1) Offices
</TABLE>
- ----------
(1) Leased.
RESERVES AND CONTROL OF RESOURCES
The Industrial Chemicals Business mines trona ore under leases with the
United States government, the State of Wyoming and the Union Pacific Resources
Corporation. The Industrial Chemicals Business' trona reserves and mines are
located in the Green River, Wyoming area. In the Green River basin, the Green
River formation was deposited in a lake that began in the early Eocene geologic
period (approximately 35 million years ago) as a large body of fresh water,
shrank in size and became saline, expanded and then became fresh water again. In
general, the sediments deposited during the saline phase of this lake, which
included the trona deposits, are called the Wilkins Peak Member, and the
overlying and underlying fresh water deposits are called the Laney Shale Member
and Tipton Shale Member, respectively.
The Wilkins Peak Member contains at least 42 beds of trona in an area of
about 1,300 square miles, at depths ranging from about 400 feet to 3,500 feet.
The major beds, those that are known to exceed 4 feet in thickness and to
underlie at least 100 square miles, are numbered 1 through 25, beginning with
the bottommost beds. One bed, No. 17, is currently being mined at the Industrial
Chemicals Business' Green River facility at a depth of about 1,600 feet. The
underground mine is
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accessible by one service and personnel shaft, one production shaft and three
ventilation shafts. The trona deposits are mined through continuous mining and
bore mining techniques which use machines to rip the ore from the seam. Both
methods use the room and pillar technique mine plan.
Surface operations include facilities for crushing, calcining, dissolving,
classifying, clarifying, crystallizing, drying (conversion of monohydrate to
anhydrous), storing and loading.
The Industrial Chemicals Business' estimated proven reserves within bed
No. 17, which it is currently mining, consist of approximately 85 million tons
of extractable ore. At the 1998 operating rate of 2.3 million tons of soda ash
per year (4.2 million tons of trona ore), there is approximately a 21-year
supply within bed No. 17. For the three years ended December 31, 1997, annual
production of trona ore averaged approximately 4.2 million tons. In addition,
the Industrial Chemicals Business' estimated recoverable reserves contain three
other major minable trona beds containing approximately 324 million tons of
extractable ore. These beds, which may require significant capital to access,
will provide more than 79 years of added reserves based on current operating
rates.
At the Industrial Chemicals Business' synthetic soda ash plant in
Amherstburg, Ontario, Canada, the Industrial Chemicals Business uses salt and
limestone as its raw materials. Based on current production levels the
Industrial Chemicals Business has approximately 28 years of salt reserves.
Limestone reserves owned by the Industrial Chemicals Business total
approximately 15 years, with an option on an additional six years of reserves.
However, the Industrial Chemicals Business is not currently utilizing its
limestone reserves and is instead purchasing all of its limestone requirements
under a long-term contract with a major limestone producer due to the economic
benefit of using purchased limestone.
GENERAL CHEMICAL (SODA ASH) PARTNERS
Since 1986, the Green River plant has been owned by GCSAP, a partnership
of which General Chemical Group, through its subsidiary, has been the managing
partner and owned a 51% equity interest. In connection with the Spinoff, General
Chemical Group will substitute General Chemical Industrial Products Inc. as the
managing partner of GCSAP and the holder of its 51% interest in the partnership.
The Andover Group, Inc., a wholly owned subsidiary of ACI International Limited,
owns a 25% equity interest, and TOSOH Wyoming, Inc., a subsidiary of TOSOH, owns
a 24% equity interest. ACI International Limited, a major world producer of
container glass and a customer of GCSAP, was acquired in April 1998 by
Owens-Illinois, a worldwide producer of packaging materials. Management believes
that Owens-Illinois and ACI International Limited as a combined entity will be
one of the largest single purchasers of soda ash with annual domestic and
international requirements of approximately 2.0 million tons. TOSOH is a leading
Japanese chemical company whose operations previously included a 300,000 ton
synthetic soda ash facility in Nanyo, Japan. In 1997, TOSOH closed its synthetic
soda ash facility and began purchasing soda ash primarily through ANSAC.
There are no material restrictions on the distribution of funds from GCSAP
to General Chemical Group or New GCG and available cash is distributed quarterly
to the three partners in accordance with their ownership percentages. The
partnership-related agreements include prohibitions against the transfer by the
current partners of their equity interests (either directly or through the sale
of the subsidiary holding the partnership interest) or withdrawal from the
partnership without the consent
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of the other partners. These provisions also provide put and call options in
respect of any proposed sale to protect the other partners.
In its capacity as managing partner of GCSAP, General Chemical Industrial
Products Inc. will manage the day-to-day aspects of marketing and distributing
soda ash produced by GCSAP, will provide overall operational management for
GCSAP and will provide customer support and coordinate customer relations for
GCSAP. All major GCSAP operational decisions require approval by General
Chemical Industrial Products Inc.
GCSAP has an operating committee of four persons, two designated by New
General Chemical Group (currently through General Chemical Corporation and, from
the Spinoff, through General Chemical Industrial Products Inc.), and one
designated by each of ACI International and TOSOH. Since GCSAP's formation in
1986, the making of certain decisions by GCSAP has required the approval of a
majority of the members of the operating committee, such as significant capital
expenditures, significant product sales contracts, material dispositions of
assets, material borrowings and certain personnel matters. In addition, the
operating committee must unanimously approve GCSAP's annual business plan,
guarantees of debt by GCSAP, agreements with any partner or admitting partners
to GCSAP, acquisitions of businesses by GCSAP and significant changes to the
conduct of the business and operations of GCSAP. Historically, the
recommendations of General Chemical Group, as managing partner, with respect to
the foregoing matters have been accepted by GCSAP's operating committee.
CUSTOMERS; SEASONALITY; BACKLOGS
The Industrial Chemicals Business does not have any single customer
accounting for over 10% of its sales. However, a few customers account for a
significant portion of soda ash sales by the Industrial Chemicals Business, such
as Church & Dwight, which has a joint venture with GCSAP relating to the
refining of trona in Green River, the Owens-Illinois group, which now includes
ACI International Limited, a 25% partner in GCSAP, and Ball & Foster, a major
glass producer. In addition, the GenTek Business, an end-user of soda ash, has
historically relied on the Industrial Chemicals Business for its soda ash needs.
New GCG and GenTek intend to enter into a supply agreement for purchases of
certain soda ash requirements by GenTek from New GCG after the Spinoff. See
"Arrangements Between GenTek and New GCG Relating to the Spinoff--Purchase of
Soda Ash and Calcium Chloride."
The Industrial Chemicals Business sells calcium chloride to a broad range
of industrial and municipal customers.
Sales of soda ash are generally not seasonal, except for sales to the
glass container industry, which increase significantly in the summer due to
stronger beverage demand. Sales of calcium chloride are concentrated in late
spring and summer for dust control.
Due to the nature of the Industrial Chemicals Business, there are no
significant backlogs.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Industrial Chemicals Business' primary sources of liquidity
and capital resources have been cash generated from operations and borrowings
under General Chemical Group's credit
101
<PAGE> 112
facility. Following the Spinoff, the Industrial Chemicals Business' liquidity
needs will arise primarily from its working capital requirements, capital
expenditures and debt service obligations. The Industrial Chemicals Business
will rely on cash from operations and, to the extent necessary, on borrowings
under its financing facilities to meet liquidity requirements. General Chemical
Group believes that future operating cash flow, together with its financing
arrangements, will be sufficient to meet the liquidity needs of the Industrial
Chemicals Business.
To reflect the independent status of GenTek and New GCG after the
Spinoff, each of GenTek and New GCG will have its own separate financing
facilities, the proceeds of the initial borrowings of which will be used in part
to repay General Chemical Group's existing borrowings from third parties.
General Chemical Group expects that, after the Spinoff, New GCG will have
financing facilities of about $205 million, of which approximately $165 million
would be funded on or about the Spinoff Date and approximately $40 million would
be available for future borrowings.
General Chemical Group has had ongoing discussions with a number of
banks and other financial institutions regarding its capital structure and is
continuing to explore financing alternatives to arrive at the most advantageous
debt financing structures for New GCG. In addition, the amount and terms of New
GCG's indebtedness after the Spinoff will depend on a number of factors that are
beyond the control of the company, including market conditions -- which have
been volatile -- for debt financing at the time of the Spinoff. As a result, no
predictions can be made about the terms of the financing facilities that New GCG
will ultimately obtain.
After the Spinoff, New GCG will be highly leveraged and its leverage
will be substantial in relation to its shareholders' equity. New GCG's leverage
and debt service requirements will make it more vulnerable to economic
downturns. In addition, New GCG's level of debt poses risks that it might not be
able to obtain additional financing in the future and that it may be more highly
leveraged than certain of its competitors which may put it at a competitive
disadvantage. As previously noted, the Industrial Financing Facility is expected
to impose operating and financial restrictions on the company. These covenants
could adversely affect New GCG's ability to finance its future operations,
potential acquisitions or capital needs or to engage in business activities that
may be in its interest.
ENVIRONMENTAL MATTERS
The Industrial Chemicals Business' various mining and production
operations, which have been conducted primarily at the Green River and
Amherstburg facilities for many years, are subject to numerous laws and
regulations relating to the protection of human health and the environment in
the U.S. and Canada. General Chemical Group believes that it is in substantial
compliance with such laws and regulations. However, as a result of its
operations, the Industrial Chemicals Business is involved from time to time in
administrative and judicial proceedings and inquiries relating to environmental
matters. To date, none of such proceedings or inquiries has had a material
adverse effect on the Industrial Chemicals Business' results of operations or
financial condition. In addition, based on information available at this time,
General Chemical Group believes that no pending proceeding or inquiry would have
a material adverse effect on its financial position or results of operations.
However, modifications of existing laws and regulations or the adoption of new
laws and regulations in the future, particularly with respect to environmental
and safety standards, or discovery of any additional or unknown environmental
contamination, if any, could require capital expenditures which may be material
or otherwise adversely impact New GCG's results of operations or financial
condition operations.
102
<PAGE> 113
The Industrial Chemicals Business has an established program to ensure
that its facilities comply with environmental laws and regulations. Expenditures
made pursuant to this program for 1997 amounted to about $4.0 million (of which
approximately $2.8 million represented capital expenditures and approximately
$1.2 million related to ongoing operations and the management and remediation of
potential environmental contamination from prior operations). Expenditures for
1996 amounted to about $2.1 million (of which approximately $0.7 million
represented capital expenditures and approximately $1.4 million related to
ongoing operations and the management and remediation of potential environmental
contamination from prior operations). Management expects similar expenditures in
1999; however, should environmental laws and regulations affecting the GenTek
Business' operations become more stringent, the GenTek Business' costs for
environmental compliance may increase above such range.
After the Spinoff, New GCG, as the former parent of GenTek and the
GenTek Business, may under certain circumstances be found liable for obligations
of GenTek related to the use or transport of hazardous substances or
environmental contamination at facilities of the GenTek Business for periods
prior to the Spinoff. Although GenTek has agreed to indemnify and hold harmless
New GCG with respect to all such liabilities and to bear all of New GCG's
expenses for defending any claims relating to these matters, New GCG's results
of operations or financial condition could be materially adversely affected in a
material manner in the event GenTek is unable or unwilling to perform its
indemnification obligations. See "Arrangements Between GenTek and New GCG
Relating to the Spinoff."
EMPLOYEES/LABOR RELATIONS
As of November 30, 1998, the Industrial Chemicals Business had
approximately 1,050 employees, 310 of whom were full-time salaried employees,
725 were full-time hourly employees and 13 were hourly employees working in
nonunion facilities.
The Industrial Chemicals Business' three union contracts, covering
employees at the Green River, Wyoming and Amherstburg, Ontario facilities, have
durations of three years. Since 1986, the Industrial Chemicals Business has been
involved in 12 labor negotiations, only one of which has resulted in work
disruption. During that disruption, management operated the plants and supplied
customers without interruption until the labor disruption was settled and a new
contract was agreed upon. In this respect, the three contracts will be up for
renewal during 1999. General Chemical Group believes that it will be able to
negotiate new labor agreements on satisfactory terms, although there can be no
assurance that it will be able to do so or that the negotiation process will not
involve material disruptions to its business.
LEGAL PROCEEDINGS
The Industrial Chemicals Business is involved in claims, litigation,
administrative proceedings and investigations of various types in several
jurisdictions. Although the amount of any liability which could arise with
respect to these actions cannot be accurately predicted, the opinion of General
Chemical Group based upon currently available information is that any such
liability not covered by insurance would have no material adverse effect on New
GCG.
103
<PAGE> 114
YEAR 2000
Following the Spinoff, the GenTek and Industrial Chemicals Businesses will
continue to share MIS (management information systems) functions, including MIS
personnel, hardware and software, through December 31, 2000. During this period,
GenTek will provide to New GCG the services related to the remediation of the
Year 2000 problem for the Industrial Chemicals Business. A "Year 2000" problem
will occur where date-sensitive software uses two digit year date fields,
sorting the Year 2000 ("00") before the Year 1999 ("99"). The Year 2000 problem
can arise in hardware, software, or any other equipment or process that uses
embedded software or other technology. The failure of such systems to properly
recognize dates after December 31, 1999 could result in data corruption and
processing errors.
General Chemical Group completed its assessment of its Year 2000
compliance status in early 1998 and began work on its remediation program
immediately thereafter. GenTek, which will be principally responsible for
overseeing the MIS functions of the Industrial Chemicals Business through 2000,
intends to continue General Chemical's Year 2000 remediation program for both
the GenTek and the Industrial Chemicals Businesses and is expected to effect all
conversion efforts needed to prevent the potential impact of Year 2000 problems.
New GCG intends to work with GenTek on the separation of MIS functions of the
GenTek and Industrial Chemicals Businesses after resolution of Year 2000
problems. New GCG anticipates that it will recruit its own MIS staff during 2001
and that by approximately December 31, 2001 a separation of its MIS functions
will be completed.
General Chemical Group's remediation program has been structured to
address its Systems. Based on current estimates, it is expected that
approximately $1.0 million will be spent to replace or reprogram existing
Systems and complete the Year 2000 compliance program for the MIS serving both
the GenTek and Industrial Chemicals Businesses. Management has indicated that it
expects all material Systems to be Year 2000 compliant by March 31, 1999 and
substantially all Systems to be Year 2000 compliant by December 31, 1999. In the
event that material Systems are not Year 2000 compliant, New GCG may experience
reductions or interruptions in operations which could have a material adverse
effect on New GCG's results of operations.
In addition, New GCG will work with GenTek to determine the Year 2000
compliance status of material vendors, suppliers, service providers and
customers. Based on currently available information, New GCG does not anticipate
any material impact to New GCG based on the failure of such third parties to be
Year 2000 compliant. However, the process of evaluating the Year 2000 compliance
status of material third parties is continually ongoing and, therefore, no
guaranty or warranty can be made as to such third parties' future compliance
status or its potential effect on the Industrial Chemicals Business. New GCG
believes there exists a sufficient number of suppliers of raw material for its
business so that if any supplier is unable to deliver raw materials due to Year
2000 problems, alternate sources will be available and that any supply
interruption will not be material to the Industrial Chemicals Business. There
can be no assurances, however, that New GCG would be able to obtain all of its
supply requirements from such alternate sources in a timely manner or on terms
comparable with those of its current suppliers. In addition, New GCG relies
heavily in its business on railroads and trucking companies to ship finished
product to its customers as well as to transport raw materials to its
manufacturing facilities. To the extent that the Industrial Chemicals Business
is unable to ship finished product or transport raw materials as a result of
such railroads' or trucking companies' failure to be Year 2000 compliant, the
Industrial Chemicals Business may not be able to arrange alternative and timely
means to ship its goods, which could lead to interruptions or slowdowns in its
business. New GCG is preparing for the possible use of alternative suppliers and
means of transportation, possible adjustment
104
<PAGE> 115
of raw material and product inventory levels and contingencies with respect to
potential energy source interruptions, all in an effort to minimize the effects,
if any, of Year 2000 related interruptions or slowdowns caused by suppliers and
transporters.
FORWARD LOOKING STATEMENTS
This Information Statement includes forward-looking statements and
information about New GCG and the Industrial Chemicals Business that are based
on the beliefs, plans, expectations and assumptions of General Chemical Group
and on information currently available to it. The words "may," "should,"
"expect," "anticipate," "intend," "plan," "continue," "believe," "seek,"
"estimate" and similar expressions used in this Information Statement are
intended to identify forward-looking statements. The forward-looking statements
in this Information Statement involve certain risks, uncertainties and
assumptions. Many of these factors are beyond the ability of General Chemical
Group to control or predict. As a result, the future actions, financial
condition, results of operations and stock price of New GCG could differ
materially from those expressed in any forward-looking statements.
The following factors, among others, in some cases have affected and in
the future could affect the actions, financial condition, results of operations
and stock price of the Industrial Chemicals Business: (i) the degree of leverage
of New GCG and the financial and operating restrictions imposed by its debt
facilities; (ii) the cyclicality of soda ash prices and the rate of industry
capacity utilization; (iii) increases or decreases in soda ash consumption in
major end use markets (e.g., glass, detergent and chemicals), including as a
result of changes in demand for glass containers due to changes in the
popularity of aluminum containers and containers made from PET, PEN or other
plastic materials; (iv) soda ash capacity expansions in the U.S. or
internationally, including as a result of the startup of any significant new
production facilities in the U.S.; (v) increases in the cost of energy or raw
materials used in the manufacture of the Industrial Chemicals Business'
products; (vi) susceptibility of the Industrial Chemicals Business to general
economic conditions, both in North America and globally; (vii) discovery of any
unknown environmental contamination at the company's facilities, and possible
modification of existing laws and regulations relating to the protection of
human health and the environment, and the adoption of new laws and regulations
in the future; (viii) weather conditions, including the extent of precipitation
in the Industrial Chemicals Business' principal geographic markets for calcium
chloride; (ix) U.S. dollar exchange rates; and (x) the ability of GenTek to
assess, mitigate and remediate the potential impact of the "Year 2000" problem
for Industrial Chemicals Business systems.
105
<PAGE> 116
ANNUAL MEETING AND SHAREHOLDER PROPOSALS
GenTek's first annual shareholders' meeting is expected to be held in
Delaware in _______ in May of each year. If a shareholder wishes to have a
proposal considered at the 2000 meeting and included in the Proxy Statement for
that meeting, the proposal must be received by GenTek in writing on or before
________, 2000.
AVAILABLE INFORMATION
GenTek has filed the Form 10 with the SEC concerning the shares of GenTek
Common Stock being received by General Chemical Group shareholders in the
Spinoff. This Information Statement does not contain all of the information set
forth in the Form 10 and the exhibits and schedules thereto. With respect to
each contract, agreement or other document filed as an exhibit to the Form 10,
reference is made to such exhibit for a more complete description of the matter
involved, and each statement made in this document concerning the contents of
any such contract, agreement or other document shall be deemed qualified in its
entirety by such reference.
The Form 10 and the exhibits and schedules thereto filed by each of GenTek
and New GCG may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as at the Regional Offices of the SEC at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such information can be
obtained by mail from the Public Reference Branch of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such materials can
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005, or accessed electronically by means of the
SEC's home page on the Internet (http://www.sec.gov).
Following the Spinoff, GenTek will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the SEC. GenTek will also be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its shareholders in connection with its annual
meetings of shareholders.
106
<PAGE> 117
INDEX TO DEFINED TERMS
PAGE
NO.
----
1996 GRAT..................................................................
ANSAC......................................................................
Avtex Site.................................................................
Award......................................................................
Bylaws.....................................................................
CERCLA.....................................................................
Certificate................................................................
Code.......................................................................
CTP........................................................................
December 1998 GRAT.........................................................
Defiance...................................................................
Distribution Agent.........................................................
Employee Benefits Agreement................................................
EPA........................................................................
Exchange Act...............................................................
FAS 131....................................................................
FAS 133....................................................................
February 1998 GRAT.........................................................
Form 10....................................................................
GCSAP......................................................................
General Chemical Corporation...............................................
General Chemical Group.....................................................
GenTek.....................................................................
GenTek Annual Plan.........................................................
GenTek Assets..............................................................
GenTek Business............................................................
GenTek Financing Facility..................................................
GenTek Indemnities.........................................................
GenTek Liabilities.........................................................
Guaranteed GenTek Liabilities..............................................
Guaranteed Industrial Liabilities..........................................
Indemnifiable Losses.......................................................
Industrial Indemnities.....................................................
Information Statement......................................................
Industrial Assets..........................................................
Industrial Chemicals Business..............................................
Industrial Financing Facility..............................................
Industrial Liabilities.....................................................
Intellectual Property......................................................
Latona.....................................................................
IRS........................................................................
LTIP.......................................................................
New GCG....................................................................
107
<PAGE> 118
PAGE
NO.
----
New General Chemical Group.................................................
New Hampshire Oak..........................................................
Non-Employee Directors.....................................................
NYSE.......................................................................
OTC........................................................................
Owens-Illinois.............................................................
PDI........................................................................
Pension Plan...............................................................
Performance Assets.........................................................
Performance Balance Sheet..................................................
Performance Liabilities....................................................
Peridot....................................................................
Preferred Stock............................................................
PRP........................................................................
Record Date................................................................
Reheis.....................................................................
Reorganization.............................................................
Sandco Automotive..........................................................
SARs.......................................................................
SEC........................................................................
Securities Act.............................................................
Separation Agreement.......................................................
Spinoff....................................................................
Spinoff Date...............................................................
Sublease Agreements........................................................
Systems....................................................................
Tax Sharing Agreement......................................................
Toledo.....................................................................
TOSOH......................................................................
108
<PAGE> 119
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE GENTEK BUSINESS
Independent Auditors' Report................................................................... F-2
Combined Statements of Operations for the three years ended December 31, 1997.................. F-3
Combined Balance Sheets at December 31, 1997 and 1996.......................................... F-4
Combined Statements of Cash Flows for the three years ended December 31, 1997.................. F-5
Combined Statements of Divisional Equity for the three years ended
December 31, 1997......................................................................... F-6
Notes to Combined Financial Statements......................................................... F-7-21
Combined Statements of Operations for the nine months ended September 30, 1998
and 1997 (unaudited)...................................................................... F-22
Combined Balance Sheets at September 30, 1998 (unaudited) and
December 31, 1997......................................................................... F-23
Combined Statements of Cash Flows for the nine months ended September 30,
1998 and 1997 (unaudited)................................................................. F-24
Notes to Combined Financial Statements (unaudited)............................................. F-25-28
THE GENERAL CHEMICAL GROUP INC.
Independent Auditors' Report................................................................... F-29
Consolidated Statements of Operations for the three years ended December 31, 1997.............. F-30
Consolidated Balance Sheets at December 31, 1997 and 1996...................................... F-31
Consolidated Statements of Cash Flows for the three years ended December 31, 1997.............. F-32
Consolidated Statements of Changes in Equity (Deficit) for the three years ended
December 31, 1997......................................................................... F-33
Notes to Consolidated Financial Statements..................................................... F-34-53
Consolidated Statements of Operations for the nine months ended September 30,
1998 and 1997 (unaudited)................................................................. F-54
Consolidated Balance Sheets at September 30, 1998 (unaudited) and
December 31, 1997......................................................................... F-55
Consolidated Statements of Cash Flows for the nine months ended September 30,
1998 and 1997 (unaudited)................................................................. F-56
Notes to Consolidated Financial Statements (unaudited)......................................... F-57-60
</TABLE>
F-1
<PAGE> 120
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
THE GENERAL CHEMICAL GROUP INC.
We have audited the accompanying combined balance sheets of the GenTek
Business of The General Chemical Group Inc. as of December 31, 1996 and 1997,
and the related combined statements of operations, changes in divisional equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the combined financial position of the GenTek Business of The
General Chemical Group Inc. at December 31, 1996 and 1997, and the combined
results of their operations and their combined cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
January 19, 1999
F-2
<PAGE> 121
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues .......................... $ 290,185 $ 330,120 $ 368,516
Cost of sales ......................... 205,363 229,237 251,912
Selling, general and administrative
expense ........................... 40,121 49,591 47,793
--------- --------- ---------
Operating profit ...................... 44,701 51,292 68,811
Interest expense ...................... 12,927 10,747 8,855
Interest income ....................... 1,922 1,404 1,475
Foreign currency transaction (gains)
losses ............................ (699) (83) 442
Other (income) expense, net ........... 423 263 169
--------- --------- ---------
Income before income taxes ............ 33,972 41,769 60,820
Income tax provision .................. 33,836 19,441 26,769
--------- --------- ---------
Net income ........................ $ 136 $ 22,328 $ 34,051
========= ========= =========
</TABLE>
See the accompanying notes to the combined financial statements.
F-3
<PAGE> 122
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 16,576 $ 12,075
Receivables, net ............................................. 40,682 49,803
Inventories .................................................. 21,181 25,328
Deferred income taxes ........................................ 6,334 9,850
Other current assets ......................................... 118 153
-------- --------
Total current assets ...................................... 84,891 97,209
Property, plant and equipment, net ............................. 107,334 160,154
Other assets ................................................... 19,258 36,446
-------- --------
Total assets .............................................. $211,483 $293,809
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable ............................................. $ 27,608 $ 32,116
Accrued liabilities .......................................... 37,510 43,459
Income taxes payable ......................................... 1,222 2,662
-------- --------
Total current liabilities ................................. 66,340 78,237
Other liabilities .............................................. 123,560 142,429
-------- --------
Total liabilities ......................................... 189,900 220,666
-------- --------
Divisional equity .............................................. 21,583 73,143
-------- --------
Total liabilities and equity .............................. $211,483 $293,809
======== ========
</TABLE>
See the accompanying notes to the combined financial statements.
F-4
<PAGE> 123
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ..................................... $ 136 $ 22,328 $ 34,051
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ............... 13,125 14,099 16,296
Net loss on disposition of long-term assets . 812 673 431
(Increase) in receivables ................... (2,564) (2,412) (4,835)
(Increase) decrease in inventories .......... 229 (2,441) (1,597)
Increase (decrease) in accounts payable ..... 1,667 (216) 1,944
(Decrease) in accrued liabilities ........... (2,530) (13,972) (1,291)
Increase in income taxes payable ............ 638 459 1,440
Increase in other liabilities and assets, net 13,250 11,279 8,965
-------- -------- --------
Net cash provided by operating activities . 24,763 29,797 55,404
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ........................... (24,842) (19,231) (26,203)
Proceeds from sales or disposals of long-term
assets ...................................... 350 43 63
Payments from related parties .................. -- 14,000 --
Acquisition of business, net of cash
acquired (Note 2)* .......................... -- -- (30,130)
-------- -------- --------
Net cash used for investing activities .... (24,492) (5,188) (56,270)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt ................... 4,200 -- --
Repayment of long-term debt .................... (5,455) (18,495) (21,144)
Net transaction with The General Chemical
Group Inc. .................................. (146) 6,906 17,509
-------- -------- --------
Net cash used for financing activities .... (1,401) (11,589) (3,635)
-------- -------- --------
Increase (decrease) in cash and cash
equivalents .................................... (1,130) 13,020 (4,501)
Cash and cash equivalents at beginning of period . 4,686 3,556 16,576
-------- -------- --------
Cash and cash equivalents at end of period ....... $ 3,556 $ 16,576 $ 12,075
======== ======== ========
* Purchase of business, net of cash acquired:
Working capital, other than cash ............... $ 3,110
Plant, property and equipment .................. (43,007)
Other assets ................................... (19,593)
Noncurrent liabilities ......................... 29,360
--------
Net cash used to acquire business ........... $(30,130)
========
</TABLE>
See the accompanying notes to the combined financial statements.
F-5
<PAGE> 124
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
COMBINED STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year .. $ (7,641) $ (7,651) $ 21,583
Net income .................... 136 22,328 34,051
Transfers (to) from The General
Chemical Group Inc. ......... (146) 6,906 17,509
-------- -------- --------
Balance at end of year ........ $ (7,651) $ 21,583 $ 73,143
======== ======== ========
</TABLE>
See the accompanying notes to the combined financial statements.
F-6
<PAGE> 125
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The GenTek Business (the "GenTek Business" or the "Company") within The
General Chemical Group Inc. ("GCG" or "General Chemical Group") is a diversified
manufacturing company predominantly engaged in the production of inorganic
chemicals and automotive engine parts, with manufacturing facilities located in
the United States and Canada. Through its Performance Products Segment, the
Company is a leading producer of sodium and ammonia salts, sulfites, nitrites,
aluminum-based chemical products, printing plates and refinery and chemical
regeneration services to a broad range of industrial and municipal customers.
The Performance Products Segment accounted for approximately 71 percent of the
Company's consolidated 1997 net revenues. Through its Manufacturing Segment, the
Company manufactures precision and highly engineered stamped and machined metal
products, principally automotive engine parts as well as fluid-handling
equipment, manual controls and trailer hitches for the automotive market, which
combined accounted for approximately 29 percent of the Company's consolidated
1997 net revenues.
GCG anticipates that its board of directors will approve a plan to
distribute to General Chemical Group Stockholders all of the outstanding stock
of its GenTek Business ("GenTek Inc." or "GenTek") in a spin-off transaction
(the "Distribution"). The Distribution, which is subject to the approval of the
Board of Directors and the receipt of a ruling from the Internal Revenue Service
that the Distribution is not taxable to General Chemical Group or its
stockholders, is expected to occur in the first quarter of 1999 and will result
in GenTek operating as an independent entity with publicly traded common stock.
General Chemical Group will have no ownership interest in GenTek subsequent to
the Distribution.
For the purpose of governing certain ongoing relationships between
General Chemical Group and GenTek after the Distribution and to provide
mechanisms for an orderly transition, General Chemical Group and GenTek have
entered or will enter into various agreements. Management believes that the
agreements will be fair to each of the parties and comparable to those which
would have been reached in arm's length negotiations with unaffiliated parties.
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 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.
The accompanying combined financial statements reflect the results of
operations, financial position, changes in divisional net equity and cash flows
of the GenTek Business that will be transferred from GCG to GenTek Inc. The
combined financial statements have been prepared using the historical basis of
assets and liabilities and the historical results of operations directly
attributable to the GenTek Business as if it were organized as a separate legal
entity. All intercompany balances and transactions
F-7
<PAGE> 126
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
between the GenTek Business operations have been eliminated. The financial
information included herein does not necessarily reflect the combined results of
operations, financial position, changes in divisional net equity and cash flows
of the GenTek Business in the future or on a historical basis had the GenTek
Business been a separate stand-alone entity for the periods presented.
The combined financial statements include an allocation of certain
assets, liabilities and general corporate expenses from GCG. In the opinion of
management, general corporate administrative expenses have been allocated to the
GenTek Business on a reasonable and consistent basis using management's estimate
of services provided to the GenTek Business by GCG. However, such allocations
are not necessarily indicative of the level of expenses which might have been
incurred had the GenTek Business been operating as a stand-alone entity during
the periods presented or expected to be incurred after the spin-off.
The GenTek Business participates in GCG's centralized cash management
and financing program, and the accompanying financial statements include an
allocation of net interest expense from GCG. To the extent the GenTek Business
has experienced temporary cash needs for working capital purposes, capital
expenditures or acquisitions, such funds have historically been provided by GCG.
The net effect of these transactions are reflected in divisional net equity. Net
interest expense has been allocated assuming that GCG's pro rata base borrowing
requirements would be $150 million and that all interest expense on debt levels
exceeding $150 million would be allocated to the GenTek Business. The
allocations were made consistently in each year, and management believes the
allocations are reasonable. However, these interest costs would not necessarily
be indicative of what the actual costs would have been had the GenTek Business
operated as a separate, stand-alone public entity. Subsequent to the
Distribution, the GenTek Business will be responsible for these cash management
functions using its own resources or purchased services and will be responsible
for the costs associated with operating a public company.
The GenTek Business' financial results include the costs incurred by
General Chemical Group's pension and postretirement benefit plans for employees
and retirees of the GenTek Business. Also, the provision for income taxes has
been determined as if the GenTek Business had filed separate tax returns under
its existing structure for the periods presented.
Inventories are valued at the lower of cost or market, using the
last-in, first-out ("LIFO") method for domestic production inventories and the
first-in, first-out ("FIFO") or average-cost method for all other inventories.
Production inventory costs include material, labor and factory overhead.
Property, plant and equipment are carried at cost and are depreciated
principally using the straight-line method, using estimated lives which range
from 3 to 35 years.
F-8
<PAGE> 127
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over a 25 year
period. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. At December 31, 1997 goodwill totaled $19,193, net of
accumulated amortization of $400, which is included in other assets on the
balance sheet.
The Company recognizes deferred tax assets and liabilities based on
differences between financial statement and tax bases of assets and liabilities
using presently enacted tax rates.
Accruals for environmental liabilities are recorded based on current
interpretations of environmental laws and regulations when it is probable that a
liability has been incurred and the amount of such a liability can be reasonably
estimated. Liabilities for environmental matters were $16,319 and $16,244 at
December 31, 1996 and 1997, respectively. These amounts do not include estimated
third-party recoveries nor have they been discounted.
The Company does not hold or issue derivative financial instruments for
trading purposes or any other purposes.
All highly liquid instruments purchased with a maturity of three months
or less are considered to be cash equivalents.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). The Company is required to
adopt FAS 131 for fiscal years beginning after December 15, 1997.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that all
derivative instruments be measured at fair value and recognized in the balance
sheet as either assets or liabilities. The Company is currently evaluating the
impact FAS 133 will have on its consolidated financial statements.
NOTE 2 - ACQUISITIONS
On July 1, 1997, GCG's wholly owned subsidiary, General Chemical
Corporation ("GCC"), on behalf of the GenTek Business, acquired all of the
outstanding stock of Peridot Holdings, Inc. ("Peridot"), a leading manufacturer
and supplier of sulfuric acid and water treatment chemicals. Funding for this
transaction was provided with existing cash and borrowings under GCC's revolving
credit facility. The acquisition was accounted for under the purchase method,
and, accordingly, the net assets and results of operations have been included in
the combined financial statements since the date of
F-9
<PAGE> 128
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
acquisition, based on preliminary valuation information available to GCC, which
is subject to change as such information is finalized. The excess of purchase
price over the estimated fair values of the net tangible assets acquired has
been treated as goodwill.
On February 6, 1998, the GenTek Business acquired all of the
outstanding stock of Sandco Automotive Ltd. ("Sandco"), a manufacturer of engine
parts for the North American automobile industry and its aftermarket. Sandco is
based in Waterdown, Ontario. Funding for this transaction was provided with new
borrowings. This acquisition will be accounted for using the purchase method.
On April 1, 1998, GCC, on behalf of the GenTek Business, acquired all
of the outstanding stock of Reheis Inc. ("Reheis"). Reheis is headquartered in
New Jersey and is the world's leading producer and supplier of the active
chemical ingredients in antiperspirants and over-the-counter antacids as well as
a supplier of pharmaceutical intermediates and other products. Funding for this
transaction was provided by existing cash and borrowings under GCG's credit
facility. The GenTek Business will be accounting for this transaction using the
purchase method.
NOTE 3 - INCOME TAXES
Income before income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
United States.. $30,886 $39,002 $59,599
Foreign ....... 3,086 2,767 1,221
------- ------- -------
Total $33,972 $41,769 $60,820
======= ======= =======
</TABLE>
F-10
<PAGE> 129
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
United States:
Current ... $ 26,419 $ 13,379 $ 25,177
Deferred .. 3,968 2,262 (3,120)
Foreign:
Current ... 1,173 1,117 589
Deferred .. (5) (65) (97)
State:
Current ... 1,427 2,262 4,890
Deferred .. 854 486 (670)
-------- -------- --------
Total . $ 33,836 $ 19,441 $ 26,769
======== ======== ========
</TABLE>
A summary of the components of deferred tax assets and liabilities is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Postretirement benefits ..... $17,777 $19,390
Nondeductible accruals ...... 27,671 35,888
------- -------
Deferred tax assets ...... 46,292 57,750
------- -------
Property, plant and equipment 16,998 28,788
Pensions .................... 2,082 1,860
Inventory ................... 3,724 3,754
Other ....................... 1,220 1,048
------- -------
Deferred tax liabilities . 24,024 35,450
------- -------
Net deferred tax asset $22,268 $22,300
======= =======
</TABLE>
F-11
<PAGE> 130
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The difference between the effective income tax rate and the United
States statutory rate is reconciled below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
U.S. federal statutory rate .............. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 4.4 4.3 4.5
Provision for disputed items ............. 59.5 6.7 4.1
Other .................................... 0.6 0.5 0.4
------ ------ ------
Total ................................. 99.5% 46.5% 44.0%
====== ====== ======
</TABLE>
The Internal Revenue Service (the "IRS") examinations of GCG's
federal income tax returns resulted in the issuance of a deficiency notice
during 1995. GCG has filed an administrative appeal with the IRS contesting the
items denoted in the deficiency notice. Notwithstanding such appeal, in 1995 GCG
recorded a provision for disputed items of $17,100 for all years prior to 1995
in connection with the deficiency notice which has been allocated to the GenTek
Business. Management believes the amounts provided at December 31, 1997 are
adequate.
The Company will enter into a tax sharing agreement with General
Chemical Group. The agreement will require the Company to indemnify and hold
harmless General Chemical Group for income tax liabilities occurring before the
Distribution.
NOTE 4 - PENSION PLANS
The GenTek Business participates in General Chemical Group's domestic
and foreign pension plans. At the Distribution, the GenTek Business will assume
the responsibility for pension benefits for retirees whose last work assignment
was with the GenTek Business and for employees of the GenTek Business. Following
the Distribution, the GenTek Business will establish separate defined benefit
plans for the employees and retirees of the GenTek Business. Assets included in
trusts under qualified pension plans will be divided after the Distribution
between the trusts for General Chemical Group's qualified pension plans and the
GenTek Business qualified pension plans.
F-12
<PAGE> 131
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The net periodic pension cost for General Chemical Group's U.S. pension
plans included the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 3,826 $ 4,748 $ 5,217
Interest cost on projected benefit obligation 12,377 13,125 13,874
Actual return on assets ...................... (24,938) (24,655) (29,520)
Net amortization and deferral ................ 14,775 13,335 16,943
-------- -------- --------
Net periodic pension cost ................. $ 6,040 $ 6,553 $ 6,514
======== ======== ========
</TABLE>
The net periodic pension cost for General Chemical Group's Canadian pension
plans included the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 1,140 $ 1,494 $ 1,352
Interest cost on projected benefit obligation 3,527 3,727 3,868
Actual return on assets ...................... (6,614) (4,662) (4,877)
Net amortization and deferral ................ 2,457 559 522
------- ------- -------
Net periodic pension cost ................. $ 510 $ 1,118 $ 865
======= ======= =======
</TABLE>
The GenTek Business' share of General Chemical Group's consolidated net
pension cost, which has been recorded in the accompanying statements of
operations in 1997, 1996 and 1995 was $3,237, $3,284 and $3,427, respectively.
F-13
<PAGE> 132
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The funded status and (accrued) prepaid pension cost for General
Chemical Group's pension plans are as follows:
<TABLE>
<CAPTION>
UNITED STATES CANADA
----------------------- -----------------------
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested ................................. $(144,887) $(156,419) $ (40,421) $ (42,820)
Nonvested .............................. (13,235) (14,255) (205) (216)
--------- --------- --------- ---------
Accumulated benefit obligation ............ $(158,122) $(170,674) $ (40,626) $ (43,036)
========= ========= ========= =========
Plan assets at fair value ................. $ 166,661 $ 193,301 $ 60,224 $ 65,019
Projected benefit obligation .............. (187,760) (202,796) (50,783) (53,796)
--------- --------- --------- ---------
Projected benefit obligation (in excess of)
less than plan assets .................. (21,099) (9,495) 9,441 11,223
Unrecognized prior service cost ........... 6,896 6,128 942 809
Unrecognized net (gain) loss .............. (8,712) (23,532) 8,761 6,196
--------- --------- --------- ---------
(Accrued) prepaid pension cost ............ $ (22,915) $ (26,899) $ 19,144 $ 18,228
========= ========= ========= =========
</TABLE>
The assumptions used in accounting for the plans in 1995, 1996 and
1997 were:
<TABLE>
<CAPTION>
UNITED STATES CANADA
---------------------------- --------------------------
1995 1996 1997 1995 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Estimated discount rate .................... 7 1/2% 7 1/2% 7 1/2% 8% 8% 7 1/2%
Estimated long-term rate of return on assets 9% 9% 9% 9% 9% 9%
Average rate of increase in employee
compensation ............................ 5% 5% 5% 5 1/4% 5 1/4% 5 1/4%
</TABLE>
The dates used to measure plan assets and liabilities were October
31, 1996 and 1997 for all plans. Plan assets are invested primarily in stocks,
bonds, short-term securities and cash equivalents.
The GenTek Business' share of the accrued pension obligation, which
has been recorded in the accompanying balance sheet at December 31, 1997 and
December 31, 1996 was $16,515 and $14,715, respectively. The actual amount
transferred will be measured at the Distribution date and may be different from
these amounts.
F-14
<PAGE> 133
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The GenTek Business participates in General Chemical Group's
sponsored postretirement benefit plan substantially covering all hourly and the
majority of salaried employees of General Chemical Group. General Chemical Group
funds these benefits on a pay-as-you-go basis. At the Distribution, the GenTek
Business will assume the responsibility for postretirement benefits for retirees
whose last work assignment was with the GenTek Business and for the employees of
the GenTek Business.
The net periodic postretirement benefit cost for all General Chemical
Group employees included the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the year) ............. $ 1,576 $ 1,765 $ 1,876
Interest cost on projected postretirement benefit obligation 4,862 4,451 4,906
Net amortization and deferral .............................. (2,052) (2,361) (2,191)
------- ------- -------
Net periodic postretirement benefit cost ........... $ 4,386 $ 3,855 $ 4,591
======= ======= =======
</TABLE>
The GenTek Business' share of General Chemical Group's consolidated
net postretirement benefit cost, which has been recorded in the accompanying
statements of operations in 1997, 1996 and 1995 was $2,506, $2,182 and $2,537,
respectively.
F-15
<PAGE> 134
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The funded status and accrued postretirement benefit obligation of
General Chemical Group are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ................................................... $(39,797) $(44,220)
Fully eligible plan participants ........................... (12,095) (11,158)
Other active plan participants ............................. (17,001) (15,712)
-------- --------
Accumulated postretirement benefit obligation ................. (68,893) (71,090)
Plan assets at fair value ..................................... -- --
-------- --------
Accumulated postretirement benefit obligation in excess of plan
assets ..................................................... (68,893) (71,090)
Unrecognized net reduction in prior service costs ............. (12,708) (11,104)
Unrecognized net gain ......................................... (6,293) (7,038)
-------- --------
Accrued postretirement benefit obligation ..................... $(87,894) $(89,232)
======== ========
</TABLE>
The assumptions used in accounting for the plans in 1996 were an 11
percent health care cost trend rate (decreasing to 7 1/2 percent in the year
2000 and beyond) and a 7 1/2 percent discount rate for the U.S. plans and an 11
percent health care cost trend rate (decreasing to 7 percent in the year 2000
and beyond), an 8 percent discount rate and a 5 1/4 percent salary scale for the
Canadian plans.
The assumptions used in accounting for the plans in 1997 were a 10
percent health care cost trend rate (decreasing to 7 1/2 percent in the year
2000 and beyond) and a 7 1/2 percent discount rate for the U.S. plans and a 10
percent health care cost trend rate (decreasing to 7 percent in the year 2000
and beyond), a 7 1/2 percent discount and a 5 1/4 percent salary scale for the
Canadian plans. A one percent increase in the health care trend rate would
increase the accumulated postretirement benefit obligation by $6,144 at year end
1997 and the net periodic cost by $572 for the year.
The GenTek Business' share of the accrued postretirement benefit
obligation as of December 31, 1997 and December 31, 1996 was $49,491 and
$46,298, respectively. The long term portion of the accrued postretirement
benefit obligation as of December 31, 1997 and 1996 was $47,991 and $44,798,
respectively, and is included in other liabilities on the balance sheet. The
actual amount transferred will be measured at the Distribution date and may be
different from these amounts.
F-16
<PAGE> 135
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Future minimum rental payments for operating leases (primarily for
transportation equipment, offices and warehouses) having initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C>
1998................................................. $ 3,514
1999................................................. 1,215
2000................................................. 792
2001................................................. 425
2002................................................. 267
----------
$ 6,213
==========
</TABLE>
Rental expense for the years ended December 31, 1995, 1996 and 1997
was $3,589, $4,239 and $4,621, respectively.
The Company is involved in claims, litigation, administrative
proceedings and investigations and remediation relative to environmental
matters. Although the amount of any ultimate liability which could arise with
respect to these matters cannot be accurately predicted, it is the opinion of
management, based upon currently available information and the accruals
established, that any such liability will have no material adverse effect on the
Company's financial condition, results of operations or cash flows.
NOTE 7 - RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
GCG is party to a management agreement with Latona Associates (which
is controlled by a stockholder of GCG) under which GCG receives corporate
supervisory and administrative services and strategic guidance for a quarterly
fee. The GenTek Business' share of this management fee is $1,012, $1,022 and
$1,099 per quarter for the years 1995, 1996 and 1997, respectively.
F-17
<PAGE> 136
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8 - ADDITIONAL FINANCIAL INFORMATION
The following are summaries of selected balance sheet items:
Receivables
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
-------- --------
<S> <C> <C>
Trade ......................... $ 42,064 $ 50,932
Other ......................... 1,248 1,626
Allowance for doubtful accounts (2,630) (2,755)
-------- --------
$ 40,682 $ 49,803
======== ========
</TABLE>
Inventories
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
------- -------
<S> <C> <C>
Raw materials ................. $ 8,249 $ 8,093
Work in process ............... 2,593 3,090
Finished products ............. 8,298 9,999
Supplies and containers ....... 2,041 4,146
------- -------
$21,181 $25,328
======= =======
</TABLE>
F-18
<PAGE> 137
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Inventories valued at LIFO amounted to $15,892 and $16,071 at December
31, 1996 and 1997, respectively, which were below estimated replacement cost by
$1,249 and $1,344, respectively. The impact of LIFO liquidations in 1995, 1996
and 1997 was not significant.
Property, Plant and Equipment
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
--------- ---------
<S> <C> <C>
Land and improvements ........................ $ 10,933 $ 20,876
Machinery and equipment ...................... 140,086 194,992
Buildings and leasehold improvements ......... 26,388 31,637
Construction in progress ..................... 10,581 10,111
--------- ---------
187,988 257,616
Less accumulated depreciation and amortization (80,654) (97,462)
--------- ---------
$ 107,334 $ 160,154
========= =========
</TABLE>
Accrued Liabilities
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997
-------- ----------
<S> <C> <C>
Wages, salaries and benefits ................. $ 13,038 $ 17,820
Taxes, other than income taxes ............... 2,743 2,867
Other ........................................ 21,729 22,772
-------- ---------
$ 37,510 $ 43,459
======== =========
</TABLE>
NOTE 9 - FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, receivables and payables
approximate their carrying values due to the short-term nature of the
instruments.
F-19
<PAGE> 138
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10 - GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION
Geographic area information is summarized as follows:
<TABLE>
<CAPTION>
UNITED STATES (1) FOREIGN (2) ELIMINATIONS (3) TOTAL
----------------- ----------- ---------------- -----
<S> <C> <C> <C> <C>
Net revenues:
1995 ............................ $279,682 $ 16,707 $ (6,204) $290,185
1996 ............................ 318,946 17,228 (6,054) 330,120
1997 ............................ 358,774 15,710 (5,968) 368,516
Operating profit:
1995 ............................ $ 43,086 $ 1,615 $ -- $ 44,701
1996 ............................ 48,621 2,671 -- 51,292
1997 ............................ 67,627 1,184 -- 68,811
Identifiable assets at December 31:
1995 ............................ $200,674 $ 5,745 $ -- $206,419
1996 ............................ 204,975 6,508 -- 211,483
1997 ............................ 288,422 5,387 -- 293,809
</TABLE>
(1) Includes export sales amounting to $5,849, $5,055 and $7,575 for the years
ended December 31, 1995, 1996 and 1997, respectively.
(2) Principally of General Chemical Canada Holding Inc., a wholly owned
subsidiary of GCC.
(3) Sales between geographic areas are recorded at prices comparable to market
prices charged to third-party customers and are eliminated in
consolidation.
F-20
<PAGE> 139
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONCLUDED)
(DOLLARS IN THOUSANDS)
Industry segment information is summarized as follows:
<TABLE>
<CAPTION>
PERFORMANCE
PRODUCTS MANUFACTURING CORPORATE TOTAL
----------- ------------- --------- -----
<S> <C> <C> <C> <C>
Net revenues:
1995 .......................... $220,240 $ 69,945 $ -- $290,185
1996 .......................... 240,895 89,225 -- 330,120
1997 .......................... 260,351 108,165 -- 368,516
Operating profit:
1995 .......................... $ 41,753 $ 4,337 $ (1,389) $ 44,701
1996 .......................... 43,203 12,472 (4,383) 51,292
1997 .......................... 48,292 23,531 (3,012) 68,811
Identifiable assets at December 31:
1995 .......................... $153,785 $ 50,171 $ 2,463 $206,419
1996 .......................... 153,464 55,151 2,868 211,483
1997 .......................... 235,230 56,586 1,993 293,809
Capital expenditures:
1995 .......................... $ 19,848 $ 4,994 $ -- $ 24,842
1996 .......................... 17,612 1,619 -- 19,231
1997 .......................... 23,563 2,640 -- 26,203
Depreciation and amortization:
1995 .......................... $ 11,055 $ 2,020 $ 50 $ 13,125
1996 .......................... 11,332 2,767 -- 14,099
1997 .......................... 13,688 2,608 -- 16,296
</TABLE>
F-21
<PAGE> 140
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1998
--------- ---------
<S> <C> <C>
Net revenues ................................................ $ 271,669 $ 331,452
Cost of sales ............................................... 184,401 234,935
Selling, general and administrative expense ................. 34,496 39,649
--------- ---------
Operating profit ............................................ 52,772 56,868
Interest expense ............................................ 6,575 10,186
Interest income ............................................. 1,136 678
Foreign currency transaction losses ......................... 340 397
Other (income) expense, net ................................. (86) 10
--------- ---------
Income before income taxes and extraordinary item ........... 47,079 46,953
Income tax provision ........................................ 20,936 19,280
--------- ---------
Income before extraordinary item ............................ 26,143 27,673
Extraordinary item - loss from extinguishment of debt (net of
tax benefit of $1,341) ................................... -- 2,050
--------- ---------
Net income .................................................. $ 26,143 $ 25,623
========= =========
</TABLE>
See the accompanying notes to consolidated financial statements.
F-22
<PAGE> 141
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................. $ 12,075 $ 5,326
Receivables, net .......................................... 49,803 66,383
Inventories ............................................... 25,328 38,083
Deferred income taxes ..................................... 9,850 6,792
Other current assets ...................................... 153 2,486
-------- --------
Total current assets ............................ 97,209 119,070
Property, plant and equipment, net ............................. 160,154 202,568
Other assets ................................................... 36,446 85,021
-------- --------
Total assets .................................... $293,809 $406,659
======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable .......................................... $ 32,116 $ 35,365
Accrued liabilities ....................................... 43,459 45,873
Income taxes payable ...................................... 2,662 2,800
-------- --------
Total current liabilities ....................... 78,237 84,038
Long-term debt ................................................. -- 6,544
Other liabilities .............................................. 142,429 143,322
-------- --------
Total liabilities ............................... 220,666 233,904
Divisional equity .............................................. 73,143 172,755
-------- --------
Total liabilities and equity .................... $293,809 $406,659
======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-23
<PAGE> 142
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 26,143 $ 25,623
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .......................... 11,756 17,540
Net loss on disposition of long-term assets ............ 164 113
(Increase) in receivables .............................. (3,991) (4,547)
(Increase) decrease in inventories ..................... 965 (3,060)
Increase (decrease) in accounts payable ................ 470 (1,209)
(Decrease) in accrued liabilities ...................... (1,943) (2,576)
Increase in income taxes payable ....................... 1,215 138
Increase (decrease) in other liabilities and assets, net 1,977 (5,884)
--------- ---------
Net cash provided by operating activities .............. 36,756 26,138
--------- ---------
Cash flows from investing activities:
Capital expenditures ..................................... (17,397) (22,185)
Proceeds from sales or disposals of long-term assets .......... 3 256
Acquisition of businesses, net of cash acquired (Note 3)* (30,130) (90,935)
--------- ---------
Net cash used for investing activities ................. (47,524) (112,864)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt ............................. -- 5,964
Repayment of long-term debt .............................. (4,207) --
Transfers (to) from The General Chemical Group, Inc. ..... 6,834 74,013
--------- ---------
Net cash used for financing activities ................. 2,627 79,977
--------- ---------
(Decrease) in cash and cash equivalents ....................... (8,141) (6,749)
Cash and cash equivalents at beginning of period .............. 16,576 12,075
--------- ---------
Cash and cash equivalents at end of period .................... $ 8,435 $ 5,326
========= =========
*Purchase of business, net of cash acquired:
Working Capital, other than cash ....................... $ 3,110 $ (14,303)
Plant, property and equipment .......................... (43,007) (36,436)
Other assets ........................................... (19,593) (41,622)
Noncurrent liabilities ................................. 29,360 1,426
--------- ---------
Net cash used to acquire business ...................... $ (30,130) $ (90,935)
========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-24
<PAGE> 143
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The GenTek Business (the "Company" or the "GenTek Business") within
General Chemical Group Inc. ("GCG" or "General Chemical Group") is a diversified
manufacturing company predominantly engaged in the production of inorganic
chemicals and automotive engine parts, with manufacturing facilities located in
the United States and Canada. Through its Performance Products Performance
products segment, the Company is a leading producer of sodium and ammonia salts,
sulfites, nitrites, aluminum-based chemical products, printing plates and
refinery and chemical regeneration services to a broad range of industrial and
municipal customers. Through its Manufacturing Segment, the Company manufactures
precision and highly engineered stamped and machined metal products, principally
automotive engine parts as well as fluid-handling equipment, manual controls and
trailer hitches for the automotive market. The accompanying unaudited combined
financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial statements
do not include certain information and footnotes required by generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. These combined financial statements should be
read in conjunction with the GenTek Business' financial statements and the notes
thereto for the year ended December 31, 1997 included elsewhere in this
prospectus.
GCG anticipates that its board of directors will approve a plan to
distribute to General Chemical Group Stockholders all of the outstanding stock
of its GenTek Business ("GenTek Inc." or "GenTek") in a spin-off transaction
(the "Distribution"). The Distribution, which is subject to the approval of the
Board of Directors and the receipt of a ruling from the Internal Revenue Service
that the Distribution is not taxable to General Chemical Group or its
stockholders, is expected to occur in the first quarter of 1999 and will result
in GenTek operating as an independent entity with publicly traded common stock.
General Chemical Group will have no ownership interest in GenTek subsequent to
the Distribution.
For the purpose of governing certain ongoing relationships between
General Chemical Group and GenTek after the Distribution and to provide
mechanisms for an orderly transition, General Chemical Group and GenTek have
entered or will enter into various agreements. Management believes that the
agreements will be fair to each of the parties and comparable to those which
would have been reached in arm's length negotiations with unaffiliated parties.
F-25
<PAGE> 144
The accompanying combined financial statements reflect the results of
operations, financial position, changes in divisional net equity and cash flows
of the GenTek Business that will be transferred from GCG to GenTek, Inc. The
combined financial statements have been prepared using the historical basis of
assets and liabilities and the historical results of operations directly
attributable to the GenTek Business as if it were organized as a separate legal
entity. All intercompany balances and transactions between the GenTek Business'
operations have been eliminated. The financial information included herein does
not necessarily reflect the combined results of operations, financial position,
changes in divisional net equity and cash flows of the GenTek Business in the
future or on a historical basis had the GenTek Business been a separate
stand-alone entity for the periods presented.
The combined financial statements include an allocation of certain
assets, liabilities and general corporate expenses from GCG. In the opinion of
management, general corporate administrative expenses have been allocated to the
GenTek Business on a reasonable and consistent basis using management's estimate
of services provided to the GenTek Business by GCG. However, such allocations
are not necessarily indicative of the level of expenses which might have been
incurred had the GenTek Business been operating as a stand-alone entity during
the periods presented or which expect to be incurred after the spinoff.
The GenTek Business participates in GCG's centralized cash management
and financing program, and the accompanying financial statements include an
allocation of net interest expense from GCG. To the extent the GenTek Business
has experienced temporary cash needs for working capital purposes or capital
expenditures, such funds have historically been provided by GCG. The net effect
of these transactions is reflected in divisional net equity. Net interest
expense has been allocated assuming that GCG's pro rata base borrowing
requirements would be $150 million and that all interest expense on debt levels
exceeding $150 million would be allocated to the GenTek Business. The
allocations were made consistently in each year, and management believes the
allocations are reasonable. However, these interest costs would not necessarily
be indicative of what the actual costs would have been had the GenTek Business
operated as a separate, stand-alone public entity. Subsequent to the
Distribution, the GenTek Business will be responsible for these cash management
functions using its own resources or purchased services and will be responsible
for the costs associated with operating a public company.
The GenTek Business' financial results include the costs incurred by
the GenTek Business' pension and postretirement benefit plans for employees and
retirees of the GenTek Business. Also, the provision for income taxes has been
determined as if the GenTek Business had filed separate tax returns under its
existing structure for the periods presented.
F-26
<PAGE> 145
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 2 - RELATED PARTY TRANSACTIONS
Management Agreement
GCG is party to a management agreement with Latona Associates (which
is controlled by a stockholder of GCG) under which GCG receives corporate
supervisory and administrative services and strategic guidance for a quarterly
fee. The GenTek Business' share of this management fee was $3,297 and $3,369 for
the nine months ended September 30, 1997 and 1998, respectively.
NOTE 3 - ACQUISITIONS
On July 1, 1997, General Chemical Group's wholly owned subsidiary
General Chemical Corporation ("GCC") on behalf of the GenTek Business, acquired
all of the outstanding stock of Peridot Holdings, Inc. ("Peridot"), a leading
manufacturer and supplier of sulfuric acid and water treatment chemicals.
Funding for this transaction was provided with existing cash and borrowings
under GCC's revolving credit facility. The acquisition was accounted for under
the purchase method, and, accordingly, the net assets and results of operations
have been included in the combined financial statements since the date of
acquisition, based on preliminary valuation information available to GCC, which
is subject to change as such information is finalized. The excess of purchase
price over the estimated fair values of the net tangible assets acquired has
been treated as goodwill.
On February 6, 1998, the GenTek Business acquired all of the
outstanding stock of Sandco Automotive Ltd. ("Sandco"), a manufacturer of engine
parts for the North American automobile industry and its aftermarket. Sandco is
based in Waterdown, Ontario. Funding for this transaction was provided with new
borrowings. This acquisition is being accounted for using the purchase method.
On April 1, 1998, GCC acquired all of the outstanding stock of Reheis
Inc. ("Reheis"). Reheis is headquartered in New Jersey and is the world's
leading producer and supplier of the active chemical ingredients in
antiperspirants and over-the-counter antacids as well as a supplier of
pharmaceutical intermediates and other products. The GenTek Business is
accounting for this transaction using the purchase method.
The acquisitions are being accounted for under the purchase method,
and accordingly, the net assets and results of operations are included in the
consolidated financial statements from the date of acquisition, based on
valuation information available to the Company, which is subject to change as
such information is finalized. The excess of purchase price over the estimated
fair values of the tangible assets acquired is being treated as goodwill.
Goodwill is being amortized on a straight line basis over
F-27
<PAGE> 146
GENTEK BUSINESS
OF THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS - (CONCLUDED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
periods ranging from 25 to 35 years. The acquisitions did not have a material
pro forma impact on consolidated earnings.
NOTE 4 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------- -------
(UNAUDITED)
<S> <C> <C>
Raw materials ......... $ 8,093 $11,131
Work in process ....... 3,090 7,625
Finished products ..... 9,999 15,138
Supplies and containers 4,146 4,189
------- -------
$25,328 $38,083
======= =======
</TABLE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in claims, litigation, administrative
proceedings and investigations and remediation relative to environmental
matters. Although the amount of any ultimate liability which could arise with
respect to these matters cannot be accurately predicted, it is the opinion of
management, based upon currently available information and the accruals
established, that any such liability will have no material adverse effect on the
Company's financial condition, results of operations or cash flows.
F-28
<PAGE> 147
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
THE GENERAL CHEMICAL GROUP INC.:
We have audited the accompanying consolidated balance sheets of The
General Chemical Group Inc. and subsidiaries as of December 31, 1996 and 1997,
and the related consolidated statements of operations, changes in equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of The General Chemical Group
Inc. and subsidiaries at December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 13, 1998
(January 19, 1999 as to the second to last paragraph of Note 9)
F-29
<PAGE> 148
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues .............................. $ 550,871 $ 623,659 $652,977
Cost of sales ............................. 387,255 422,633 451,442
Selling, general and administrative expense 56,619 71,810 64,443
--------- --------- --------
Operating profit .......................... 106,997 129,216 137,092
Interest expense .......................... 26,704 23,748 21,602
Interest income ........................... 2,937 2,433 2,504
Foreign currency transaction (gains) losses (1,382) (169) 627
Other expense, net ........................ 735 704 454
--------- --------- --------
Income before minority interest and income
taxes .................................. 83,877 107,366 116,913
Minority interest ......................... 19,458 31,635 24,253
--------- --------- --------
Income before income taxes ................ 64,419 75,731 92,660
Income tax provision ...................... 43,326 29,123 36,345
--------- --------- --------
Net income ....................... $ 21,093 $ 46,608 $ 56,315
========= ========= ========
Earnings per common share:
Basic ............................ $ 1.07 $ 2.19 $ 2.63
========= ========= ========
Diluted .......................... $ 1.07 $ 2.13 $ 2.50
========= ========= ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-30
<PAGE> 149
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................ $ 51,700 $ 21,753
Receivables, net ..................................................... 102,478 122,720
Inventories .......................................................... 41,429 45,958
Deferred income taxes ................................................ 11,264 14,145
Other current assets ................................................. 2,153 2,370
--------- ---------
Total current assets ........................................ 209,024 206,946
Property, plant and equipment, net ............................................ 239,819 304,189
Other assets .................................................................. 36,294 50,502
--------- ---------
Total assets ................................................ $ 485,137 $ 561,637
========= =========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable ..................................................... $ 53,772 $ 61,332
Accrued liabilities .................................................. 74,205 73,258
Income taxes payable ................................................. 5,500 4,576
Current portion of long-term debt .................................... 17,392 17,392
--------- ---------
Total current liabilities ................................... 150,869 156,558
Long-term debt ................................................................ 217,217 240,612
Other liabilities ............................................................. 198,232 215,405
--------- ---------
Total liabilities ........................................... 566,318 612,575
--------- ---------
Minority interest ............................................................. 38,572 43,301
--------- ---------
Equity (deficit):
Preferred Stock, $.01 par value; authorized 10,000,000
shares; none issued or outstanding ................................ -- --
Common Stock, $.01 par value; authorized 100,000,000
shares; issued: 8,009,601 and 12,558,697 shares at
December 31, 1996 and December 31, 1997, respectively ............. 80 126
Class B Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding:
14,261,467 shares and 9,758,421 at December 31, 1996
and December 31, 1997, respectively .............................. 143 97
Capital deficit ...................................................... (185,215) (183,814)
Foreign currency translation adjustments ............................. (1,435) (2,197)
Retained earnings .................................................... 66,797 118,855
Treasury stock, at cost: 6,325 and 1,362,898 shares
at December 31, 1996 and December 31, 1997, respectively........... (123) (27,306)
--------- ---------
Total equity (deficit) ...................................... (119,753) (94,239)
--------- ---------
Total liabilities and equity (deficit) ...................... $ 485,137 $ 561,637
========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-31
<PAGE> 150
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 21,093 $ 46,608 $ 56,315
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................... 28,258 29,745 33,094
Net loss on disposition of long-term assets ....... 950 1,170 1,127
Unrealized exchange (gain) loss ................... (1,586) 31 1,405
Restricted unit plan costs ........................ -- 11,319 1,302
(Increase) in receivables ......................... (2,631) (12,126) (16,920)
(Increase) decrease in inventories ................ (5,406) 525 (2,537)
Increase in accounts payable ...................... 315 2,814 5,575
Increase (decrease) in accrued liabilities ........ 4,379 (9,970) (6,890)
Increase (decrease) in income taxes payable ....... (2,866) 1,279 (954)
Increase in other liabilities and assets, net ..... 13,279 9,125 10,468
Increase in minority interest ..................... 686 10,294 4,729
-------- -------- --------
Net cash provided by operating activities ..... 56,471 90,814 86,714
-------- -------- --------
Cash flows from investing activities:
Capital expenditures .................................. (34,093) (54,165) (56,671)
Proceeds from sales or disposals of long-term assets .. 577 73 70
Payments from related parties ......................... -- 14,000 --
Acquisition of business, net of cash acquired (Note 5)* -- -- (30,130)
-------- -------- --------
Net cash used for investing activities ........ (33,516) (40,092) (86,731)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from initial public offering ............. -- 40,600 --
Proceeds from long-term debt .......................... 6,200 20,000 49,000
Repayment of long-term debt ........................... (19,455) (76,886) (45,536)
Payments to acquire treasury stock .................... -- (123) (27,183)
Dividends ............................................. (19,650) (1,668) (5,368)
-------- -------- --------
Net cash used for financing activities ........ (32,905) (18,077) (29,087)
-------- -------- --------
Effect of exchange rate changes on cash ................... 274 30 (843)
-------- -------- --------
Increase (decrease) in cash and cash equivalents .......... (9,676) 32,675 (29,947)
Cash and cash equivalents at beginning of period .......... 28,701 19,025 51,700
-------- -------- --------
Cash and cash equivalents at end of period ................ $ 19,025 $ 51,700 $ 21,753
======== ======== ========
Supplemental information:
Cash paid for income taxes ............................ $ 23,827 $ 23,051 $ 35,179
======== ======== ========
Cash paid for interest ................................ $ 25,543 $ 22,809 $ 20,923
======== ======== ========
* Purchase of business, net of cash acquired:
Working Capital, other than cash ...................... $ 3,110
Plant, property and equipment ......................... (43,007)
Other assets .......................................... (19,593)
Noncurrent liabilities ................................ 29,360
--------
Net cash used to acquire business ............. $(30,130)
========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-32
<PAGE> 151
\ THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FOREIGN
CLASS B CURRENCY
COMMON COMMON TREASURY CAPITAL TRANSLATION RETAINED
STOCK STOCK STOCK DEFICIT ADJUSTMENTS EARNINGS TOTAL
-------- -------- -------- --------- ----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 .............. $ 197 $ -- $ -- $(237,140) $(1,414) $ 21,526 $(216,831)
Net income ............................ 21,093 21,093
Dividends (Per Share $1.00) ........... (19,650) (19,650)
Foreign currency translation .......... 52 52
-------- -------- -------- --------- ------- -------- ---------
Balance at December 31, 1995 .............. 197 -- -- (237,140) (1,362) 22,969 (215,336)
Net income ............................ 46,608 46,608
Dividends (Per Share $.125) ........... (2,780) (2,780)
Proceeds from initial public offering . 25 40,575 40,600
Conversion of Common Stock to Class
B Common Stock ...................... (197) 197 --
Conversion of Class B Common Stock
to Common Stock .................... 54 (54) --
Restricted Unit Plan grants, .......... 1 11,350 11,351
cancellations, tax benefits and other
Purchase of Treasury stock ............ (123) (123)
Foreign currency translation .......... (73) (73)
-------- -------- -------- --------- ------- -------- ---------
Balance at December 31, 1996 .............. 80 143 (123) (185,215) (1,435) 66,797 (119,753)
Net income ............................ 56,315 56,315
Dividends (Per Share $.20) ............ (4,257) (4,257)
Conversion of Class B Common Stock
to Common Stock ..................... 46 (46) --
Restricted Unit Plan grants,
cancellations, tax benefits and other 1,401 1,401
Purchase of Treasury stock ............ (27,183) (27,183)
Foreign currency translation .......... (762) (762)
-------- -------- -------- --------- ------- -------- ---------
Balance at December 31, 1997 .............. $ 126 $ 97 $(27,306) $(183,814) $(2,197) $118,855 $ (94,239)
======== ======== ======== ========= ======= ======== =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-33
<PAGE> 152
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
General Chemical Group Inc. (the "Company"), formerly known as NHO,
Inc., is a Delaware corporation formed in 1988. The Company is a diversified
manufacturing company predominantly engaged in the production of inorganic
chemicals, with manufacturing facilities located in the United States and
Canada. Through its Performance products segment, the Company is a leading
producer of soda ash in North America, and a major North American supplier of
calcium chloride, sodium and ammonia salts, sulfites, nitrites, aluminum-based
chemical products, printing plates and refinery and chemical regeneration
services to a broad range of industrial and municipal customers. The Performance
products segment accounted for approximately 83 percent of the Company's
consolidated 1997 net revenues. Through its Manufacturing Segment, the Company
manufactures precision and highly engineered stamped and machined metal
products, principally automotive engine parts as well as fluid-handling
equipment, manual controls and trailer hitches for the automotive market, which
combined accounted for approximately 17 percent of the Company's consolidated
1997 net revenues.
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 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.
The consolidated financial statements include the accounts of the
Company and of all wholly owned and majority-owned subsidiaries and General
Chemical (Soda Ash) Partners ("GCSAP"), of which the Company indirectly owns 51
percent. Minority interests relate solely to partnerships, primarily GCSAP, in
which the Company has a controlling interest. Intercompany balances and
transactions are eliminated in consolidation.
Inventories are valued at the lower of cost or market, using the
last-in, first-out ("LIFO") method for domestic production inventories and the
first-in, first-out ("FIFO") or average-cost method for all other inventories.
Production inventory costs include material, labor and factory overhead.
Property, plant and equipment are carried at cost. Mines and machinery
and equipment of GCSAP are depreciated using the units-of-production method. All
other plant and equipment are depreciated principally using the straight-line
method, using estimated lives which range from 3 to 35 years.
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over a 25 year
period. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation.
F-34
<PAGE> 153
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company recognizes deferred tax assets and liabilities based on
differences between financial statement and tax bases of assets and liabilities
using presently enacted tax rates.
Accruals for environmental liabilities are recorded based on current
interpretations of environmental laws and regulations when it is probable that a
liability has been incurred and the amount of such a liability can be reasonably
estimated. Liabilities for environmental matters were $16,319 and $16,244 at
December 31, 1996 and 1997, respectively. These amounts do not include estimated
third-party recoveries nor have they been discounted.
The Company provides for the expected costs to be incurred for the
eventual reclamation of mining properties pursuant to local law. Land
reclamation costs are being accrued for over the estimated remaining life of the
reserves currently under lease.
The Company does not hold or issue financial instruments for trading
purposes. Amounts to be paid or received under interest swap agreements are
recognized as increases or reductions in interest expense in the periods in
which they accrue.
The financial statements of the foreign subsidiaries of the Company
have been translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52.
All highly liquid instruments purchased with a maturity of three months
or less are considered to be cash equivalents.
The capital deficit at December 31, 1994 of $237,140 arose as a result
of dividends and distributions exceeding accumulated earnings and capital
contributions.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"), which
the Company adopted for both interim and annual reports ending after December
15, 1997. FAS 128 requires the Company to present Basic Earnings Per Share,
which exclude dilution and Diluted Earnings Per Share which include potential
dilution. The adoption of FAS 128 did not have a material effect on the
Company's earnings per share calculations.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("FAS 131"). The
Company is required to adopt FAS 130 and FAS 131 for fiscal years beginning
after December 15, 1997. The Company is currently evaluating the impact of FAS
131 on its segments.
Certain prior-period amounts have been reclassified to conform with the
current presentation.
F-35
<PAGE> 154
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 - INITIAL PUBLIC OFFERING
On May 15, 1996, the Company and a then principal stockholder (the
"Selling Stockholder") completed an initial public offering (the "Offering") of
7,925,375 shares of Common Stock at $17.50 per share. Of the shares offered,
2,500,000 were issued and sold by the Company. The net proceeds to the Company
from the Offering, after deducting underwriter's discount and related fees and
expenses, were $40,600. The Company did not receive any of the proceeds from the
sale of such shares by the Selling Stockholder.
NOTE 3 - CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares
of Common Stock, par value $.01 per share, of which 8,009,601 and 12,558,697
were outstanding at December 31, 1996 and 1997, respectively, and 40,000,000
shares of Class B Common Stock, par value $.01 per share, which has ten votes
per share, is subject to significant restrictions on transfer and is convertible
at any time into Common Stock on a share-for-share basis, of which 14,261,467
and 9,758,421 shares were outstanding at December 31, 1996 and 1997,
respectively. The Common Stock and Class B Common Stock are substantially
identical, except for the disparity in voting power, restriction on transfer and
conversion provisions.
The Company's Preferred Stock, par value $.01 per share consists of
10,000,000 authorized shares, none of which was outstanding at December 31, 1996
and 1997.
During the second quarter of 1997, a former stockholder converted all
4.4 million shares of its Class B Common Stock, into an identical number of
shares of Common Stock. On April 23, 1997, the Company purchased approximately,
1.3 million shares of Common Stock from the former stockholder, at a price of
$20 per share. The purchase was funded from the Company's cash and cash
equivalent balance and has been recorded as treasury stock.
NOTE 4 - EARNINGS PER SHARE
The computation of basic earnings per share is based on the weighted
average number of common shares and contingently issuable shares outstanding
during the period. The computation of diluted earnings per share assumes the
foregoing and, in addition, the exercise of all stock options and restricted
units, using the treasury stock method.
F-36
<PAGE> 155
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
All period earnings per share figures have been restated in accordance
with the provisions of FAS No. 128. The components of the denominator for basic
earnings per common share and diluted earnings per common share are reconciled
as follows :
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
Basic earnings per common share: 1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares
outstanding .................... 19,736,842 21,317,657 21,424,401
========== ========== ==========
Diluted earnings per common share:
Weighted average common shares
outstanding .................... 19,736,842 21,317,657 21,424,401
Options and Restricted Units ..... -- 580,891 1,078,241
---------- ---------- ----------
Denominator for diluted earnings per
common share ..................... 19,736,842 21,898,548 22,502,642
========== ========== ==========
</TABLE>
Options to purchase 10,000 shares of common stock were issued during
1997 but were not included in the computation of diluted earnings per common
share because the options' exercise price was greater than the average market
price of the common shares. The options, which expire on September 5, 2007, were
still outstanding at December 31, 1997.
NOTE 5 - ACQUISITIONS
On July 1, 1997, the Company's wholly owned subsidiary General Chemical
Corporation ("GCC"), acquired all of the outstanding stock of Peridot Holdings,
Inc. ("Peridot"), a leading manufacturer and supplier of sulfuric acid and water
treatment chemicals. Funding for this transaction was provided with existing
cash and borrowings under GCC's revolving credit facility. The acquisition was
accounted for under the purchase method, and, accordingly, the net assets and
results of operations have been included in the consolidated financial
statements since the date of acquisition, based on preliminary valuation
information available to GCC, which is subject to change as such information is
finalized. The excess of purchase price over the estimated fair values of the
net tangible assets acquired has been treated as goodwill. Goodwill is being
amortized on a straight line basis over a period of 25 years. The acquisition
did not have a material pro forma impact on consolidated earnings.
On February 6, 1998, the Company's wholly owned subsidiary Toledo
Technologies, Inc. acquired all of the outstanding stock of Sandco Automotive
Ltd. ("Sandco"), a manufacturer of engine parts for the North American
automobile industry and its aftermarket. Sandco is based in Waterdown,
F-37
<PAGE> 156
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Ontario. Funding for this transaction was provided with new borrowings. This
acquisition will be accounted for using the purchase method.
On February 13, 1998, GCC entered into an agreement to acquire, subject
to certain conditions precedent to closing, all of the outstanding stock of
Reheis Inc. ("Reheis"). Reheis is headquartered in New Jersey and is the world's
leading producer and supplier of the active chemical ingredients in
antiperspirants and over-the-counter antacids as well as a supplier of
pharmaceutical intermediates and other products. Funding for this transaction
will be provided by existing cash and borrowings on GCC's revolving credit
facility. GCC will account for this transaction using the purchase method.
NOTE 6 - INCOME TAXES
Income before income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
United States ............... $40,644 $57,282 $78,345
Foreign ..................... 23,775 18,449 14,315
------- ------- -------
Total .............. $64,419 $75,731 $92,660
======= ======= =======
</TABLE>
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
United States:
Current ............... $ 28,515 $ 18,524 $ 26,195
Deferred .............. 3,544 38 (236)
Foreign:
Current ............... 8,867 7,296 5,662
Deferred .............. (601) (791) (836)
State:
Current ............... 2,127 4,201 5,596
Deferred .............. 874 (145) (36)
-------- -------- --------
Total ........ $ 43,326 $ 29,123 $ 36,345
======== ======== ========
</TABLE>
F-38
<PAGE> 157
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
A summary of the components of deferred tax assets and liabilities is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
------- -------
<S> <C> <C>
Postretirement benefits .......................... $31,151 $31,965
Nondeductible accruals ........................... 41,060 48,696
Foreign operations ............................... 8,958 4,302
Other ............................................ 1,001 2,577
------- -------
Deferred tax assets ..................... 82,170 87,540
------- -------
Property, plant and equipment .................... 31,832 43,817
Pensions ......................................... 7,437 7,237
Inventory ........................................ 2,951 3,123
Other ............................................ 1,260 1,088
------- -------
Deferred tax liabilities ................ 43,480 55,265
------- -------
Valuation allowance .............................. 16,090 11,434
------- -------
Net deferred tax asset ......... $22,600 $20,841
======= =======
</TABLE>
The Company has deferred tax assets related to foreign tax credits of
$16,090 and $11,434 at December 31, 1996 and 1997, respectively, against which a
full valuation allowance has been recorded. A valuation allowance of $1,641 was
provided during 1995. The Company reversed $1,426 and $4,656 of previously
recorded valuation allowances during 1996 and 1997, respectively, primarily
related to foreign tax credits that expired.
The difference between the effective income tax rate and the United
States statutory rate is reconciled below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
U.S. federal statutory rate ................ 35.0% 35.0% 35.0%
State income taxes, net of federal benefit . 3.0 3.5 3.9
Tax effect of foreign operations ........... 6.7 5.1 3.1
Provision for disputed items ............... 26.5 -- --
Depletion .................................. (4.6) (5.3) (3.1)
Other ...................................... 0.6 0.2 0.4
------ ------ ------
Total ............................. 67.2% 38.5% 39.3%
====== ====== ======
</TABLE>
F-39
<PAGE> 158
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The Internal Revenue Service (the "IRS") examinations of the Company's
federal income tax returns resulted in the issuance of a deficiency notice
during 1995. The Company has filed an administrative appeal with the IRS
contesting the items denoted in the deficiency notice. Notwithstanding such
appeal, in 1995 the Company recorded a provision for disputed items of $17,100
for all years prior to 1995 in connection with the deficiency notice. Management
believes the amounts provided at December 31, 1997 are adequate.
NOTE 7 - PENSION PLANS
The Company maintains several defined benefit pension plans covering
substantially all employees. A participating employee's annual postretirement
pension benefit is determined by the employee's credited service and, in most
plans, final average annual earnings with the Company. Vesting requirements are
five years in the U.S. and two years in Canada. The Company's funding policy is
to annually contribute the statutorily required minimum amount as actuarially
determined.
The net periodic pension cost for U.S. pension plans included the
following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 3,826 $ 4,748 $ 5,217
Interest cost on projected benefit obligation 12,377 13,125 13,874
Actual return on assets ...................... (24,938) (24,655) (29,520)
Net amortization and deferral ................ 14,775 13,335 16,943
-------- -------- --------
Net periodic pension cost ........... $ 6,040 $ 6,553 $ 6,514
======== ======== ========
</TABLE>
The net periodic pension cost for Canadian pension plans included the
following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 1,140 $ 1,494 $ 1,352
Interest cost on projected benefit obligation 3,527 3,727 3,868
Actual return on assets ...................... (6,614) (4,662) (4,877)
Net amortization and deferral ................ 2,457 559 522
------- ------- -------
Net periodic pension cost .......... $ 510 $ 1,118 $ 865
======= ======= =======
</TABLE>
F-40
<PAGE> 159
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The funded status and (accrued) prepaid pension cost for all plans are
as follows:
<TABLE>
<CAPTION>
UNITED STATES CANADA
DECEMBER 31, DECEMBER 31,
----------------------- ---------------------
1996 1997 1996 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested .................................... $(144,887) $(156,419) $(40,421) $(42,820)
Nonvested ................................. (13,235) (14,255) (205) (216)
--------- --------- -------- --------
Accumulated benefit obligation ................ $(158,122) $(170,674) $(40,626) $(43,036)
========= ========= ======== ========
Plan assets at fair value ..................... $ 166,661 $ 193,301 $ 60,224 $ 65,019
Projected benefit obligation .................. (187,760) (202,796) (50,783) (53,796)
--------- --------- -------- --------
Projected benefit obligation (in excess
of) less than plan assets.................. (21,099) (9,495) 9,441 11,223
Unrecognized prior service cost ............... 6,896 6,128 942 809
Unrecognized net (gain) loss .................. (8,712) (23,532) 8,761 6,196
--------- --------- -------- --------
(Accrued) prepaid pension cost ................ $ (22,915) $ (26,899) $ 19,144 $ 18,228
========= ========= ======== ========
</TABLE>
The Canadian prepaid pension cost is included in other assets on the
balance sheet.
The assumptions used in accounting for the plans in 1995, 1996 and 1997
were
<TABLE>
<CAPTION>
UNITED STATES CANADA
-------------------------------- ---------------------------
1995 1996 1997 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Estimated discount rate............................ 7 1/2% 7 1/2% 7 1/2% 8% 8% 7 1/2%
Estimated long-term rate of return
on assets...................................... 9% 9% 9% 9% 9% 9%
Average rate of increase in employee compensation.. 5% 5% 5% 5 1/4% 5 1/4% 5 1/4%
</TABLE>
The dates used to measure plan assets and liabilities were October 31,
1996 and 1997 for all plans. Plan assets are invested primarily in stocks,
bonds, short-term securities and cash equivalents.
F-41
<PAGE> 160
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company maintains several plans providing postretirement benefits
covering substantially all hourly and the majority of salaried employees. The
Company funds these benefits on a pay-as-you-go basis. The long-term portion of
accrued postretirement benefit cost of $85,442 and $86,517 at December 31, 1996
and 1997, respectively, is included in other liabilities on the balance sheet.
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the year) ..... $ 1,576 $ 1,765 $ 1,876
Interest cost on projected postretirement obligation 4,862 4,451 4,906
Net amortization and deferral ...................... (2,052) (2,361) (2,191)
------- ------- -------
Net periodic postretirement benefit cost .. $ 4,386 $ 3,855 $ 4,591
======= ======= =======
</TABLE>
The funded status and accrued postretirement benefit obligation are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees .................................... $(39,797) $(44,220)
Fully eligible plan participants ............ (12,095) (11,158)
Other active plan participants .............. (17,001) (15,712)
-------- --------
Accumulated postretirement benefit obligation ... (68,893) (71,090)
Plan assets at fair value ....................... -- --
-------- --------
Accumulated postretirement benefit obligation in
excess of plan assets ....................... (68,893) (71,090)
Unrecognized net reduction in prior service costs (12,708) (11,104)
Unrecognized net gain ........................... (6,293) (7,038)
-------- --------
Accrued postretirement benefit obligation ....... $(87,894) $(89,232)
======== ========
</TABLE>
The assumptions used in accounting for the plans in 1996 were an 11
percent health care cost trend rate (decreasing to 7 1/2 percent in the year
2000 and beyond) and a 7 1/2 discount rate for the U.S. plans and an 11 percent
health care cost trend rate (decreasing to 7 percent in the year 2000 and
beyond), an 8 percent discount rate and a 5 1/4 percent salary scale for the
Canadian plans.
F-42
<PAGE> 161
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The assumptions used in accounting for the plans in 1997 were a 10
percent health care cost trend rate (decreasing to 7 1/2 percent in the year
2000 and beyond) and a 7 1/2 percent discount rate for the U.S. plans and an 11
percent health care cost trend rate (decreasing to 7 percent in the year 2000
and beyond), a 7 1/2 percent discount and a 5 1/4 percent salary scale for the
Canadian plans. A one percent increase in the health care trend rate would
increase the accumulated postretirement benefit obligation by $6,144 at year end
1997 and the net periodic cost by $572 for the year.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Future minimum rental payments for operating leases (primarily for
transportation equipment, offices and warehouses) having initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998........................................ $ 10,584
1999........................................ 5,415
2000........................................ 2,034
2001........................................ 594
2002 and thereafter......................... 341
----------
$ 18,968
==========
</TABLE>
Rental expense for the years ended December 31, 1995, 1996 and 1997 was
$13,531, $15,414, and $17,393, respectively.
Parent Guaranty and Transfer Agreement. A restated parent guaranty and
transfer agreement between New Hampshire Oak, ACI International Limited and
TOSOH America, Inc. provides that in the event that either New Hampshire Oak,
ACI International Limited or TOSOH America, Inc. (such entities being referred
to as a "transferring parent" or "nontransferring parent" as the context
requires) proposes to sell or otherwise transfer or cause to be sold or
transferred the voting securities of GCC, the Andover Group, Inc. or TOSOH
Wyoming, Inc. (the respective subsidiaries constituting the partners of GCSAP)
as the case may be, the nontransferring parents will have the following options:
(1) to purchase the transferring parent's subsidiary's interest in GCSAP at fair
market value; (2) to require the transferring parent to purchase the
nontransferring parents' subsidiaries' interest in GCSAP at fair market value;
(3) to buy the voting securities to be sold by the transferring parent on the
same terms and conditions and at the same price as the transferring parent
proposes to sell or otherwise transfer or cause to be sold or transferred such
voting securities; or (4) to cause the proposed transferee to purchase the
nontransferring parents' subsidiaries' interest in GCSAP for a price reflecting
the price to be paid by the proposed transferee for such voting securities. In
the event that New Hampshire Oak ceases to own at least 51 percent of GCC while
GCC is a partner, GCC shall pay to The Andover Group, Inc. $2,833.
F-43
<PAGE> 162
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Environmental Matters. Accruals for environmental liabilities are
recorded based on current interpretations of applicable environmental laws and
regulations when it is probable that a liability has been incurred and the
amount of such liability can be reasonably estimated. Estimates are established
based upon information available to management to date, the nature and extent of
the environmental liability, the Company's experience with similar activities
undertaken, estimates obtained from outside consultants and the legal and
regulatory framework in the jurisdiction in which the liability arose. The
potential costs related to environmental matters and their estimated impact on
future operations are difficult to predict due to the uncertainties regarding
the extent of any required remediation, the complexity and interpretation of
applicable laws and regulations, possible modification of existing laws and
regulations or the adoption of new laws or regulations in the future, and the
numerous alternative remediation methods and their related varying costs. The
material components of the Company's environmental accruals include potential
costs, as applicable, for investigation, monitoring, remediation and ongoing
maintenance activities at any affected site. Accrued liabilities for
environmental matters were $16,319 and $16,244 at December 31, 1996 and 1997,
respectively. These amounts do not include estimated third-party recoveries nor
have they been discounted.
By letter dated March 22, 1990 from the Environmental Protection Agency
(the "EPA"), the Company received a Notice of Potential Liability pursuant to
Section 107(a) of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), as amended, with respect to a site located in
Front Royal, Virginia, owned at the time by Avtex Fibers, Inc. (the "Avtex
Site"), which has since filed for bankruptcy. A sulfuric acid plant adjacent to
the main Avtex Site was previously owned and operated by the Company (the "acid
plant"). The letter requested that the Company perform certain activities at the
acid plant including providing the security, preventing discharges, removing
certain specific residue and sludges from two storage vessels and the transfer
line to the main Avtex facility and determining the extent of contamination at
the site, if any. In April 1991, the Company submitted a draft work plan with
respect to the acid plant including each of the activities requested by the EPA
discussed above. The Company has provided for the estimated costs of $1,600 for
these activities in its accrual for environmental liabilities. The EPA has not
yet responded to this work plan, nor has it requested that an initial
investigation and feasibility study for the acid plant be performed. As a
result, the extent of remediation required, if any, is unknown. The Company
believes that the acid plant is separate and divisible from the main Avtex Site
and, as a result, is not subject to any liability for costs related thereto. The
Company will continue to vigorously assert this position with the EPA. There has
been very limited contact by the EPA with the Company over the past four years,
as it appears that the EPA is focused on remediation activities at the main
Avtex Site.
In December 1998, the Company settled substantially all of the pending
lawsuits resulting from a chemical release incident at one of its plants.
Management believes that the ultimate resolution of any remaining claims with
respect to the aforementioned incident, if unfavorable, would not result in a
material impact to its financial position or results of operations.
In addition to the matters discussed above, the Company is involved in
other claims, litigation, administrative proceedings and investigations and
remediation relative to environmental matters.
F-44
<PAGE> 163
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Although the amount of any ultimate liability which could arise with respect to
these matters cannot be accurately predicted, it is the opinion of management,
based upon currently available information and the accruals established, that
any such liability will have no material adverse effect on the Company's
financial condition, results of operations or cash flows.
NOTE 10 - RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
The Company is party to a management agreement with Latona Associates
(which is controlled by a stockholder of the Company) under which the Company
received corporate supervisory and administrative services and strategic
guidance for a quarterly fee of $1,375, $1,400 and $1,460 in 1995, 1996 and
1997, respectively. In addition, in connection with any acquisition or business
combination with respect to which Latona Associates advises the Company, the
Company has agreed to pay Latona Associates additional fees comparable with fees
received by investment banking firms for such services.
This agreement expires on December 31, 2004.
NOTE 11 - ADDITIONAL FINANCIAL INFORMATION
The following are summaries of selected balance sheet items:
Receivables
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
--------- ---------
<S> <C> <C>
Trade ........................................ $ 104,108 $ 120,385
Other ........................................ 3,737 8,577
Allowance for doubtful accounts .............. (5,367) (6,242)
--------- ---------
$ 102,478 $ 122,720
========= =========
</TABLE>
Inventories
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
------- -------
<S> <C> <C>
Raw materials .............................. $11,022 $10,875
Work in process ............................ 4,900 3,295
Finished products .......................... 17,403 21,209
Supplies and containers .................... 8,104 10,579
------- -------
$41,429 $45,958
======= =======
</TABLE>
F-45
<PAGE> 164
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Inventories valued at LIFO amounted to $20,153 and $18,546 at December
31, 1996 and 1997, respectively, which were below estimated replacement cost by
$3,088 and $4,480, respectively. The impact of LIFO liquidations in 1995, 1996
and 1997 was not significant.
Property, Plant and Equipment
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
--------- ---------
<S> <C> <C>
Land and improvements .............................. $ 27,299 $ 40,800
Machinery and equipment ............................ 315,544 387,403
Buildings and leasehold improvements ............... 42,968 48,244
Construction in progress ........................... 17,597 17,524
Mines and quarries ................................. 13,539 13,658
--------- ---------
416,947 507,629
Less accumulated depreciation and amortization ..... (177,128) (203,440)
--------- ---------
$ 239,819 $ 304,189
========= =========
</TABLE>
Accrued Liabilities
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
------- -------
<S> <C> <C>
Wages, salaries and benefits ................... $22,235 $24,317
Interest ....................................... 5,752 5,387
Taxes, other than income taxes ................. 13,060 10,871
Other .......................................... 33,158 32,683
------- -------
$74,205 $73,258
======= =======
</TABLE>
F-46
<PAGE> 165
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12 - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
MATURITIES 1996 1997
---------- --------- ---------
<S> <C> <C> <C>
GCC Debt:
Bank Term Loan - floating rate..................... 1996-2001 $ 82,609 $ 65,217
Senior Subordinated Notes - 9.25%.................. 2003 100,000 100,000
Canada Senior Notes - 9.09%........................ 1999 52,000 50,787
U.S. Revolving Credit Facility - floating rate..... 1999 -- 42,000
--------- ---------
Total Debt......................................... 234,609 258,004
Less: Current Portion ............................ 17,392 17,392
--------- ---------
Net Long-Term Debt................................. $ 217,217 $ 240,612
========= =========
</TABLE>
Aggregate maturities of long-term debt for each of the years in the
five year period ending December 31, 2002 are $17,392, $110,179, $17,392,
$13,041 and $0, respectively.
The U.S. Revolving Credit Facility expires on March 31, 1999 and allows
General Chemical Group to borrow up to $130,000, including letters of credit of
up to $30,000. The unused letter of credit balance was $21,033 at December 31,
1996 and 1997. This facility bears interest at a rate equal to a spread over a
reference rate chosen by the Company from various options. At December 31, 1996
there were no outstanding borrowings under this facility. The rate in effect at
December 31, 1997 was 7 percent.
General Chemical Canada Limited has a $15,000 (Canadian Dollar)
Revolving Credit Facility maturing June 22, 2000. This facility bears interest
at a rate equal to a spread over a reference rate chosen by General Chemical
Canada Limited from various options. At December 31, 1996 and 1997, there were
no outstanding borrowings under this facility.
Commitment fees paid for the abovementioned facilities were $350, $414,
and $274 for 1995, 1996 and 1997, respectively.
The Bank Term Loan bears interest at a rate equal to a spread over a
reference rate chosen by GCC from various options. The rate in effect at
December 31, 1996 and 1997, including effects of interest rate swap hedge
agreements (see Note 14), was 7.4 percent.
The U.S. Revolving Credit Facility and the Bank Term Loan are secured
by (1) substantially all of the assets of GCC, (2) 65 percent of the capital
stock of General Chemical Canada Holding Inc., (3) GCC's 51 percent general
partnership interest in GCSAP, and (4) all of the stock of the other direct and
indirect subsidiaries of GCC.
F-47
<PAGE> 166
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
While the Company's GCC subsidiaries' debt facilities are outstanding,
GCC must meet specific financial tests on an ongoing basis, which are customary
for these types of facilities. Except as provided by applicable corporate law,
there are no restrictions on the Company's ability to pay dividends from
retained earnings. However, the payment of cash dividends by GCC to the Company
is subject to certain restrictions under the terms of various agreements
covering GCC's long-term debt. Assuming certain financial covenants are met, GCC
is permitted to pay cash dividends of up to 50 percent of the net income
(subject to certain adjustments) of GCC for the applicable period. Consequently,
the Company's ability to pay cash dividends on Common Stock may effectively be
limited by such agreements. At December 31, 1997, approximately $62.2 million
was available for dividend payments in accordance with these covenants.
NOTE 13 - STOCK OPTION PLAN AND RESTRICTED UNIT PLAN
The Company's 1996 Stock Option and Incentive Plan (the "Plan")
provides for the issuance of up to 2,200,000 shares of Common Stock. The Plan
authorizes the granting of incentive and nonqualified stock options, stock
appreciation rights, restricted and unrestricted stock and performance share
awards to executives, directors and other key persons. Any incentive stock
options granted under the Plan must have an exercise price at least equal to the
market value of the shares on the day the option is granted and a maximum term
of 10 years.
Information with respect to all stock options is summarized below:
<TABLE>
<CAPTION>
AVERAGE OPTION
SHARES PRICE PER SHARE
----------- ---------------
<S> <C> <C>
Options Outstanding at December 31, 1995 .... -- $ --
Options Granted ....................... 1,281,000 17.66
Options Exercised ..................... -- --
Options Forfeited ..................... 10,000 17.50
-----------
Options Outstanding at December 31,1996 ..... 1,271,000 17.66
Options Granted ....................... 100,000 22.70
Options Exercised ..................... -- --
Options Forfeited ..................... 29,800 18.23
-----------
Options Outstanding at December 31, 1997 .... 1,341,200 $18.02
=========== ======
</TABLE>
The Company applies APB Opinion 25 in accounting for the Plan. Had
compensation cost for this plan been determined under FASB Statement No. 123,
the Company's net income for 1997 would have been reduced to $55,140 with basic
earnings per common share of $2.57 and diluted earnings per share of $2.45. Net
income for 1996 would have been reduced to $45,623 with basic earnings per
common share of $2.14 and diluted earnings per share of $2.08. For purposes of
this calculation, the fair value of each option grant was estimated on the grant
date using the Black-Scholes option-pricing
F-48
<PAGE> 167
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
model with the following assumptions used for 1997 and 1996: dividend yield of
0.7 percent and 1.0 percent, respectively; expected volatility of 41 percent and
27 percent, respectively; weighted average risk free interest rate of 5.50
percent and 6.42 percent, respectively; and, weighted average expected lives of
6 and 7 years, respectively. All options granted to date under the stock option
plan have an exercise price equal to the market price of the Company's stock on
the grant date.
The Company's Restricted Unit Plan provides for the issuance of 850,000
units, with each unit representing one share of Common Stock to be issued to the
participant upon the occurrence of certain conditions ("vesting") unless the
participant elects to defer receipt thereof. All awards are subject to a five
year vesting schedule under which a portion of each participant's award vests
annually over a five year period. Dividend equivalents on outstanding units
accrue to the benefit of the participants and are paid at the time dividends are
paid to Common Stock shareholders. These units were awarded during the second
quarter of 1996 in replacement of the rights earned by participants beginning in
1989 under the Phantom Equity Plan and certain other prior equity programs of
the Company which were then terminated. The Company recorded a charge to income
of $11,319 and $1,302 for 1996 and 1997, respectively, with a contra credit to
capital deficit.
Note 14 - Financial Instruments
Swap Agreements
The Company does not enter into financial instruments for trading
purposes. The Company periodically enters into interest rate swap agreements to
effectively convert all or a portion of its floating-rate debt to fixed-rate
debt in order to reduce the Company's risk to movements in interest rates. Such
agreements involve the exchange of fixed and floating interest rate payments
over the life of the agreement without the exchange of the underlying principal
amounts. Accordingly, the impact of fluctuations in interest rates on these
interest rate swap agreements is fully offset by the opposite impact on the
related debt. Swap agreements are only entered into with strong creditworthy
counterparties. The swap agreements in effect were as follows:
<TABLE>
<CAPTION>
Interest Rate
-------------
December 31, Notional Amount Maturities Receive(1) Pay(2)
------------ --------------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1996.......... $ 75,000 1998-1999 5.5% 6.8%
1997.......... $ 75,000 1998-1999 5.8% 6.8%
</TABLE>
(1) Three-month LIBOR.
(2) Represents the weighted average rate.
F-49
<PAGE> 168
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
In addition to the swap agreements described above, the Company has
entered into a forward swap agreement, which will begin in 1998 and mature in
2002, which has a notional amount of $30,000 and a fixed payment rate of 6.6
percent.
At December 31, 1997, the Company was also party to a currency and
interest rate swap, which partially hedges the Company's Canadian subsidiary's
52,000 U.S. dollar 9.09% Senior Notes. The agreement, which matures in 1999,
provides for the payment of 48,400 Canadian dollars at a fixed rate of 7.54
percent in exchange for the receipt of 35,000 U.S. dollars at a fixed rate of
9.09 percent. Unrealized gains and losses on the currency portion of the swap
are recognized and offset the foreign exchange gain or loss on the related debt
in the consolidated statements of operations. Net amounts paid or received on
the interest portion of the swap are accrued as adjustments to interest expense.
Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
----------------- -----------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Long-term debt........................ $234,609 $238,967 $ 258,004 $ 262,918
Unrealized gain (loss) on swap
agreements........................ $ -- $(1,200) $ -- $ 521
</TABLE>
The fair values of cash and cash equivalents, receivables and payables
approximate their carrying values due to the short-term nature of the
instruments.
The fair value of the Company's long-term debt was based on quoted
market prices for publicly traded notes and discounted cash flow analyses on its
nontraded debt. The fair value of the Company's interest rate swap agreements is
the estimated amount the Company would have to pay or receive to terminate the
swap agreements based upon quoted market prices as provided by financial
institutions which are counterparties to the swap agreements.
F-50
<PAGE> 169
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
Note 15 - Geographic and Industry Segment Information
Geographic area information is summarized as follows:
<TABLE>
<CAPTION>
United
States(1) Foreign(2) Eliminations(3) Total
--------- ---------- --------------- -----
<S> <C> <C> <C> <C>
Net revenues:
1995............................... $ 467,347 $ 122,659 $ (39,135) $ 550,871
1996............................... 544,029 128,345 (48,715) 623,659
1997............................... 574,060 121,762 (42,845) 652,977
Operating profit:
1995............................... $ 80,390 $ 26,607 $ -- $ 106,997
1996............................... 106,548 22,668 -- 129,216
1997............................... 118,474 18,618 -- 137,092
Identifiable assets at December 31:
1995............................... $ 331,237 $ 100,088 $ -- $ 431,325
1996............................... 384,352 100,785 -- 485,137
1997............................... 461,267 100,370 -- 561,637
</TABLE>
- ------------------
(1) Includes export sales amounting to $59,320, $71,413 and $79,462 for the
years ended December 31, 1995, 1996 and 1997, respectively.
(2) Principally of General Chemical Canada Holding Inc., a wholly owned
subsidiary of GCC.
(3) Sales between geographic areas are recorded at prices comparable to
market prices charged to third-party customers and are eliminated in
consolidation.
F-51
<PAGE> 170
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
Industry segment information is summarized as follows:
<TABLE>
<CAPTION>
Chemicals Manufacturing Corporate Total
--------- ------------- --------- -----
<S> <C> <C> <C> <C>
Net revenues:
1995.............................. $480,926 $ 69,945 $ -- $ 550,871
1996.............................. 534,434 89,225 -- 623,659
1997.............................. 544,812 108,165 -- 652,977
Operating profit:
1995.............................. $105,186 $ 4,337 $ (2,526) $ 106,997
1996.............................. 123,695 12,472 (6,951) 129,216
1997.............................. 117,858 23,531 (4,297) 137,092
Identifiable assets at December 31:
1995.............................. $377,014 $ 49,833 $ 4,478 $ 431,325
1996.............................. 424,864 55,151 5,122 485,137
1997.............................. 501,937 56,586 3,114 561,637
Capital expenditures:
1995.............................. $ 29,099 $ 4,994 $ -- $ 34,093
1996.............................. 52,546 1,619 -- 54,165
1997.............................. 54,031 2,640 -- 56,671
Depreciation and amortization:
1995.............................. $ 26,188 $ 2,020 $ 50 $ 28,258
1996.............................. 26,978 2,767 -- 29,745
1997.............................. 30,486 2,608 -- 33,094
</TABLE>
F-52
<PAGE> 171
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
(Dollars in thousands)
Note 16 - Unaudited Quarterly Information
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
First Second Third Fourth Year
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Net revenues................... $149,566 $164,957 $169,842 $168,612 $652,977
Gross profit................... 45,202 54,642 52,395 49,296 201,535
Net income .................... 11,714 17,258 15,102 12,241 56,315
Earnings per common share:
Basic...................... .53 .81 .72 .58 2.63
Diluted.................... .50 .77 .68 .55 2.50
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
First Second Third Fourth Year
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Net revenues................... $144,571 $160,130 $161,967 $156,991 $623,659
Gross profit................... 41,511 53,067 51,730 54,718 201,026
Net income .................... 9,316 7,042(1) 14,634 15,616 46,608
Earnings per common share:
Basic...................... .47 .34 .66 .70 2.19
Diluted.................... .47 .33 .63 .67 2.13
</TABLE>
Note: Basic earnings per common share calculations are based on the weighted
average number of shares outstanding during each of the quarters.
Diluted earnings per common share assume the foregoing and, in
addition, the exercise of all stock options and restricted units. The
sum of the four quarters may not equal the full year computation due to
rounding. All prior period per share figures have been restated in
accordance with FAS 128.
(1) In the second quarter of 1996, the Company recorded a one-time pre-tax
charge of $12.5 million ($7.6 million after-tax or $.35 per share) due
primarily to awards made under the Restricted Unit Plan, reflecting the
portion earned under prior equity programs.
F-53
<PAGE> 172
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended
September 30,
-----------------
1997 1998
------- -------
<S> <C> <C>
Net revenues......................................... $ 484,365 $ 525,030
Cost of sales........................................ 332,126 383,558
Selling, general and administrative expense.......... 46,383 51,821
----------- -----------
Operating profit..................................... 105,856 89,651
Interest expense..................................... 16,061 19,426
Interest income...................................... 1,934 1,246
Foreign currency transaction (gains) losses.......... 530 529
Other (income) expense, net.......................... 51 187
----------- -----------
Income before income taxes, minority interest and
extraordinary item................................. 91,148 70,755
Minority interest.................................... 18,801 11,766
----------- -----------
Income before income taxes and extraordinary item.... 72,347 58,989
Income tax provision................................. 28,273 22,676
----------- -----------
Income before extraordinary item..................... 44,074 36,313
Extraordinary item - loss from extinguishment
of debt (net of tax)............................... -- 3,661
----------- -----------
Net income....................................... $ 44,074 $ 32,652
=========== ===========
Earnings per common share:
Income before extraordinary item $ 2.04 $ 1.72
Extraordinary item - loss on extinguishment
of debt (net of tax)............................. -- .17
----------- -----------
Net income....................................... $ 2.04 $ 1.55
=========== ===========
Earnings per common share assuming dilution:
Income before extraordinary item................... $ 1.95 $ 1.65
Extraordinary item - loss from extinguishment
of debt (net of tax)............................. -- .16
----------- -----------
Net income....................................... $ 1.95 $ 1.49
=========== ===========
Dividends declared per share......................... $ .15 $ .15
=========== ===========
Weighted average common and common equivalent 22,609,761 21,979,478
shares outstanding................................. =========== ===========
</TABLE>
See the accompanying notes to consolidated financial statements.
F-54
<PAGE> 173
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
------------ ------------
1997 1998
---- ----
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................ $ 21,753 $ 47,444
Receivables, net ..................................... 122,720 125,950
Inventories .......................................... 45,958 58,775
Deferred income taxes ................................ 14,145 11,323
Other current assets ................................. 2,370 5,907
--------- ---------
Total current assets ............................... 206,946 249,399
Property, plant and equipment, net ..................... 304,189 344,871
Other assets ........................................... 50,502 97,609
--------- ---------
Total assets ....................................... $ 561,637 $ 691,879
========= =========
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ..................................... $ 61,332 $ 58,797
Accrued liabilities .................................. 73,258 73,300
Income taxes payable ................................. 4,576 9,058
Current portion of long-term debt .................... 17,392 51,044
--------- ---------
Total current liabilities .......................... 156,558 192,199
Long-term debt ......................................... 240,612 304,044
Other liabilities ...................................... 215,405 219,017
--------- ---------
Total liabilities .................................. 612,575 715,260
Minority interest ...................................... 43,301 44,524
--------- ---------
Equity (deficit):
Preferred Stock, $.01 par value; authorized:
10,000,000 shares; none issued or outstanding ...... -- --
Common Stock, $.01 par value; authorized:
100,000,000 shares; issued: 12,558,697 shares
at December 31, 1997 and September 30, 1998 ....... 126 126
Class B Convertible Common Stock, $.01 par value;
authorized 40,000,000 shares; issued and
outstanding: 9,758,421 shares at December 31,
1997 and September 30, 1998 ........................ 97 97
Capital deficit ...................................... (183,814) (183,010)
Accumulated other comprehensive income ............... (2,197) (2,533)
Retained earnings .................................... 118,855 148,367
Treasury stock, at cost: 1,362,898 and 1,535,798
shares at December 31, 1997 and September 30,
1998, respectively ................................. (27,306) (30,952)
--------- ---------
Total equity (deficit) ............................. (94,239) (67,905)
--------- ---------
Total liabilities and equity (deficit) ............. $ 561,637 $ 691,879
========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-55
<PAGE> 174
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 44,074 $ 32,652
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................... 24,368 30,425
Net loss on disposition of long-term assets ........... 702 250
Loss on extinguishment of debt ........................ -- 6,056
Unrealized exchange loss .............................. 753 898
Restricted unit plan costs ............................ 994 843
(Increase) decrease in receivables .................... (15,440) 7,168
(Increase) decrease in inventories .................... 3,825 (3,750)
(Decrease) in accounts payable ........................ (1,584) (5,860)
(Decrease) in accrued liabilities ..................... (4,220) (5,758)
Increase in income taxes payable ...................... 2,724 4,397
(Increase) decrease in other assets and
liabilities, net .................................... 1,255 (3,177)
Increase in minority interest ......................... 7,191 1,223
--------- ---------
Net cash provided by operating activities ........... 64,642 65,367
--------- ---------
Cash flows from investing activities:
Capital expenditures ..................................... (38,632) (35,468)
Proceeds from sales or disposals of long-term
assets .................................................. 34 256
Acquisition of business, net of cash acquired (Note 4*) .. (30,130) (90,935)
--------- ---------
Net cash used for investing activities .............. (68,728) (126,147)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt ............................. 35,000 383,655
Repayment of long-term debt .............................. (22,251) (290,804)
Payments to acquire treasury stock ....................... (27,174) (4,000)
Exercise of stock options ................................ -- 314
Dividends ................................................ (3,273) (2,099)
--------- ---------
Net cash provided by used for financing activities .. (17,698) 86,839
--------- ---------
Effect of exchange rate changes on cash ....................... (270) (368)
--------- ---------
Increase (decrease) in cash and cash equivalents .............. (22,054) 25,691
Cash and cash equivalents at beginning of period .............. 51,700 21,753
--------- ---------
Cash and cash equivalents at end of period .................... $ 29,646 $ 47,444
========= =========
Supplemental information:
Cash paid for income taxes ............................... $ 26,944 $ 16,721
========= =========
Cash paid for interest ................................... $ 14,204 $ 16,830
========= =========
* Purchase of businesses, net of cash acquired:
Working capital, other than cash ......................... $ 3,110 $ (14,303)
Plant, property and equipment ............................ (43,007) $ (36,436)
Other assets ............................................. (19,593) $ (41,622)
Noncurrent liabilities ................................... 29,360 $ 1,426
--------- ---------
Net cash used to acquire businesses ................... $ (30,130) $ (90,935)
========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-56
<PAGE> 175
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 1998
(Dollars in thousands)
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements include
the accounts of General Chemical Group Inc. and its subsidiaries (the
"Company"). These unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements do not include certain information and
footnotes required by generally accepted accounting principles. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. The Company's financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
In 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") which the Company adopted for both interim and fiscal years beginning
after December 31, 1997. FAS 130 requires the reporting and display of
comprehensive income and its components. The Company's foreign currency
translation adjustments, which were previously reported as a separate component
of equity, are now included in Accumulated other comprehensive income within the
equity section of the Consolidated Balance Sheets. Comprehensive income for the
nine months ended September 30, 1997 and 1998 was $43,779 and $32,316,
respectively.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that all
derivative instruments be measured at fair value and recognized in the balance
sheet as either assets or liabilities. The Company is currently evaluating the
impact FAS 133 will have on its consolidated financial statements.
Certain prior period amounts have been reclassified to conform with
current presentation.
F-57
<PAGE> 176
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the nine months ended September 30, 1998
(Dollars in thousands)
(unaudited)
NOTE 2 - RELATED PARTY TRANSACTIONS
Management Agreement
The Company is party to a management agreement with Latona Associates
Inc. (a management and advisory company which is controlled by a stockholder of
the Company). Pursuant to the agreement, the Company was charged $4,379 and
$4,442 for the nine months ended September 30, 1997 and 1998, respectively, for
corporate supervisory and administrative services and strategic advice and
guidance. In addition, pursuant to the management agreement, during the second
quarter of 1998 the Company paid Latona Associates Inc. $500 for additional
services provided in connection with the acquisition of Reheis, Inc. The
management agreement expires on December 31, 2004.
NOTE 3 - ACQUISITIONS
On February 6, 1998, the Company's wholly owned subsidiary, Toledo
Technologies, Inc. acquired all of the outstanding stock of Sandco Automotive
Ltd. ("Sandco"), a manufacturer of engine parts for the North American
automobile industry and its aftermarket. Sandco is based in Waterdown, Ontario.
Funding for this transaction was provided with new borrowings.
On April 1, 1998, the Company's wholly owned subsidiary General
Chemical Corporation ("GCC"), acquired all of the outstanding stock of Reheis
Inc. ("Reheis"). Reheis is headquartered in New Jersey and is the world's
leading producer and supplier of the active chemical ingredients in
antiperspirants and over-the-counter antacids as well as a supplier of
pharmaceutical intermediates and other products. Funding for this transaction
was provided by existing cash and borrowings under GCC's revolving credit
facility.
The acquisitions are being accounted for under the purchase method, and
accordingly, the net assets and results of operations are included in the
consolidated financial statements from the date of acquisition, based on
valuation information available to the Company, which is subject to change as
such information is finalized. The excess of purchase price over the estimated
fair values of the tangible assets acquired is being treated as goodwill.
Goodwill is being amortized on a straight line basis over periods ranging from
25 to 35 years. The acquisitions did not have a material pro forma impact on
consolidated earnings.
F-58
<PAGE> 177
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the nine months ended September 30, 1998
(Dollars in thousands)
(unaudited)
NOTE 4 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1997 1998
------- -------
(unaudited)
<S> <C> <C>
Raw materials ................................. $10,875 $13,687
Work in process ............................... 3,295 8,890
Finished products ............................. 21,209 25,299
Supplies and containers ....................... 10,579 10,899
------- -------
$45,958 $58,775
======= =======
</TABLE>
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Maturities December 31, September 30,
------------- ------------ -------------
1997 1998
------ -------
(unaudited)
<S> <C> <C> <C>
Bank Term Loan A - floating rate.... 2000-2004 $ -- $ 100,000
Bank Term Loan B - floating rate.... 1998-2006 -- 199,500
Bank Term Loan - floating rate...... 1998-2001 65,217 --
Senior Subordinated Notes - 9.25%... 2003 100,000 --
Canada Senior Notes - 9.09%......... 1999 50,787 49,044
$130,000 U.S. Revolving Credit
Facility - floating rate.......... 42,000 --
Other Debt - floating rate.......... -- 6,544
--------- ----------
Total Debt.......................... 258,004 355,088
Less: Current Portion.............. 17,392 51,044
--------- ----------
Net Long-Term Debt.................. $ 240,612 $ 304,044
========= ==========
</TABLE>
F-59
<PAGE> 178
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
For the nine months ended September 30, 1998
(Dollars in thousands)
(unaudited)
On June 15, 1998 the Company entered into a new credit facility
consisting of a $100,000 Term Loan ("Term Loan A") maturing on June 15, 2004, a
$200,000 Term Loan ("Term Loan B") maturing on June 15, 2006 and a $300,000
Revolving Credit Facility maturing on June 15, 2004. The term loans and
revolving credit facility bear interest at a rate equal to a spread over a
reference rate chosen by the Company from various options. Term Loan A is
payable in consecutive quarterly installments commencing March 31, 2000. Term
Loan B is payable in consecutive quarterly installments commencing September
30, 1998. The facility is secured by a first priority security interest in all
of the capital stock of the Company's domestic subsidiaries and 65 percent of
the capital stock of the Company's foreign subsidiaries.
Proceeds from the new credit facility were used to retire certain
outstanding indebtedness. In connection with the retirement the Company recorded
an extraordinary loss of $3,661 net of a tax benefit of $2,395, related to the
early retirements.
NOTE 6 - DIVIDENDS
On September 30, 1998, the Company's Board of Directors declared a
quarterly cash dividend of $.05 per share, payable October 20, 1998, to
shareholders of record on October 7, 1998.
F-60
<PAGE> 179
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- ----------- --------
2.01* Separation Agreement, dated as of __________, 1999, among The
General Chemical Group Inc., GenTek Inc., General Chemical
Industrial Products Inc. and General Chemical
Corporation..................................................
3.01* Form of Amended and Restated Certificate of Incorporation of
GenTek Inc...................................................
3.02* Form of Amended and Restated Bylaws of GenTek Inc............
10.01* Form of GenTek Inc. Restricted Unit Plan for Non-Employee
Directors....................................................
10.02* Form of GenTek Inc. Annual Performance Incentive
Plan.........................................................
10.03* Form of GenTek Inc. Long-Term Incentive Plan.................
10.04* Form of Employee Benefits Agreement between GenTek Inc. and
The General Chemical Group Inc...............................
10.05* Form of Transition Support Agreement between GenTek Inc. and
The General Chemical Group Inc...............................
10.06* Form of Tax Sharing Agreement between GenTek Inc. and The
General Chemical Group Inc...................................
10.07* Form of License Agreement among General Chemical Corporation,
The General Chemical Group Inc. and General Chemical
Industrial Products Inc......................................
10.08* Form of Management Agreement between GenTek Inc. and Latona
Associates, Inc..............................................
10.09* Form of Non-Interference Agreement between GenTek Inc. and
Paul M. Montrone.............................................
10.10* Form of Stockholders' Agreement among GenTek Inc., the Paul M.
Montrone 1996 GRAT and Sandra G. Montrone....................
21.01* Active Subsidiaries of GenTek Inc............................
27.01* Financial Data Schedule......................................
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* To be filed by amendment.
