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REGISTRATION NO. 333-94297
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GENTEK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3714 02-0505547
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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LIBERTY LANE
HAMPTON, NEW HAMPSHIRE 03842
1 (603) 929-2606
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TODD M. DUCHENE, ESQ.
SECRETARY
GENTEK INC.
LIBERTY LANE
HAMPTON, NEW HAMPSHIRE 03842
1 (603) 926-2606
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
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COPY TO:
GEORGE E.B. MAGUIRE, ESQ.
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
1 (212) 909-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ['ch'] Registration No. 333-94297
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS TO SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED AMOUNT TO BE REGISTERED PER UNIT OFFERING PRICE FEE
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Rights to Purchase Common Stock(1)............... 3,371,592 $0 $0 $0
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Common Stock..................................... 3,371,592 $11.87 $40,000,000 $10,560
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(1) Pursuant to Rule 457(g), no separate registration fee is required for the
rights since they are being registered in the same registration statement as
the common stock underlying the rights.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
PROSPECTUS
GENTEK INC. [GENTEK LOGO]
RIGHTS OFFERING
OF 3,371,340 SHARES OF COMMON STOCK
AT $9.43 PER SHARE
If you held our common stock on January 24, 2000, GenTek has granted you
rights to purchase additional shares of common stock for a subscription price
of $9.43 per share. You have been granted 0.20 rights for every share of
common stock you held of record on that date. Each whole right entitles you
to purchase one share of common stock for $9.43. This is your 'basic
subscription privilege.'
We will not issue fractional rights or fractional shares. If the number of
shares of common stock you held of record on the record date would result in
your receipt of fractional rights, the number of rights issued to you is being
rounded up to the nearest whole right.
Our common stock is traded on the New York Stock Exchange under the symbol
'GK'. On January 24, 2000, the last reported sale price for the common stock
was $9.94 per share.
The rights expire on February 14, 2000, at 5 p.m., New York City time. We have
the option of extending the expiration date.
If you fully exercise your rights and other shareholders do not fully exercise
their rights, you may elect to purchase additional shares on a pro rata basis.
This is your 'oversubscription privilege.'
You may transfer your rights to your immediate family members or entities
wholly owned or controlled by you. Otherwise, the rights are non-transferable.
We will use all net cash proceeds from this offering to repay a portion of our
outstanding indebtedness under our credit facility and for other general
corporate purposes.
GenTek is also granting rights to purchase additional shares of its Class B
common stock to the record holders of its Class B common stock at the same
subscription ratio and subscription price as our common stock. All of our
Class B common stock is owned by Paul M. Montrone, the Chairman of the Board
of Directors, and Montrone family trusts. Mr. Montrone and his family trusts
beneficially own 47.1% of our outstanding common stock and Class B common
stock, and these shares represent 80.5% of the voting power of all of our
stock.
Mr. Montrone has advised us that he intends to fully exercise all of the
rights granted to him and the Montrone family trusts pursuant to the basic
subscription privilege. Mr. Montrone has indicated that he also intends to
exercise the oversubscription privilege in full.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE 'RISK FACTORS'
BEGINNING ON PAGE 14.
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DISCOUNTS AND PROCEEDS TO
SUBSCRIPTION PRICE COMMISSIONS THE COMPANY(1)
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Per Share Total............................... $9.43 None $39,257,316
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Total......................................... $9.43 None $39,257,316
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(1) Includes proceeds from exercise of subscription rights granted to record
holders of Class B common stock.
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SUBSCRIPTION AGENT: INFORMATION AGENT:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Consulting Services, L.L.C.
85 Challenger Road 450 W. 33rd Street
Overpeck Center 14th Floor
Ridgefield Park, NJ 07660 New York, NY 10001
Telephone: 1 (201) 296-4860 Telephone: 1 (888) 566-9477 (toll free)
Fax: 1 (201) 296-4293
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The date of this Prospectus is January 25, 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE RIGHTS OFFERING IS NOT BEING MADE, NOR WILL GENTEK ACCEPT
SUBSCRIPTIONS FOR COMMON SHARES FROM ANY PERSON, IN ANY JURISDICTION IN WHICH
THE RIGHTS OFFERING OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR 'BLUE SKY' LAWS OF SUCH JURISDICTION.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary..................... 1
Risk Factors........................... 14
The Rights Offering.................... 19
Use of Proceeds........................ 28
Determination of Subscription Price.... 28
Price Range of Common Stock and
Dividend Policy...................... 28
Capitalization......................... 29
Unaudited Pro Forma Financial
Statements........................... 30
Selected Financial Data................ 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 35
Business............................... 41
Management............................. 54
Beneficial Ownership of Common Stock... 64
Affiliate Relationships and
Transactions......................... 66
Description of Capital Stock........... 68
Our Arrangements with General Chemical
Group Relating to the Spinoff........ 70
Description of Credit Facility and
Senior Subordinated Notes............ 75
Certain Federal Income Tax
Considerations....................... 78
Plan of Distribution................... 79
Legal Matters.......................... 79
Experts................................ 79
Financial Statements of Noma and
Krone................................ 80
Where You Can Find More Information.... 80
Index to Consolidated Financial
Statements........................... F-1
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IMPORTANT INFORMATION ABOUT THIS PROSPECTUS
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT US THAT IS NOT INCLUDED OR DELIVERED WITH THIS PROSPECTUS,
INCLUDING EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A
PART. WE WILL PROVIDE PROMPTLY WITHOUT CHARGE TO YOU, UPON WRITTEN OR ORAL
REQUEST, A COPY OF ANY DOCUMENT INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS. REQUESTS SHOULD BE DIRECTED AS
FOLLOWS:
GENTEK INC.
LIBERTY LANE
HAMPTON, NEW HAMPSHIRE 03842
TELEPHONE: 1 (603) 929-2606
ATTENTION: CORPORATE SECRETARY
YOU SHOULD REQUEST ANY SUCH INFORMATION AT LEAST FIVE DAYS IN ADVANCE OF
THE DATE ON WHICH YOU EXPECT TO MAKE YOUR DECISION WITH RESPECT TO THIS OFFER.
IN ANY EVENT, YOU MUST REQUEST SUCH INFORMATION ON OR PRIOR TO FEBRUARY 9, 2000.
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PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. The
summary is not complete and may not provide all information you should consider
before deciding whether or not to exercise the rights. Therefore, we urge you to
read the entire prospectus carefully.
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS A RIGHT?
Rights give our shareholders the privilege to purchase additional shares
of our common stock for $9.43 per share. On January 24, 2000, the last reported
sales price for our common stock on the New York Stock Exchange was $9.94 per
share.
We have granted our shareholders as of 5:00 p.m. on January 24, 2000,
0.20 rights for every share of common stock owned at that time. Each whole right
entitles you to purchase one share of common stock for $9.43. For example, if
you were the record holder of 10 shares on the record date, you have the right
to purchase 2 shares of common stock for $9.43 per share.
WILL I RECEIVE FRACTIONAL RIGHTS OR SHARES?
We are not issuing fractional rights or shares. If the number of shares
of common stock you held of record on the record date would result in your
receipt of fractional rights, the number of rights issued to you is being
rounded up to the nearest whole right. If you were the record holder of fewer
than 5 shares of common stock, you are receiving 1 whole right.
WHY IS GENTEK OFFERING THE RIGHTS?
We are offering the rights to raise equity capital. We have determined
that, given current market conditions, this rights offering is the most
appropriate means of raising equity capital because it affords our existing
shareholders a preferential opportunity to subscribe for the new shares of
common stock and to maintain their proportionate interest in GenTek.
We will use the net proceeds of this offering to repay a portion of our
outstanding indebtedness under our credit facility and for other general
corporate purposes.
In addition, we are offering the rights to satisfy our commitment to the
Internal Revenue Service for the tax-free treatment of our spinoff from The
General Chemical Group Inc., our predecessor company, in April 1999. At that
time, we committed to the Internal Revenue Service that we would raise capital
by issuing stock in a public offering.
HAS THE BOARD OF DIRECTORS MADE A RECOMMENDATION REGARDING THIS OFFERING?
Our Board of Directors makes no recommendation to you about whether you
should exercise any rights.
HOW SOON MUST SHAREHOLDERS ACT?
The rights expire on February 14, 2000, at 5:00 p.m., New York City
time. The subscription agent must actually receive all required documents and
payments before that date and time. Although we have the option of extending the
expiration date, we presently do not intend to do so.
MAY I TRANSFER MY RIGHTS?
Generally, no. The rights may be exercised only by the person to whom
they are granted. However, you may transfer your subscription rights to
immediate family members or to entities wholly owned or controlled by you. For
information on the persons to whom you can transfer your rights, as well as how
the rights can be transferred, see 'The Rights Offering -- Transferability of
Rights' on page 26.
1
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WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?
By exercising the rights, you may purchase one newly-issued share of
common stock for every 5 shares owned by you on January 24, 2000 at the
subscription price of $9.43 per share. This is your 'basic subscription
privilege.'
WHAT IS THE OVERSUBSCRIPTION PRIVILEGE?
If you fully exercise your basic subscription privilege, the
oversubscription privilege entitles you to subscribe to additional shares of our
common stock at the same subscription price of $9.43 per share that applies to
your basic subscription privilege.
WHAT ARE THE LIMITATIONS ON THE OVERSUBSCRIPTION PRIVILEGE?
We will be able to satisfy your exercise of the oversubscription
privilege only if our other shareholders do not elect to purchase all of the
shares offered under their basic subscription privilege. We will honor
oversubscription requests in full to the extent sufficient shares are available
following the exercise of rights under the basic subscription privilege. If
oversubscription requests exceed shares available, we will allocate the
available shares pro-rata among those who oversubscribed.
AM I REQUIRED TO SUBSCRIBE IN THE RIGHTS OFFERING?
No. You are not required to exercise any rights, purchase any new
shares, or otherwise take any action in response to this rights offering.
WHAT WILL HAPPEN IF I DO NOT EXERCISE MY RIGHTS?
If you do not exercise any rights, the number of shares you own will not
change, but your percentage ownership of our total outstanding common stock will
decline following the rights offering.
MAY I CHANGE OR CANCEL MY EXERCISE OF RIGHTS AFTER I SEND IN THE REQUIRED FORMS?
No. All exercises of rights are irrevocable.
WILL MY MONEY BE RETURNED IF THE RIGHTS OFFERING IS CANCELLED?
We can cancel or terminate the rights offering at any time prior to the
expiration date. If we terminate or cancel this offering, we will return your
subscription price, but without any payment of interest.
WHAT SHOULD I DO IF I WANT TO PARTICIPATE IN THE RIGHTS OFFERING, BUT MY SHARES
ARE HELD IN THE NAME OF MY BROKER, DEALER OR OTHER NOMINEE?
If you hold your shares of our stock through a broker, dealer or other
nominee (for example, through a custodian bank), then your broker, dealer or
other nominee is the record holder of the shares you own. This record holder
must exercise the rights on your behalf for shares you wish to purchase.
Therefore, you will need to have your broker, dealer or other nominee act for
you.
If you wish to participate in the rights offering and purchase new
shares, please promptly contact the record holder of your shares. We will ask
your broker, dealer or other nominee to notify you of the rights offering. To
indicate your decision with respect to your rights, you should complete and
return to your record holder the form entitled 'Beneficial Owner Election Form.'
You should receive this form from your record holder with the other rights
offering materials.
2
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WHAT FEES OR CHARGES APPLY IF I PURCHASE SHARES?
We are not charging any fee or sales commission to issue rights to you
or to issue shares to you if you exercise rights. If you exercise rights through
a record holder of your shares, you are responsible for paying any fees that
person may charge.
HOW DO I EXERCISE MY RIGHTS? WHAT FORMS AND PAYMENT ARE REQUIRED TO PURCHASE
SHARES?
As a record holder of our common stock on January 24, 2000, you are
receiving this prospectus, a subscription warrant and instructions on how to
purchase shares. If you wish to participate in this rights offering, then before
your rights expire, you must:
deliver the subscription price by wire transfer, or certified or
cashier's check drawn on a U.S. bank, or personal check that clears
before expiration of the rights; and
deliver a properly completed subscription warrant. The instructions
also describe an alternate procedure called 'Notice of Guaranteed
Delivery,' which allows an extra three days to deliver the subscription
warrant if full payment is received before the expiration date and a
securities broker or qualified financial institution signs the form to
guaranty that the subscription warrant will be timely delivered.
TO WHOM SHOULD I SEND FORMS AND PAYMENT?
You may send subscription documents to ChaseMellon Shareholder Services,
L.L.C. by mail:
P.O. Box 3301
South Hackensack, NJ 07606
Telephone: 1 (201) 296-4860
You may also send subscription documents to ChaseMellon Shareholder
Services, L.L.C. by hand delivery or overnight courier:
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By hand delivery: By overnight courier:
120 Broadway 85 Challenger Road
13th Floor Overpeck Center
New York, NY 10271 Ridgefield Park, NJ 07660
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Your subscription payment should also be sent to ChaseMellon Shareholder
Services, L.L.C. For instructions on how this payment should be made, see 'The
Rights Offering -- Required Forms of Payment of Subscription Price' on page 23.
Securities brokers and other qualified financial institutions can use an
alternate procedure called 'Notice of Guaranteed Delivery.' See 'The Rights
Offering -- Special Procedure under 'Notice of Guaranteed Delivery' Form' on
page 24.
WHAT SHOULD I DO IF I HAVE OTHER QUESTIONS?
If you have questions, need additional copies of offering documents or
otherwise need assistance, please contact:
ChaseMellon Consulting Services, L.L.C.
450 W. 33rd St.
14th Floor
New York, NY 10001
Telephone: 1 (888) 566-9477 (toll free)
To ask other questions or to receive copies of our recent SEC filings,
you can also contact us by mail or telephone, or refer to the other sources
described under 'Where You Can Find More Information' on page 80.
3
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OUR COMPANY
We are a manufacturer of telecommunications equipment, industrial
components and performance chemicals sold into numerous markets for a wide
variety of end uses. We operate through three business segments: manufacturing,
performance products and telecommunications equipment. Our telecommunications
equipment segment serves the public network and premises (or non-public) network
markets. Our manufacturing segment serves the automotive, appliance and
electronic, and industrial markets. Our performance products segment serves
customers in many industries, including the pharmaceutical and personal care,
environmental services, technology and chemical processing markets. In many of
our markets, we are an industry leader. Our products are frequently highly
engineered and are important components of, or provide critical attributes to,
our customers' end-products or operations. We operate over 80 manufacturing and
production facilities located in the U.S., Canada, Australia, China, Germany,
Great Britain, India, Indonesia, Ireland and Mexico. Our common stock is traded
on the New York Stock Exchange under the symbol 'GK.'
BUSINESS STRATEGY
Our goal is to build on our leading market positions by continuing to
improve our existing operations and to pursue value-enhancing acquisitions.
For our current operations, we intend to:
utilize our leadership positions to capitalize on the favorable growth
trends in selected endmarkets;
improve our operating efficiency through productivity gains and other
cost reduction initiatives. For example, we believe that our recent
acquisitions of Noma, Defiance and Krone provide us with significant
cost saving opportunities;
grow our customer base by expanding into new geographic markets and
developing new products and end-markets, as well as new applications
for our existing products; and
leverage our strong customer relationships and recently expanded
product offerings through increased cross-selling to existing
customers.
In addition, we have grown through acquisitions and we will continue to
pursue acquisitions and investment opportunities that will create value and
enhance cash flow. We target acquisitions and investments that provide us:
cost saving opportunities;
enhanced positioning in existing markets;
entry into new end-use and geographic markets; and
turnaround opportunities for under-performing businesses.
COMPETITIVE STRENGTHS
WE HAVE SIGNIFICANT MARKET POSITIONS IN OUR BUSINESSES. We have leading
market shares in our primary markets. For example, we believe that we have
leading positions in North America in each of the following products and
services:
wire and cable assemblies for manufacturers of major appliances;
stamped valve-train components for the automotive industry;
sulfuric acid regeneration services;
aluminum-based chemicals used in water treatment services and pulp and
paper production;
active ingredients for antiperspirants; and
active ingredients for over-the-counter antacids.
4
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Our telecommunications segment, operated through our Krone AG
subsidiary, is a leading worldwide supplier of connection and distribution
technology for voice and data networks.
WE PROVIDE SPECIALIZED PRODUCTS AND SERVICES REQUIRING OPERATIONAL AND
TECHNICAL INTEGRATION WITH OUR CUSTOMERS. Our products and services are
frequently highly engineered and important components of, or provide critical
attributes to, our customers' end-products or operations. We generally work
closely with our customers in the design, engineering and production of these
products and we often provide ongoing technical service and support. As a
result, we enjoy strong customer relationships which allow us to achieve
attractive operating margins and maintain or enhance our market shares.
WE ARE HIGHLY DIVERSIFIED. We have highly diversified sources of revenue
and cash flow. We provide a wide range of products for a broad customer base
serving numerous end-uses and endmarkets. For example, in 1998, no single
customer accounted for more than 10% of our pro forma sales. We believe that
this diversification provides us with a broad base from which to expand customer
relationships and increase revenues.
WE HAVE AN EXPERIENCED MANAGEMENT TEAM. Our management team has
significant experience managing and operating a variety of industrial
businesses. With an average of over 20 years of industry experience, we have
significant experience in improving productivity, reducing costs, and enhancing
customer relationships in competitive markets. In addition, our management team
has been successful in identifying, completing and integrating acquisitions,
which have enhanced our revenues and cash flow and expanded our customer base
and product offerings.
PRODUCTS AND SERVICES
TELECOMMUNICATIONS EQUIPMENT. Our telecommunications equipment segment
consists of Krone AG, a leading global supplier of telecommunications connector
technology, which we acquired on August 20, 1999. The telecommunications
equipment segment accounted for 28% of our pro forma sales for the nine months
ended September 30, 1999. The telecommunications equipment segment provides
connection and distribution technology to two principal markets:
Public networks: connection and distribution technology and solutions
for fixed telecommunication access networks and related customer
services for both public network providers and telecommunications
systems manufacturers and suppliers.
Premises networks: connection and distribution technology and solutions
for private voice and data networks within private building complexes.
Our customers in this segment include Alcatel, Anixter, Bell Atlantic, British
Telecommunications, Deutsche Telekom, Isolectra, Siemens and Wadsworth
Electronics.
MANUFACTURING. The manufacturing segment accounted for 44% of our pro
forma sales for the nine months ended September 30, 1999. The manufacturing
segment provides a broad range of engineered components and services to three
principal markets:
Automotive: precision-engineered components for valve-train systems;
computer-aided and mechanical vehicle testing services; custom-designed
wire and cable assemblies for a variety of automotive electronic
applications; tooling and prototype design and engineering services;
and fluid-handling equipment for automotive service applications.
Appliance and Electronic: custom-designed power cord systems and wire
and cable assemblies for a broad range of appliances and electronic
products, such as refrigerators, freezers, dishwashers, washing
machines, ovens, ranges, vacuum cleaners, electronic office equipment,
medical equipment, ATM machines and gaming machines.
Industrial: power cord systems and cable and wire assemblies for power
tools, motors, pumps and other industrial products; and wire and cable
for industrial markets, the commercial and residential construction
industries and a wide variety of end market uses by original equipment
manufacturers (OEMs).
5
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Our customers in this segment include Bombardier, Bosch,
DaimlerChrysler, Delphi, Eaton, Ford, Frigidaire, General Electric, General
Motors, ITT, Johnson Controls, Lear, Whirlpool and Xerox.
PERFORMANCE PRODUCTS. The performance products segment accounted for 28%
of our pro forma sales for the nine months ended September 30, 1999. The
performance products segment provides a broad range of value-added products and
services to four principal markets:
Pharmaceutical and Personal Care: aluminum-zirconium compounds used as
the active ingredients in antiperspirants; aluminum-magnesium compounds
used as the active ingredients in over-the-counter antacids; potassium
chloride used in electrolyte replacement and intravenous solutions; and
other food and pharmaceutical intermediates.
Environmental Services: water treatment products and services; sulfuric
acid regeneration and sulfur recovery services for pollution abatement
and production of cleaner burning gasoline blending components; and
AI+Clear'r', our specialty agrochemical for improvement of poultry
house sanitation and productivity and the reduction of pollution from
agricultural phosphorous runoff.
Technology: computer-to-plate (CTP) technology and bimetal lithographic
printing plates for high quality printing applications and
ultra-high-purity electronic chemicals for semiconductor chip and disk
drive production.
Chemical Processing: a broad range of sulfur, sodium and fluorine-based
chemical intermediates used in the production of a wide variety of
products such as paper, gasoline, fertilizers, tires, paints, dyes and
carpeting.
Our customers in this segment include AlliedSignal, BASF,
Colgate-Palmolive, Chevron, Georgia Pacific, Hewlett-Packard, IBM, International
Paper, Micron Technologies, National Semiconductor, PPG Industries, Procter &
Gamble, Quebecor-World, Sunoco, Unilever, Westvaco and numerous cities and
municipalities.
RECENT TRANSACTIONS
THE SPINOFF. Our manufacturing and performance products segments were
formerly part of the businesses of The General Chemical Group Inc., our former
parent company. General Chemical Group separated us from its soda ash and
calcium chloride business through a spinoff by distributing our common stock to
General Chemical Group's shareholders. The spinoff was completed on April 30,
1999. Since the spinoff, we have been a separate, stand-alone company. We
believe that the spinoff has enabled us to focus our attention and resources on
our core businesses and more effectively pursue our business strategy.
In connection with the spinoff, we entered into a $550 million credit
facility, which includes a $300 million revolving credit facility and $250
million aggregate term loan facilities. On the spinoff date, we borrowed $500
million under the credit facility, of which approximately $487 million was used
to repay a portion of General Chemical Group's third party indebtedness,
including borrowings to finance our acquisitions of Noma and Defiance earlier
this year.
RECENT ACQUISITIONS. In furtherance of our strategy, we completed five
acquisitions in 1999.
In April 1999, we acquired Noma Industries Limited, a Canadian company,
for total consideration of approximately $240 million. Noma is a
leading North American producer of insulated wire and wire-related
products. The Noma acquisition expanded our product offerings to the
automotive industry and provided access to Noma's blue-chip customer
base in the growing appliance and electronic market.
In August 1999, we acquired Krone AG, a German company, for total
consideration of approximately $222 million (including approximately
$63 million of assumed debt). Krone is leading global supplier of
connector technology for telecommunications and data networks. The
Krone acquisition expanded our offerings of products and services into
our new telecommunications equipment segment.
6
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In February 1999, we acquired Defiance, Inc. for total consideration of
approximately $70 million. Defiance is a manufacturer of specialty
antifriction bearings and a provider of vehicle testing services,
tooling design and preproduction dies and components primarily for the
automotive industry. The Defiance acquisition increased the range of
products and services provided by the manufacturing segment and allows
for a more complete product offering of valve-train-related engine
components to the automotive industry.
In July 1999, we acquired the Structural Kinematics business of EG&G,
Inc. Structural Kinematics is a leading provider of testing and
engineering services to the automotive, truck and agricultural
equipment industries.
In September 1999, we acquired the business of Pacific Pac
International, Inc., a provider of ultrahigh purity solvents to the
electronics industry.
We identified the opportunity to acquire Krone through Prestolite Wire
Corporation, Krone's marketing partner. Prestolite, a leading North American
manufacturer of copper and fiber optic wire and cable products for
telecommunications, automotive and industrial markets with annual sales of
approximately $250 million, is controlled by Mr. Paul M. Montrone, our
controlling shareholder and the Chairman of our Board.
We are discussing with Prestolite a possible transaction to combine
certain of our businesses through an acquisition or the formation of one or more
joint ventures or partnerships, or other strategic combination. We believe that
a combination of Prestolite's telecommunications businesses with Krone may
create additional value for our company. The integration of Krone's and
Prestolite's telecommunications and data businesses would allow us to provide
customers around the globe with total connectivity and wiring solutions that
maximize bandwidth and network speed. This combination would position us as a
leading global provider of integrated wire and connector solutions for data and
telecommunications markets.
ISSUANCE OF SENIOR SUBORDINATED NOTES. On August 9, 1999 we completed
the offering and sale of $200 million aggregate principal amount of 11% Senior
Subordinated Notes due 2009. We used the proceeds from the issuance of the notes
to repay a portion of our indebtedness under our credit facility.
STATE AND DATE OF INCORPORATION AND ADDRESS
We were incorporated in Delaware on January 27, 1999. Our principal
executive offices are at Liberty Lane, Hampton, New Hampshire 03842. Our
telephone number is 1 (603) 929-2606.
7
<PAGE>
SUMMARY OF THE TERMS OF THE RIGHTS OFFERING
Further details concerning this part of the summary are set forth under
'The Rights Offering' beginning on page 19. Only holders of record of common
stock at the close of business on the record date stated below may exercise
rights.
<TABLE>
<S> <C>
Securities Offered........................ We are offering 3,371,340 shares of common stock to be
issued upon exercise of the rights.
Subscription Ratio; Basic
Subscription Privilege.................. 0.20 rights for every share of common stock held of record as
of the record date. Each whole right entitles you to purchase
one share of common stock for the subscription price. In other
words, you will have the right to subscribe to one share of
our common stock for every 5 shares of common stock of which
you were the record holder as of the record date.
We are not issuing any fractional rights or fractional
shares. If the number of shares of common stock you held of
record on the record date would result in your receipt of
fractional rights, the number of rights issued to you is
being rounded up to the nearest whole right. So, for
example, if you were the record holder of fewer than 5
shares of common stock on the record date, you are receiving
1 whole right. If, however, you were the record holder of 6
shares of common stock on the record date, you are receiving
rights to subscribe to 2 shares instead of 1.2 shares.
You may not purchase fractional shares. You may, however,
subscribe for any whole number of shares exercising less
than all of your rights.
Record Date............................... January 24, 2000 at 5:00 p.m. (New York City time). Only our
shareholders of record as of the record date will receive
rights to subscribe to new shares of common stock.
Expiration Date........................... The rights expire on February 14, 2000 at 5:00 p.m. (New
York City time). Rights not exercised by the expiration date
will be null and void. We have the option of extending the
expiration date for any reason.
Subscription Price........................ $9.43 per share, payable in cash. All payments must be
cleared on or before the expiration date. Our Board of
Directors calculated the subscription price at a discount to
the closing market price of our common stock on January 24,
2000 of $9.94.
Oversubscription Privilege................ If you fully exercise the basic subscription privilege, you
may also purchase additional shares of common stock at the
subscription price that are not purchased by other
shareholders. If there are not enough shares available to
fill all subscriptions for additional shares, the available
shares will be allocated pro rata based on the number of
shares each subscriber for additional shares has purchased
under the basic subscription privilege.
Use of Proceeds........................... We will use the net proceeds of this offering to repay a
portion of our outstanding indebtedness under our credit
facility and for general corporate purposes. The portion of
our indebtedness under our credit facility that is repaid
may be reborrowed.
Restricted Transferability of Rights...... The rights may be exercised only by the persons to whom they
are granted. However, you may transfer your rights to your
immediate family members, to entities wholly owned or
controlled
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
by you, or to other similar affiliates. For information on
the persons to whom you can transfer your rights, as well as
how the rights can be transferred, see 'The Rights
Offering -- Transferability of Rights' on page 26.
No Board Recommendation................... Our Board of Directors does not make any recommendation to
shareholders regarding the exercise of rights in this
offering.
Shareholders who do exercise rights risk investment loss on
new money invested. We cannot assure you that the
subscription price will remain below any trading price for
our common stock or that its trading price will not decline
to below the subscription price during or after the rights
offering. For more information regarding some of the risks
inherent in this rights offering, please see 'Risk Factors'
beginning on page 14.
Rights to Purchase Class B
Common Stock............................ We are offering the record holders of our Class B common stock
rights to purchase additional shares of Class B common stock
at the same subscription ratio and subscription price as in
the rights offering to the record holders of our common stock.
All of our Class B common stock is owned by Paul M. Montrone,
our controlling shareholder and the Chairman of our Board of
Directors, and the Montrone family trusts.
Our common stock entitles its holder to one vote per share,
while our Class B common stock entitles its holder to ten
votes per share. Holders of our Class B common stock may
convert their shares into common stock at a one-for-one
ratio at any time. There are significant restrictions on
transfer of our Class B common stock. Except for these
differences, shares of common stock and Class B common stock
are substantially identical in all respects.
Subscription Commitment of Our
Controlling Shareholder................. PMM GK Investment LLC, a company wholly owned and controlled
by Paul Montrone, will purchase all of the shares issued
upon the exercise of the subscription rights in respect of
the shares of common stock and Class B common stock owned by
Mr. Montrone and the Montrone family trusts. Their
shareholdings represent 47.1% of our outstanding shares and
80.5% of the voting power of our stock.
In addition, PMM GK Investment LLC has indicated that it
intends to exercise the oversubscription privilege in full.
In the event all shareholders do not exercise their basic
subscription privilege in full, Paul Montrone's
proportionate ownership of GenTek will increase in relation
to those non-exercising shareholders.
Toufic M. Aboukhater and Paul M. Meister, a director of
GenTek, have invested $25 million in debt securities of PMM
GK Investment LLC. PMM GK Investment LLC will continue to be
wholly owned by Mr. Montrone following this offering.
In order to ensure compliance with certain conditions to the
favorable tax treatment received by our shareholders in our
spin-off in April 1999, Mr. Montrone, the Montrone family
trusts and PMM
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
GK Investment LLC have agreed to refrain from selling their
GenTek stock until at least April 30, 2001.
No Revocation............................. If you exercise any rights, you are not allowed to revoke or
change the exercise or request a refund of monies paid.
Certain Federal Income Tax
Consequences............................ For United States federal income tax purposes, we believe
that a shareholder will not recognize taxable income upon
the receipt or exercise of rights. See 'Certain Federal
Income Tax Consequences' beginning on page 78. Each
shareholder should consult its own tax adviser concerning
the tax consequences of this offering under the holder's own
tax situation. This prospectus does not summarize tax
consequences arising under state tax laws, non-U.S. tax
laws, or any tax laws relating to special tax circumstances
or particular types of taxpayers.
Extension, Withdrawal and
Amendment............................... We have the option of extending the rights offering and the
period for exercising your rights, although we presently do
not intend to do so. We also reserve the right to withdraw,
terminate or amend the rights offering at any time for any
reason. In the event that the offering is withdrawn or
terminated, or any submitted subscriptions no longer comply
with the amended terms of the offering, we will return all
funds received from such subscriptions (without interest).
Procedure for Exercising
Rights.................................. To exercise rights, you must complete the subscription
warrant and deliver it to the subscription agent,
ChaseMellon Shareholder Services, L.L.C., with full payment
for all the rights you elect to exercise. ChaseMellon
Shareholder Services, L.L.C. must receive the proper forms
and payments on or before the expiration date.
You may deliver the documents and payments by mail or
commercial courier. If regular mail is used for this
purpose, we recommend using insured, registered mail. You
may use an alternative 'Guaranteed Delivery Procedure' if
you are unable to deliver the subscription warrant before
the expiration date, subject to the requirements of this
procedure described under 'The Rights Offering -- Special
Procedure under 'Notice of Guaranteed Delivery' Form' on
page 24.
Shares Outstanding before the
Rights Offering......................... 20,815,120 shares, consisting of 16,856,699 shares of common
stock and 3,958,421 shares of Class B common stock, were
outstanding as of January 24, 2000.
Shares Outstanding Upon
Completion of Rights Offering........... 24,978,145 shares, consisting of 20,228,039 shares of common
stock and 4,750,106 shares of Class B common stock.
</TABLE>
RISK FACTORS
Exercising your rights delivered in this offering and purchasing our
common stock involves a high degree of risk. You should carefully read and
consider the information set forth under 'Risk Factors' beginning on page 14 and
the other information contained in this prospectus.
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<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical financial data set forth below for the nine
months ended September 30, 1998 and 1999 and the balance sheet data as of
September 30, 1999 are derived from the unaudited Consolidated Financial
Statements and notes included in this prospectus and, in the opinion of our
management, include all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation. The summary
historical financial data set forth below for each of the years in the
three-year period ended December 31, 1998 are derived from the audited
Consolidated Financial Statements and notes included in this prospectus, which
have been audited by Deloitte & Touche LLP, independent auditors.
The pro forma data for the year ended December 31, 1998 and the nine
months ended September 30, 1999 have been prepared on the basis that the
transactions we have completed this year (the acquisitions of Defiance, Noma and
Krone, the spinoff and the related financing transactions, and the issuance of
senior subordinated notes) had occurred as of the first day of the periods
presented. See ' -- Recent Transactions' above. The pro forma adjustments are
based on currently available information and certain adjustments that management
believes are reasonable. These data are presented for informational purposes
only and do not necessarily represent what our financial position or results of
operations would have been if these transactions had in fact occurred on the
dates indicated, and are not necessarily indicative of our financial position or
results of operations for any future period.
Because we did not operate as a separate, stand-alone entity through
April 30, 1999 (the date of our spinoff from The General Chemical Group Inc.),
we might have recorded different results had we operated independently of the
industrial chemicals business of The General Chemical Group Inc. Therefore, the
financial information presented below is not necessarily indicative of the
results of operations or financial position that would have resulted if we had
been a separate, stand-alone entity during the periods shown, or of our future
performance as a separate, stand-alone entity. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.' For a description of
the basis of presentation of the historical financial data, see note 1 to the
Consolidated Financial Statements.
The spinoff has been treated as a reverse spinoff for financial
statement purposes because we hold the greater proportion of the assets and
operations that were held by The General Chemical Group Inc. prior to the
spinoff. Therefore, the spinoff is reflected, for financial statement
presentation, as if we had formed a new company consisting of the industrial
chemicals business and distributed the stock of that company as a dividend to
our stockholders, with our assets, operations and businesses remaining with us
after the spinoff. Accordingly, our financial statements reflect the financial
position and results of operations of our businesses as continuing operations
and the financial position and results of operations of the industrial chemicals
business as discontinued operations.
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<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- --------------------------------
PRO FORMA PRO FORMA
1996 1997 1998 1998 1998 1999 1999
-------- -------- -------- ---------- ------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......................... $330,120 $368,516 $443,919 $1,135,635 $331,453 $609,324 $896,917
Gross profit.......................... 100,883 116,604 117,293(1) 305,231(1) 96,518 155,386 251,076
Operating profit...................... 48,723(2) 67,526 51,721(3) 90,019(3) 56,171 75,383(4) 94,298(4)
Interest expense...................... 10,747 8,855 14,624 65,144 10,626 25,378 48,858
Income from continuing operations
before income taxes and
extraordinary item.................. 39,200 59,535 37,313 25,144 45,814 51,657 47,277
Income from continuing operations
before extraordinary items.......... 20,775 33,274 41,069(5) 26,553(5) 26,973 27,767 26,391
Income from discontinued operations... 25,833 23,041 10,299 10,299 9,339 1,006 1,006
Net income(6)......................... $ 46,608 $ 56,315 $ 47,707 $ 33,191 $32,651 $ 23,834 $ 22,458
-------- -------- -------- ---------- ------- -------- --------
-------- -------- -------- ---------- ------- -------- --------
Net income per share (basic)(7)....... $ 2.19 $ 2.63 $ 2.27 $ 1.58 $ 1.55 $ 1.14 $ 1.07
Net income per share (diluted)(7)..... $ 2.13 $ 2.50 $ 2.18 $ 1.52 $ 1.49 $ 1.11 $ 1.05
OTHER DATA:
EBITDA(8)............................. $ 69,473 $ 83,211 $ 95,737 $ 175,161 $73,301 $107,452 $155,291
Capital expenditures.................. 19,231 26,203 33,737 72,429 22,185 22,258 31,886
Depreciation and amortization......... 14,099 16,296 23,065 64,228 17,539 31,156 54,209
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------
1996 1997 1998 1999
--------- -------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 50,091 $ 20,401 $ 61,310 $ 34,459
Total assets.............................................. 274,298 389,818 536,818 1,195,484
Long-term debt (including current portion)................ 234,609 258,004 357,531 755,440
Total equity (deficit).................................... (119,753) (94,239) (54,696) 12,485
</TABLE>
- ------------
(1) Includes a one-time charge of $12.1 million ($7.3 million after tax)
primarily due to an asset impairment writedown for two of our manufacturing
facilities.
(2) Includes a one-time charge of $6.8 million ($4.1 million after tax)
primarily related to awards made under a restricted unit plan, which
replaced certain prior equity programs.
(3) Includes incremental accruals of $9.8 million ($5.9 million after tax)
principally related to litigation and environmental spending.
(4) Includes a one-time charge of $6.2 million primarily related to the spinoff.
(5) Includes a nonrecurring gain of $19.5 million related to an income tax
settlement.
(6) For 1998, the nine months ended September 30, 1998 and the nine months ended
September 30, 1999, includes extraordinary losses of $3.7 million, $3.7
million and $4.9 million, respectively, related to the early retirement of
certain indebtedness.
(7) Basic earnings per share calculations are based on the weighted average
number of shares and contingently issuable shares outstanding for the
periods indicated. Diluted earnings per share calculations assume the
foregoing and, in addition, the exercise of all stock options and restricted
units, using the treasury stock method.
(8) EBITDA represents income from continuing operations before interest, income
taxes, extraordinary items and depreciation and amortization and excludes
the one-time charges identified in the notes above. EBITDA is included
because we believe that such information is considered to be an additional
basis on which to evaluate our ability to pay interest, repay debt and fund
capital expenditures. EBITDA is not intended to represent, and should not be
considered more meaningful than, or an alternative to, measures of operating
performance determined in accordance with generally accepted accounting
principles. EBITDA may not be comparable to similarly titled measures
reported by other companies.
12
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. All statements
other than statements of historical facts included in this prospectus may
constitute forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events.
Although we believe that our assumptions made in connection with the
forward-looking statements are reasonable, we cannot assure you that our
assumptions and expectations will prove to have been correct. Important factors
that could cause our actual results to differ from our expectations are
disclosed in this prospectus, including factors disclosed under 'Risk Factors'
beginning on page 14. These forward-looking statements are subject to various
risks, uncertainties and assumptions including, among other things:
our outstanding indebtedness and our leverage, and the restrictions
imposed by our indebtedness;
the cyclical nature of certain of our businesses, and domestic and
international economic conditions;
the high degree of competition in certain of our businesses, and the
potential for new competitors to enter into those businesses;
the integration of recent and future acquired businesses with our
existing operations in a timely and efficient manner;
the extent to which we undertake new acquisitions or enter into
strategic joint ventures or partnerships;
future modifications to existing laws and regulations affecting the
environment, health and safety;
discovery of unknown contingent liabilities, including environmental
contamination at our facilities;
fluctuations in interest rates and in foreign currency exchange rates;
increases in the cost of raw materials and other inputs used to make
our products; and
certain potential adverse tax consequences of a change of control.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
13
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before deciding to purchase shares in the rights
offering. Our shares are subject to significant investment risks. Many factors,
including the risks described below and other risks we have not recognized,
could cause our operating results to be different from our expectations and
plans.
THERE ARE RISKS RELATED TO THIS OFFERING THAT COULD RESULT IN SUBSTANTIAL LOSSES
FOR INVESTORS WHO DECIDE TO EXERCISE THEIR RIGHTS.
STOCK MARKET RISKS.
Decline in Our Stock Price. The subscription price in this rights
offering represents a discount to the market price of our common stock
on the date it was determined. The trading price of our common stock
may decline to below the subscription price. We cannot assure you that
the subscription price will remain below any trading price for our
common stock or that its trading price will not decline to below the
subscription price during or after the rights offering.
Future Market Price of Our Stock. Future prices of our stock may be
affected positively or negatively by our future revenues and earnings,
changes in estimates by analysts, our ability to meet analysts'
estimates, speculation in the trade or business press about our
company, and overall conditions affecting our businesses, economic
trends and the securities markets.
NO REVOCATION. You are not allowed to revoke or change your exercise of
rights after you send in your subscription forms and payment. If we cancel the
rights offering, we are obligated only to refund payments actually received,
without interest.
IF YOU DO NOT EXERCISE YOUR RIGHTS, YOUR RELATIVE OWNERSHIP INTEREST WILL BE
DILUTED.
If you choose not to exercise your subscription rights in full, your
relative ownership interest will be diluted. In addition, because the
subscription price represents a discount from the prevailing market price of our
common stock, shareholders who choose not to exercise their subscription rights
could experience dilution of their economic interest in GenTek.
THERE ARE SIGNIFICANT RESTRICTIONS ON TRANSFERS OF THE RIGHTS.
Generally, only our shareholders of record as of the record date may
exercise the rights. You may not sell, give away, or otherwise transfer your
subscription rights, except to your immediate family members, to entities wholly
owned or controlled by you, or to other similar affiliates. For information on
how your rights can be transferred, see 'The Rights Offering -- Transferability
of Rights.'
If you do decide to exercise your rights, you will need to follow the
subscription instructions. If you do not, your subscriptions will be rejected.
NEED TO ACT PROMPTLY AND FOLLOW SUBSCRIPTION INSTRUCTIONS. Shareholders
who desire to purchase shares in the rights offering or to transfer or sell
their rights must act promptly to ensure that all required forms and payments
are actually received by the subscription agent, ChaseMellon Shareholder
Services, L.L.C., prior to the expiration date. If you fail to complete and sign
the required subscription forms, send an incorrect payment amount, or otherwise
fail to follow the subscription procedures that apply to your desired
transaction, ChaseMellon Shareholder Services, L.L.C. may, depending on the
circumstances, reject your subscription or accept it to the extent of the
payment received. Neither GenTek nor ChaseMellon Shareholder Services, L.L.C.
undertakes to contact you concerning, or to attempt to correct, an incomplete or
incorrect subscription form. GenTek has the sole discretion to determine whether
a subscription exercise properly follows the subscription procedures.
RISK OF PERSONAL CHECKS. Any personal check used to pay for shares must
clear prior to the expiration date, and the clearing process may require five or
more business days.
14
<PAGE>
ALTHOUGH OUR COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE, IT IS THINLY
TRADED. OUR STOCK PRICE MAY FLUCTUATE MORE THAN THE STOCK MARKET AS A WHOLE.
As a result of the thin trading market for our stock, its market price
may fluctuate significantly more than the stock market as a whole or the stock
prices of our peer companies. Of the 20,815,120 shares of our outstanding common
stock and Class B common stock, only approximately 52.9% are owned by persons
other than Paul M. Montrone, our controlling shareholder and the Chairman of our
Board, and the Montrone family trusts. Without a larger float, our common stock
will be less liquid than the stock of companies with broader public ownership,
and, as a result, the trading prices for our common stock may be more volatile.
Among other things, trading of a relatively small volume of our common stock may
have a greater impact on the trading price for our stock than would be the case
if our public float were larger.
In addition, sales of a substantial amount of common stock in the public
market, or the perception that these sales may occur, could adversely affect the
market price of our common stock prevailing from time to time. Possible or
actual sale of any of these shares, particularly by Paul Montrone and the
Montrone family trusts, may decrease the price of shares of our common stock.
However, in order to comply with certain conditions to the favorable tax
treatment received by our shareholders in our spinoff in April 1999, Mr.
Montrone and the family trusts have agreed to refrain from selling their GenTek
stock until at least April 30, 2001.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
We have substantial indebtedness and will continue to have substantial
indebtedness after the completion of the rights offering. In addition, we may
increase our indebtedness in the future. The following are important statistics
about us and our indebtedness:
on September 30, 1999, we had total long-term debt of $755.4 million,
representing 98.4% of our total capitalization; and
we have the ability to borrow an additional $85 million under our
credit facility (excluding approximately $13 million for letters of
credit issued under the credit facility).
Our level of indebtedness could have important consequences to our
shareholders. For example, it could:
make us more vulnerable to economic downturns;
potentially limit our ability to withstand competitive pressures;
impair our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions or general
corporate purposes; and
make us more susceptible to the above risks because borrowings under
our credit facility will bear interest at fluctuating rates.
If we are unable to generate sufficient cash flow from operations in the
future we may be unable to repay or refinance all or a portion of our then
existing debt or to obtain additional financing. There can be no assurance that
any such refinancing would be possible or that any additional financing could be
obtained on terms that are acceptable to us.
OUR DEBT AGREEMENTS IMPOSE SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS,
WHICH MAY PREVENT US FROM CAPITALIZING ON BUSINESS OPPORTUNITIES.
Our debt agreements impose significant operating and financial
restrictions on us. These restrictions affect, and in certain cases limit, among
other things, our ability to:
incur additional indebtedness and liens;
make capital expenditures;
make investments and acquisitions and sell assets; or
consolidate, merge or sell all or substantially all of our assets.
15
<PAGE>
There can be no assurance that these restrictions will not adversely
affect our ability to finance our future operations or capital needs or to
engage in other business activities that may be in the interest of shareholders.
THE INDUSTRIES IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE. THIS COMPETITION MAY
PREVENT US FROM RAISING PRICES AT THE SAME PACE AS OUR COSTS INCREASE.
In each of our business segments, we operate in competitive markets. Our
manufacturing segment competes with numerous international and North American
companies, including various captive operations of OEMs and Tier 1 suppliers to
automotive manufacturers. Approximately 38% of pro forma 1998 sales were to the
automotive market. Competition in the manufacturing segment's markets is based
on a number of factors, including design and engineering capabilities, quality,
price and the ability to meet customer delivery requirements.
Most of the markets in which our performance products segment does
business are highly competitive. The major competitors of our performance
products segment are typically segregated by end market and include
international, regional and, in some cases, small independent producers.
Competition in the performance products segment's markets is based on a number
of factors, including price, freight economics, product quality and technical
support. Due to the level of competition faced by our performance products
segment, raising prices has been difficult over the past several years and will
likely continue to be so in the near future.
Our telecommunications equipment segment also operates in highly
competitive markets, with many of our competitors being large, international and
technologically sophisticated companies. Competition in our telecommunications
equipment segment is based on a number of factors, including technological
advancements, product line breadth, price, technical support and service, and
product quality. The ability to achieve and maintain successful performance in
this segment is also dependent on our ability to develop products which meet the
ever-changing requirements of data and voice communications technology.
WE WILL CONTINUE TO PURSUE NEW ACQUISITIONS AND JOINT VENTURES, AND ANY OF THESE
TRANSACTIONS COULD ADVERSELY AFFECT OUR OPERATING RESULTS OR RESULT IN INCREASED
COSTS OR OTHER PROBLEMS.
We intend to continue to pursue new acquisitions and joint ventures, a
pursuit which will consume substantial time and resources. Identifying
appropriate acquisition candidates and negotiating and consummating acquisitions
can be a lengthy and costly process. In addition, we have acquired five
businesses this year (including Noma, Defiance and Krone); as with all
acquisitions, we face challenges in implementing our operating strategy at these
businesses and improving their results to our targeted objectives. The
successful implementation of our operating strategy at these and future
acquisitions and joint ventures may require substantial attention from our
management team, which could divert management attention from our existing
businesses. The businesses we acquire, or the joint ventures we enter into, may
not generate the cash flow and earnings, or yield the other benefits, we
anticipated at the time of their acquisition or formation. Furthermore, we may
also encounter substantial unanticipated costs or other problems associated with
the acquired businesses. The risks inherent in our strategy could have an
adverse impact on our results of operation or financial condition.
WE HAVE LIMITED EXPERIENCE IN THE TELECOMMUNICATIONS INDUSTRY AND IN THE
GEOGRAPHIC MARKETS SERVICED BY KRONE, WHICH WE RECENTLY ACQUIRED. IF WE
ENCOUNTER UNEXPECTED COSTS OR OTHER PROBLEMS, THIS ACQUISITION COULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS.
We consummated our acquisition of Krone on August 20, 1999. The
acquisition of Krone presents us with significant challenges. Among other
things, the acquisition of Krone reflects a major commitment to the
telecommunications industry and geographic markets outside North America where
we have not had substantial operations. Therefore, there can be no assurance
that difficulties in integrating the operations of Krone will not arise or that
the strategic and commercial benefits expected from the acquisition of Krone
will be realized. We are currently in the process of integrating Krone's
operations. We may encounter substantial unanticipated liabilities at Krone and
substantial unanticipated costs or
16
<PAGE>
problems in integrating its operations. If we encounter such costs, liabilities
or problems, the acquisition of Krone could have an adverse effect on our
results of operations or financial condition.
OUR OPERATIONS ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS, WHOSE
REQUIREMENTS COULD ADVERSELY AFFECT OUR OPERATIONS AND PROFITABILITY.
Our various 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, Australia, China, Germany, Great Britain, India, Indonesia,
Ireland and Mexico. Due to the nature of our operations, we are also involved
from time to time in administrative and judicial proceedings and inquiries
relating to environmental matters. Modifications or changes in enforcement of
existing laws and regulations, the adoption of new laws and regulations in the
future, particularly with respect to environmental and safety standards, or
unfavorable outcomes to any present or future proceedings or inquiries could
require expenditures which might be material to our results of operations or
financial condition.
Additionally, the Comprehensive Environmental Response Compensation and
Liability Act of 1980 and similar state statutes have been construed as imposing
joint and several liability, under certain circumstances, on present and former
owners and operators of contaminated sites and transporters and generators of
hazardous substances for remediation of contaminated properties regardless of
fault. Our facilities have been operated for many years by us or their prior
owners and operators, and adverse environmental conditions may exist of which we
are not aware. The discovery of additional or unknown environmental
contamination at any of our current or former facilities could have a material
adverse effect on our results of operations or financial condition. In addition,
we have received written notice from the United States Environmental Protection
Agency that we have been identified as a potentially responsible party under the
Comprehensive Environmental Response Compensation and Liability Act of 1980 at
three third-party sites.
OUR REVENUES ARE DEPENDENT ON THE CONTINUED OPERATION OF OUR MANUFACTURING
FACILITIES, AND BREAKDOWNS OR OTHER PROBLEMS IN THEIR OPERATION COULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS. THE PRODUCTION OF CHEMICALS IS ASSOCIATED WITH
A VARIETY OF HAZARDS WHICH COULD CREATE SIGNIFICANT LIABILITIES OR CAUSE OUR
FACILITIES TO SUSPEND THEIR OPERATIONS.
Our revenues are dependent on the continued operation of our 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, at one or more of our facilities could have a material adverse
effect on our results of operations or financial condition.
In particular, our 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, which include the risk of explosions, fires and chemical spills or
releases, can cause personal injury and loss of life, severe damage to and
destruction of property and equipment, environmental damage, suspension of
operations and potentially subject us to lawsuits relating to personal injury
and property damages. Any such event or circumstance could have a material
adverse effect on our results of operations or financial condition.
WE ARE CONTROLLED BY OUR PRINCIPAL SHAREHOLDER, WHOSE INTERESTS MAY NOT BE
ALIGNED WITH THOSE OF OTHER SHAREHOLDERS.
Paul M. Montrone, our controlling shareholder and the Chairman of our
Board of Directors, beneficially owns or controls through Montrone family
trusts, 47.1% of our outstanding shares, representing 80.5% of the voting power
of our outstanding common stock. Mr. Montrone alone has sufficient voting power
to elect our entire Board of Directors and, in general, to determine the outcome
of any corporate transactions or other matters submitted to our shareholders for
approval, including mergers and sales of assets, and to prevent, or to cause, a
change of control of our company.
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<PAGE>
PMM GK Investment LLC, a company wholly owned and controlled by Paul
Montrone, will purchase all of the shares issued upon the exercise of the
subscription rights in respect of the shares owned by Mr. Montrone and the
Montrone family trusts. In addition, PMM GK Investment LLC has indicated that it
intends to exercise the oversubscription privilege in full. As a result,
following this offering, the percentage ownership and voting power of Mr.
Montrone in our company is likely to increase.
IF THE INTERNAL REVENUE SERVICE DETERMINES THAT THE SPINOFF WILL RESULT IN A
GAIN UNDER THE INTERNAL REVENUE CODE, THE IMPACT OF SUCH ADVERSE TAX CONSEQUENCE
MAY HAVE A MATERIALLY ADVERSE AFFECT ON OUR COMPANY.
As a result of the possible adverse tax consequences described below, we
may be restricted in our ability to effect certain acquisitions, stock issuances
and other transactions that would result in a change of control of our company.
If the Internal Revenue Service were to determine that the spinoff was part of a
plan or a series of related transactions under which one or more persons
acquire, directly or indirectly, a 50% or greater interest, by vote or value, in
either General Chemical Group or our company, General Chemical Group and,
possibly, our company would recognize gain under section 355(e) of the Internal
Revenue Code of 1986. The amount of such gain would be substantial and could
result in significant liabilities to General Chemical Group and/or our company,
which could have a material adverse effect on our businesses. Under a tax
sharing agreement, we and General Chemical Group will each be responsible, and
will indemnify one another, for 50% of any taxes resulting from the application
of section 355(e) of the Code, except that, if such taxes are attributable to
our act or an act of General Chemical Group (or any of our respective
subsidiaries) such party will be responsible, and will indemnify the other, for
100% of such taxes.
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<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
As soon as practicable after the date of this prospectus, we are
distributing, at no charge, to the record holders of our common stock at 5:00
p.m. (New York City time) on the record date of January 24, 2000, 0.20
subscription rights for every share of common stock held of record at that time
to purchase additional shares of common stock. Each whole right entitles you to
purchase 1 share of our common stock for the subscription price. On the record
date, the last reported sales price for our common stock on the NYSE was $9.94
per share.
We will not issue fractional rights. If the number of shares of common
stock you held of record on the record date would have resulted in your receipt
of fractional rights, the number of rights issued to you will be rounded up to
the nearest whole right. So, for example, if you were the record holder of less
than 5 shares, you will receive 1 right.
We are also granting rights to purchase additional shares of our Class B
common stock to the record holders of our Class B common stock. The record
holders of shares of Class B common stock as of the record date will receive
rights for the purchase of new shares of Class B common stock at the same
subscription price and subscription ratio as the holders of our common stock.
All of our Class B common stock is owned by Paul M. Montrone, our controlling
shareholder and the Chairman of our Board of Directors, or Montrone family
trusts. See ' -- Subscription Commitment of our Controlling Shareholder and
Chairman of our Board' below.
SUBSCRIPTION PRICE
The subscription price is $9.43 per share, payable in cash. This price
applies to the exercise of the basic subscription privilege and the
oversubscription privilege. All payments must be cleared on or before the
expiration date.
BASIC AND OVERSUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. You are entitled to purchase one share of
common stock at the subscription price for every one right exercised.
OVERSUBSCRIPTION PRIVILEGE. If you exercise your basic subscription
privilege in full, you may also subscribe for additional shares that other
shareholders have not purchased under their basic subscription privilege. If
there are not enough shares available to fill all subscriptions for additional
shares, the available shares will be allocated pro rata based on the number of
shares each subscriber for additional shares has purchased under the basic
subscription privilege. We will not allocate to you more than the number of
shares you have actually subscribed and paid for.
You are not entitled to exercise the oversubscription privilege unless
you have fully exercised your basic subscription privilege. For this purpose,
you would only count the shares you own in your own name, and not other shares
that might, for example, be jointly held with a spouse, held as a custodian for
someone else, or held in an individual retirement account.
You can elect to exercise the oversubscription privilege only at the
same time you exercise your basic subscription privilege in full.
In exercising the oversubscription privilege, you must pay the full
subscription price for all the shares you are electing to purchase. If we do not
allocate to you all shares you have subscribed for under the oversubscription
privilege, we will refund by mail to you any payment you have made for shares
which are not available to issue to you, as soon as practicable after completion
of the rights offering. Interest will not be payable on amounts refunded.
Banks, brokers and other nominees who exercise the oversubscription
privilege on behalf of beneficial owners of shares must report certain
information to ChaseMellon Shareholder Services, L.L.C. and GenTek and record
certain other information received from each beneficial owner exercising rights.
Generally, banks, brokers and other nominees must report (1) the number of
shares held on the record date on behalf of each beneficial owner, (2) the
number of rights as to which the basic subscription privilege has been exercised
on behalf of each beneficial owner, (3) that each beneficial owner's basic
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<PAGE>
subscription privilege held in the same capacity has been exercised in full, and
(4) the number of shares subscribed for under the oversubscription privilege by
each beneficial owner.
If you complete the portion of the subscription warrant to exercise the
oversubscription privilege, you will be representing and certifying that you
have fully exercised your basic subscription privilege as described above. You
must exercise your oversubscription privilege at the same time you exercise your
basic subscription privilege.
REASONS FOR THE RIGHTS OFFERING
We are offering the rights to raise equity capital. We will use the net
proceeds of this offering to repay a portion of our outstanding indebtedness
under our credit facility and for other general corporate purposes. The amounts
repaid from the proceeds of this offering may be reborrowed. See 'Use of
Proceeds.'
We have determined that, given current market conditions, this rights
offering is the most appropriate means of raising equity capital because it
affords our existing shareholders the preferential opportunity to subscribe for
the new shares of common stock and to maintain their proportionate interest in
GenTek. Some of the factors considered by our Board of Directors in approving
the rights offering include:
our need for capital;
our commitment to the Internal Revenue Service described below;
the alternative methods available to us for raising capital;
the pro rata nature of a rights offering to our stockholders;
the willingness of Paul M. Montrone, our controlling shareholder and
the Chairman of our Board, to subscribe for new shares and to purchase
any of our common stock offered in this rights offering but not
subscribed for by our other shareholders;
the market price of our common stock; and
general conditions of the securities markets.
In addition, this offering is intended to satisfy our commitment to the
Internal Revenue Service for the tax-free treatment of our spinoff from The
General Chemical Group Inc., our predecessor company, in April 1999. At that
time, we committed to the Internal Revenue Service that we would raise equity
capital by issuing stock in a public offering.
NO BOARD INVESTMENT RECOMMENDATION TO SHAREHOLDERS
Our Board of Directors does not make any recommendation to you about
whether you should exercise any rights. In making the decision to exercise or
not exercise your rights, you must consider your own best interests.
If you choose not to exercise your subscription rights in full, your
relative ownership interest will be diluted. If you exercise rights, you risk
investment loss on new money invested. The trading price of our common stock may
decline below the subscription price. We cannot assure you that the subscription
price will remain below any trading price for our common stock or that its
trading price will not decline to below the subscription price during or after
the rights offering. For a summary of some of the risks a new investment would
entail, see 'Risk Factors.'
EXPIRATION TIME AND DATE
The rights expire on February 14, 2000, at 5:00 p.m., New York City
time. We have the option of extending the expiration date for any reason,
although presently we do not intend to do so. Rights not exercised by the
expiration date will be null and void.
In order to exercise rights in a timely manner, you must assure that
ChaseMellon Shareholder Services, L.L.C. actually receives, prior to expiration
of the rights, the properly executed and completed subscription warrant (or form
of 'Notice of Guaranteed Delivery'), together with full payment for all shares
you wish to purchase.
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<PAGE>
NO REVOCATION
YOU ARE NOT ALLOWED TO REVOKE OR CHANGE YOUR EXERCISE OF RIGHTS AFTER
YOU SEND IN YOUR SUBSCRIPTION FORMS AND PAYMENT.
EXTENSION, WITHDRAWAL AND AMENDMENT
We have the option of extending the rights offering and the period for
exercising your rights, although we presently do not intend to do so.
We also reserve the right to withdraw or terminate the rights offering
at any time for any reason. In the event that the offering is withdrawn or
terminated, all funds received from such subscriptions will be returned.
Interest will not be payable on any returned funds.
We reserve the right to amend the terms of the rights offering. If we
make an amendment that we consider significant, we will (1) mail notice of the
amendment to all shareholders of record as of the record date, (2) extend the
expiration date by at least ten days and (3) offer all subscribers no less than
ten days to revoke any subscription already submitted. The extension of the
expiration date will not, in and of itself, be treated as a significant
amendment for these purposes.
SUBSCRIPTION COMMITMENT OF OUR CONTROLLING SHAREHOLDER AND CHAIRMAN OF OUR BOARD
Paul M. Montrone, the Chairman of our Board, and Montrone family trusts
own a total of 5,853,000 shares of common stock and 3,958,421 shares of Class B
common stock, representing 47.1% of our outstanding shares and 80.5% of the
voting power of our stock. Shares of our common stock and Class B common stock
are identical in all respects, except (1) holders of our common stock have one
vote per share, while holders of our Class B common stock have ten votes per
share, (2) there are significant restrictions on transfer of our Class B common
stock, and (3) holders of our Class B common stock may convert each share into
one share of common stock at any time.
PMM GK Investment LLC, a Delaware limited liability company wholly owned
and controlled by Paul Montrone, will purchase all of the shares issued upon the
exercise of subscription rights in respect of the shares of common stock and
Class B common stock owned by Mr. Montrone and the Montrone family trusts. In
addition, PMM GK Investment LLC has indicated that it intends to exercise the
oversubscription privilege in full. Toufic M. Aboukhater and Paul M. Meister, a
director of GenTek, have invested $25 million in debt securities of PMM GK
Investment LLC. PMM GK Investment LLC will continue to be wholly owned and
controlled by Mr. Montrone following this rights offering. As a result, Mr.
Montrone will have the sole power to direct the voting and disposition of any
shares of common stock and Class B common stock owned by PMM GK Investment LLC.
The table below sets forth the ownership of our stock by Paul Montrone,
the Montrone family trusts and PMM GK Investment LLC as of the date of this
prospectus and following the completion of this rights offering, assuming full
exercise of the basic subscription privilege by our shareholders and no purchase
of any shares of common stock pursuant to the oversubscription privilege. In the
event that PMM GK Investment LLC exercises its oversubscription privilege, Mr.
Montrone's percentage ownership and voting power in our company will increase.
<TABLE>
<CAPTION>
UPON COMPLETION OF
CURRENT OWNERSHIP RIGHTS OFFERING
---------------------- -----------------------
SHARES(1) PERCENT(2) SHARES(1) PERCENT(3)
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Paul M. Montrone(4).................................... 3,159,258 15.2% 3,159,258 12.6%
1996 GRAT(5)........................................... 2,044,021 9.8 2,044,021 8.2
February 1998 GRAT (6)................................. 1,508,481 7.2 1,508,481 6.0
December 1998 GRAT(7).................................. 1,099,661 5.3 1,099,661 4.4
1999 GRAT(8)........................................... 2,000,000 9.6 2,000,000 8.0
PMM GK Investment LLC(9)............................... -- -- 1,962,285 7.9
--------- ---- ---------- ----
Total for Mr. Montrone............................ 9,811,421 47.1% 11,773,706 47.1%
--------- ---- ---------- ----
--------- ---- ---------- ----
</TABLE>
(footnotes on next page)
21
<PAGE>
(footnotes from previous page)
(1) Includes common stock and Class B common stock.
(2) Based on 20,815,120 shares outstanding as of January 24, 2000 consisting
of 16,856,699 shares of common stock and 3,958,421 shares of Class B common
stock.
(3) Based on 24,978,145 shares outstanding upon completion of this rights
offering, consisting of 20,228,039 shares of common stock and 4,750,106
shares of Class B common stock to be issued in connection with this rights
offering.
(4) Includes only (a) 1,706,095 shares of Class B common stock and 1,420,163
shares of common stock held directly by Mr. Montrone, (b) 30,000 shares of
common stock held directly by Sandra A. Montrone, the wife of Mr. Montrone,
and (c) 3,000 shares of common stock held by a family trust. Does not
include 100,000 shares of common stock held by a charitable foundation, of
which Mr. Montrone is a director and Mrs. Montrone is a director and
officer; by virtue of their positions with the charitable foundation, Mr.
and Mrs. Montrone may be deemed to be beneficial owners of the shares of
common stock held by the foundation, although Mr. and Mrs. Montrone disclaim
any beneficial ownership of such shares.
(5) A grantor retained annuity trust formed in 1996. Ownership includes 829,140
shares of Class B common stock and 1,214,881 shares of common stock. Mr.
Montrone is the settlor and the annuity beneficiary of the 1996 GRAT. Mrs.
Montrone and Paul M. Meister, a director of GenTek, are the co-trustees of
1996 GRAT.
(6) A grantor retained annuity trust formed in February 1998. Ownership includes
611,903 shares of Class B common stock and 896,578 shares of common stock.
Mr. Montrone was the settlor and is the annuity beneficiary of the February
1998 GRAT. Mrs. Montrone is 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.
(7) A grantor retained annuity trust formed in December 1998. Ownership includes
1,099,661 shares of common stock. Mr. and Mrs. Montrone are the co-trustees
of the December GRAT. Wilmington Trust Company is the administrative trustee
of the December 1998 GRAT.
(8) A grantor retained annuity trust formed in March 1999. Ownership includes
811,283 shares of Class B common stock and 1,188,717 shares of common stock.
Mr. and Mrs. Montrone are the co-trustees of the 1999 GRAT. Wilmington Trust
Company is the administrative trustee of the 1999 GRAT.
(9) A Delaware limited liability company wholly owned and controlled by Mr.
Montrone. Upon completion of this offering, and assuming that all of GenTek
shareholders exercise their basic subscription privileges in full, PMM GK
Investment LLC's ownership will include 791,685 shares of Class B common
stock and 1,170,600 shares of common stock.
In order to ensure compliance with certain conditions to the favorable
tax treatment for our shareholders in our spin-off in April, 1999, Mr. Montrone,
the Montrone family trusts and PMM GK Investment LLC have agreed to refrain from
selling their GenTek stock until at least April 30, 2001.
MAILING OF WARRANTS AND RECORD HOLDERS
We are sending a subscription warrant to each record holder along with
this prospectus and related instructions to evidence the rights. In order to
exercise rights, you must fill out and sign the subscription warrant and timely
deliver it with full payment for the shares to be purchased. Only holders of
record of common stock at the close of business on the record date may exercise
rights. You are a record holder for this purpose only if your name is registered
as a shareholder with our transfer agent, ChaseMellon Shareholder Services,
L.L.C., as of the record date.
A depository bank, trust company or securities broker or dealer which is
a record holder for more than one beneficial owner of shares may divide or
consolidate subscription warrants to represent shares held on the record date by
their beneficial owners, upon proper showing to ChaseMellon Shareholder
Services, L.L.C.
If you own shares held in a brokerage, bank or other custodial or
nominee account, you should promptly send the proper instruction form to the
person holding your shares in order to exercise rights. Your broker, dealer,
depository or custodian bank or other person holding your shares is the record
holder of your shares and will have to act on your behalf in order for you to
exercise rights. We have asked your broker, dealer or other nominee holders of
our stock to contact the beneficial owners to obtain instructions concerning
rights the beneficial owners are entitled to exercise.
FOREIGN AND UNKNOWN ADDRESSES
We are not mailing subscription warrants to shareholders whose addresses
are outside the United States or who have an APO or FPO address. In those cases,
the subscription warrants will be held by ChaseMellon Shareholder Services,
L.L.C. for those shareholders. To exercise their rights, these shareholders must
notify ChaseMellon Shareholder Services, L.L.C. prior to 11:00 a.m., New York
City time, on the third business day prior to the expiration date.
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RIGHT TO BLOCK EXERCISE DUE TO REGULATORY ISSUES
We reserve the right to refuse the exercise of rights by any holder of
rights who would, in our opinion, be required to obtain prior clearance or
approval from any state, federal or foreign regulatory authorities for the
exercise of rights or ownership of additional shares if, at the expiration date,
this clearance or approval has not been obtained. We are not undertaking to pay
any expenses incurred in seeking that clearance or approval.
We are not offering or selling, or soliciting any purchase of, rights or
underlying shares in any state or other jurisdiction in which this rights
offering is not permitted. We reserve the right to delay the commencement of the
rights offering in certain states or other jurisdictions if necessary to comply
with local laws. However, we may elect not to offer rights to residents of any
state or other jurisdiction whose law would require a change in the rights
offering in order to carry out the rights offering in that state or
jurisdiction.
PROCEDURES TO EXERCISE RIGHTS
Please do not send subscription warrants or related forms to us. Please
send the properly completed and executed form of subscription warrant with full
payment to ChaseMellon Shareholder Services, L.L.C.
You should read carefully the forms of subscription warrant and related
instructions and forms which accompany this prospectus. You should call
ChaseMellon Shareholder Services, L.L.C. promptly with any questions you may
have.
You may exercise your rights by delivering to ChaseMellon Shareholder
Services, L.L.C., at the address specified in the instructions accompanying this
prospectus, at or prior to the expiration date:
Properly completed and executed subscription warrant(s) which evidence
your rights. See ' -- Delivery of Subscription Warrant' below for
instructions on where to send these.
Payment in full of the subscription price for each share you wish to
purchase under the basic subscription privilege and the
oversubscription privilege. See ' -- Required Forms of Payment of
Subscription Price' below for payment instructions.
REQUIRED FORMS OF PAYMENT OF SUBSCRIPTION PRICE
The subscription price is $9.43 per share subscribed for, payable in
cash. All payments must be cleared on or before the expiration date.
If you exercise any rights, you must deliver full payment in the form
of:
a check or bank draft drawn upon a U.S. bank, or U.S. postal money
order, payable to ChaseMellon Shareholder Services, L.L.C.,
Subscription Agent; or
by wire transfer of funds to the account maintained by the ChaseMellon
Shareholder Services, L.L.C. for this rights offering at The Chase
Manhattan Bank, New York, NY, ABA No. 021 000 021, Acct.
No. 323-213057 for the benefit of GenTek Inc., Attention: ChaseMellon
Shareholder Services, L.L.C., Evelyn O'Connor.
In order for you to timely exercise your rights, ChaseMellon Shareholder
Services, L.L.C. must actually receive the subscription price before the
expiration date in the form of:
a personal check, which must have timely cleared payment;
a certified or cashier's check or bank draft drawn upon a U.S. bank or
a U.S. postal money order; or
collected funds in ChaseMellon Shareholder Services, L.L.C.'s account
designated above.
FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS
DAYS TO CLEAR. ACCORDINGLY, IF YOU PAY THE SUBSCRIPTION PRICE BY MEANS OF
UNCERTIFIED PERSONAL CHECK, YOU SHOULD MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF
THE EXPIRATION TIME TO ENSURE THAT YOUR CHECK ACTUALLY CLEARS AND THE PAYMENT IS
RECEIVED BEFORE THAT TIME. We are not responsible for any delay in payment
23
<PAGE>
by you and suggest that you consider payment by means of certified or cashier's
check, money order or wire transfer of funds.
DELIVERY OF SUBSCRIPTION WARRANT
All subscription warrants, payments of the subscription price, nominee
holder certifications, notices of guaranteed delivery, and DTC participant
oversubscription exercise forms, to the extent applicable to your exercise of
rights, must be delivered to ChaseMellon Shareholder Services, L.L.C. as
follows:
<TABLE>
<S> <C> <C>
By mail: By hand delivery: By overnight courier:
P.O. Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 07606 13th Floor Overpeck Center
New York, NY 10271 Ridgefield Park, NJ 07660
</TABLE>
Eligible institutions may also deliver documents by facsimile
transmission. ChaseMellon Shareholder Services, L.L.C.'s facsimile number is 1
(201) 296-4293. You should confirm receipt of all facsimile transmissions by
calling 1 (201) 296-4860.
SPECIAL PROCEDURE UNDER 'NOTICE OF GUARANTEED DELIVERY' FORM
If you wish to exercise rights but cannot ensure that ChaseMellon
Shareholder Services, L.L.C. will actually receive the executed subscription
warrant before the expiration date, you may alternatively exercise rights by
causing all of the following to occur within the time prescribed:
Full payment must be received by ChaseMellon Shareholder Services,
L.L.C. prior to the expiration date for all shares you desire to
purchase pursuant to the basic subscription privilege and the
oversubscription privilege.
A properly executed 'Notice of Guaranteed Delivery' substantially in
the form distributed by GenTek with your subscription warrant must be
received by ChaseMellon Shareholder Services, L.L.C. at or prior to the
expiration date.
The 'Notice of Guaranteed Delivery' must be executed by both you and
one of the following: (1) a member firm of a registered national
securities exchange, (2) a member of National Association of Securities
Dealers, Inc. (NASD), (3) a commercial bank or trust company having an
office or correspondent in the United States, or (4) other eligible
guarantor institution qualified under a guarantee program acceptable to
ChaseMellon Shareholder Services, L.L.C. The co-signing institution
must guarantee in the Notice of Guaranteed Delivery that the
subscription warrant will be delivered to ChaseMellon Shareholder
Services, L.L.C. within three NYSE trading days after the date of the
form. You must also provide in that form other relevant details
concerning the intended exercise of rights.
The properly completed subscription warrant(s) with any required
signature guarantee must be received by ChaseMellon Shareholder
Services, L.L.C. within three NYSE trading days following the date of
the related Notice of Guaranteed Delivery.
If you are a nominee holder of rights, the 'Nominee Holder
Certification' must also accompany the Notice of Guaranteed Delivery.
A Notice of Guaranteed Delivery may be delivered to ChaseMellon
Shareholder Services, L.L.C. in the same manner as subscription warrants at the
address set forth above under 'The Rights Offering -- The Subscription Agent'
or may be delivered by telegram or facsimile transmission (facsimile no.
1 (201) 296-4293). To confirm facsimile transmissions, please call
1 (201) 296-4860.
Additional copies of the form of Notice of Guaranteed Delivery are
available upon request from ChaseMellon Shareholder Services, L.L.C., whose
address and telephone numbers are set forth above.
INCOMPLETE FORMS; INSUFFICIENT PAYMENT
If you do not indicate the number of rights being exercised, or do not
forward sufficient payment for the number of rights that you indicate are being
exercised, then we will accept the
24
<PAGE>
subscription forms and payment only for the maximum number of rights that may be
exercised based on the actual payment delivered. We will make this determination
as follows: (1) you will be deemed to have exercised the basic subscription
privilege to the full extent of the payment received, and (2) if any funds
remain, you will be deemed to have exercised the oversubscription privilege to
the extent of the remaining funds. GenTek will return any payment not applied to
the purchase of shares under the rights offering procedures to those who made
these payments as soon as practicable by mail. Interest will not be payable on
amounts refunded.
PROHIBITION ON FRACTIONAL SHARES
Each whole right entitles you to purchase one share of common stock at
the subscription price per share. We will accept any inadvertent subscription
indicating a purchase of fractional shares by rounding down to the nearest whole
share and refunding without interest any payment received for a fractional share
as soon as practicable.
INSTRUCTIONS TO NOMINEE HOLDERS
If you are a broker, trustee or depository for securities or other
nominee holder of common stock for beneficial owners of the stock, we are
requesting you to contact the beneficial owners as soon as possible to obtain
instructions and related certifications concerning their rights. Our request to
you is further explained in the suggested form of letter of instructions from
nominee holders to beneficial owners accompanying this prospectus.
To the extent so instructed, nominee holders should complete appropriate
subscription warrants on behalf of beneficial owners and, in the case of any
exercise of the oversubscription privilege, the related form of 'Nominee Holder
Certification,' and submit them on a timely basis to ChaseMellon Shareholder
Services, L.L.C. with the proper payment.
RISK OF LOSS ON DELIVERY OF SUBSCRIPTION WARRANT FORMS AND PAYMENTS
Each holder of rights bears all risk of the method of delivery to
ChaseMellon Shareholder Services, L.L.C. of subscription warrants and payments
of the subscription price.
IF SUBSCRIPTION WARRANTS AND PAYMENTS ARE SENT BY MAIL, YOU ARE URGED TO
SEND THESE BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED,
AND TO ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO CHASEMELLON
SHAREHOLDER SERVICES, L.L.C. AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION
TIME.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS
TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF
CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
PROCEDURES FOR DTC PARTICIPANTS
We expect that your exercise of your basic subscription privilege (but
not your oversubscription privilege) may be made through the facilities of The
Depository Trust Company (commonly known as DTC). If your rights are exercised
as part of the basic subscription privilege through DTC, we refer to them as
'DTC Exercised Rights.' If you hold DTC Exercised Rights, you may exercise your
oversubscription privilege by properly executing and delivering to ChaseMellon
Shareholder Services, L.L.C., at or prior to the time the rights expire, a DTC
participant oversubscription exercise form and a nominee holder certification
and making payment of the appropriate subscription price for the number of
shares of common stock for which your oversubscription privilege is to be
exercised. Please call ChaseMellon Shareholder Services, L.L.C. at 1
(201) 296-4860 to obtain copies of the DTC oversubscription exercise form and
the nominee holder certification.
TRANSFERABILITY OF RIGHTS
PERMITTED TRANSFERS. In general, the rights are not transferable and may
be exercised only by the persons to whom they are issued (each, a 'holder').
Rights may, however, be transferred by the holder to the following persons (the
'permitted transferees'):
25
<PAGE>
To the holder's immediate relatives, i.e., spouse, children and
parents;
To entities wholly owned or controlled by the holder;
If the holder is a corporation or partnership owned or controlled by
one person or entity, to the person or entity that owns or controls the
holder;
If the holder is a trust, to the settlors, grantors, trustees or
beneficiaries of the trust or immediate relatives or entities wholly
owned or controlled by such settlors, grantors, trustees or
beneficiaries; and
By operation of law in the event of death or dissolution of the holder.
In any transfer, we will rely on your certification that the transferee
is a permitted transferee. We may, at our option, request proper showing of your
relationship to the transferee, and, if we are not satisfied, we have the option
of not acknowledging or giving effect to the purported transfer.
METHOD OF TRANSFER. You may transfer rights in whole by endorsing the
subscription warrant for the transfer. Please follow the instructions for
transfer included in the information sent to you with your subscription warrant.
You may not transfer less than a whole right. If you transfer only a portion of
the rights (but not fractional rights), you should deliver your properly
endorsed subscription warrant to ChaseMellon Shareholder Services, L.L.C. With
your subscription warrant, you should include instructions to register such
portion of the rights evidenced thereby in the name of the transferee (and to
issue a new subscription warrant to the transferee for such transferred rights).
If there is sufficient time before the expiration of the right offering,
ChaseMellon Shareholder Services, L.L.C. will send you a new subscription
warrant evidencing the balance of the rights issued to you but not transferred.
You should also allow two to seven business days for your transferee to
exercise the rights evidenced by the new subscription warrant. The amount of
time needed by your transferee to exercise its rights depends upon the method by
which the transferee delivers the subscription warrant and the method of payment
made by the transferee. Neither GenTek nor ChaseMellon Shareholder Services,
L.L.C. will be liable to the transferor or transferee of rights if the
subscription warrant or other required documents are not received in time for
exercise prior to the expiration date.
You will receive a new subscription warrant upon a partial exercise only
if ChaseMellon Shareholder Services, L.L.C. receives your properly endorsed
subscription warrants no later than 5:00 p.m., New York City time, five business
days before the expiration date. ChaseMellon Shareholder Services, L.L.C. will
not issue a new subscription warrant if your subscription warrant is received
after the expiration date. If your instructions and the subscription warrants
are not received by ChaseMellon Shareholder Services, L.L.C. by the expiration
date, you will lose your power to exercise your remaining rights.
Unless you make other arrangements with ChaseMellon Shareholder
Services, L.L.C., a new subscription warrant issued to you after 5:00 p.m., New
York City time, five business days before the expiration date will be held for
pick-up by you at ChaseMellon Shareholder Services, L.L.C.'s hand delivery
address provided herein. You bear the responsibility for all newly-issued
subscription warrants; if you request a reissuance of a subscription warrant,
the delivery of that document will be at your risk.
SIGNATURE GUARANTEE. If you are not a broker, bank or other eligible
institution, you must obtain a signature guarantee on the subscription warrant
from a broker, bank or other institution eligible to guarantee signatures in
order to transfer the subscription warrant in whole or to transfer a portion of
your rights.
HOW PROCEDURAL AND OTHER QUESTIONS ARE RESOLVED
We are entitled to resolve all questions concerning the timeliness,
validity, form and eligibility of any exercise of rights. Our determination of
such questions will be final and binding. We, in our sole discretion, may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
right because of any defect or irregularity.
26
<PAGE>
Subscription warrants will not be considered received or accepted until
all irregularities have been waived or cured within such time as we determine,
in our sole discretion. Neither GenTek nor ChaseMellon Shareholder Services,
L.L.C. have any duty to give notification of any defect or irregularity in
connection with the submission of subscription warrants or any other required
document. They will not incur any liability for failure to give such
notification.
We reserve the right to reject any exercise of rights if the exercise
does not comply with the terms of this rights offering or is not in proper form
or if the exercise of rights would be unlawful or materially burdensome.
ISSUANCE OF STOCK CERTIFICATES
Stock certificates for shares purchased in the rights offering will be
issued as soon as practicable after the expiration date. ChaseMellon Shareholder
Services, L.L.C. will deliver subscription payments to us only after
consummation of the rights offering and the issuance of stock certificates to
those exercising rights. Unless otherwise instructed in your subscription
warrant form, shares purchased by the exercise of rights will be registered in
the name of the person exercising the rights.
QUESTIONS AND ASSISTANCE CONCERNING THE RIGHTS
You should direct any questions, requests for assistance concerning the
rights or requests for additional copies of this prospectus, forms of
instructions or the Notice of Guaranteed Delivery to:
ChaseMellon Consulting Services, L.L.C.
450 W. 33rd Street
14th Floor
New York, NY 10001
Telephone: 1 (888) 566-9477 (toll free)
27
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds of this offering will be approximately
$39,260,000. We will use these proceeds to repay a portion of our indebtedness
under our credit facility and for general corporate purposes.
As of September 30, 1999 we had $465 million of outstanding debt under
our credit facility, consisting of $250 million of term loans and $215 million
of loans under our revolving credit facility, and we had the ability to borrow
an additional $85 million under our revolving credit facility (excluding
approximately $13 million of letters of credit issued under the credit
facility). We will use the proceeds of the rights offering to repay
approximately $39,260,000 of loans under our revolving credit facility. The
amounts repaid from the proceeds of this offering may be reborrowed. The loans
under our revolving credit facility mature on April 30, 2005 and bear variable
interest rates which approximated 8% annually at December 31, 1999.
DETERMINATION OF SUBSCRIPTION PRICE
The subscription price of the rights was determined by our Board of
Directors without any independent valuation or appraisal of the value of our
common stock. The subscription price is not necessarily related to the assets,
book value or net worth of GenTek or any other established criteria of value and
may not be indicative of the fair value of the securities offered. In
determining the subscription price, the Board of Directors considered, among
other things, the historic and current market price of the common stock on the
New York Stock Exchange (approximately $9.94 per share at January 24, 2000), the
pricing of similar transactions, our earnings and prospects, and the general
conditions of the securities markets, as well as our need for capital and our
commitment to the Internal Revenue Service to issue stock in a public offering.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the NYSE under the symbol 'GK'. As of
January 24, 2000, there were 150 registered holders of the common stock, and the
closing price per share of the common stock as listed on the NYSE composite tape
was $9.94. The following table sets forth the high and low sales prices of the
common stock as reported on the NYSE composite tape, together with the amount of
cash dividends declared per share for each quarter since May 3, 1999, the first
trading day of our common stock on the NYSE following our spinoff from our
predecessor company, The General Chemical Group Inc.
Currently, it is our policy to pay regular quarterly cash dividends of
$0.05 per share of common stock. Our dividend policy is, however, subject to
change. Dividend decisions will be based on, among other factors, our operating
results and financial requirements, as well as the restrictions imposed by our
financing facilities. The payment and level of cash dividends, if any, to
holders of our common stock and Class B common stock is subject to the
discretion of our Board of Directors.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
---- --- --------
<S> <C> <C> <C>
Second Quarter of 1999 (since May 3, 1999).................. $15.88 $11.56 $0.05
Third Quarter of 1999....................................... $14.81 $10.50 $0.05
Fourth Quarter of 1999...................................... $12.63 $ 7.81 $0.05
First Quarter of 2000 (through January 24, 2000)............ $11.13 $ 9.75 --
</TABLE>
28
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of September 30, 1999,
and our capitalization as adjusted for the completion of the rights offering
(including the application of the proceeds of the offering), assuming proceeds
of approximately $39,260,000 (before transaction costs).
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 34,459 $ 34,459
-------- --------
-------- --------
Long-term debt, including current portion:
Bank Borrowings:
Revolving credit facility......................... 215,000 175,740
Term Loans........................................ 249,625 249,625
Notes.................................................. 200,000 200,000
Other debt............................................. 90,815 90,815
-------- --------
Total debt........................................ 755,440 716,180
Shareholders' equity........................................ 12,485 51,745
-------- --------
Total capitalization.............................. $767,925 $767,925
-------- --------
-------- --------
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited statements of operations have been derived from
our historical financial statements included in this prospectus. These
statements should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the Consolidated
Financial Statements included in this prospectus.
The pro forma statements of operations for the year ended December 31,
1998 and the nine months ended September 30, 1999 have been prepared on the
basis that the transactions we have completed this year (the acquisitions of
Defiance, Noma and Krone, the spinoff and the related financing transactions,
and the issuance of the 11% Senior Subordinated Notes due 2009) had occurred as
of the first day of the period presented. See also 'Summary -- Recent
Transactions.'
The pro forma adjustments, as described in the notes to the statements
of operations, are based on currently available information and certain
adjustments that management believes are reasonable. This pro forma financial
information is presented for informational purposes only and does not
necessarily represent what our financial position or results of operations would
have been if these transactions had in fact occurred on such date, or as of the
beginning of such periods, and is not necessarily indicative of our financial
position or results of operations for any future date or period.
30
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
GENTEK ACQUIRED PRO FORMA
HISTORICAL COMPANIES(a) ADJUSTMENTS(b) PRO FORMA
---------- ------------ -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues.............................................. $443,919 $691,716 $ -- $1,135,635
Cost of sales............................................. 326,626 494,491 9,287 (c) 830,404
Selling, general and administrative expense............... 65,572 135,496 2,000 (d) 203,068
Provision for restructuring............................... -- 12,144 -- 12,144
-------- -------- -------- ----------
Operating profit.......................................... 51,721 49,585 (11,287) 90,019
Interest expense.......................................... 14,624 8,274 42,246 (e) 65,144
Interest income........................................... 1,165 -- -- 1,165
Other (income) expense, net............................... 949 (53) -- 896
-------- -------- -------- ----------
Income from continuing operations before income taxes and
extraordinary item...................................... 37,313 41,364 (53,533) 25,144
Income tax provision...................................... (3,756) 18,756 (16,499) (1,499)
Minority interest in income............................... -- 90 -- 90
-------- -------- -------- ----------
Income from continuing operations before extraordinary
item.................................................... $ 41,069 $ 22,518 $(37,034) $ 26,553
-------- -------- -------- ----------
-------- -------- -------- ----------
</TABLE>
- ------------
(a) Includes the results of Noma, Defiance and Krone for 1998. Noma's statement
of operations data have been converted from C$ into US$ at the rate of
C$1.50 = US$1.00 representing the 1998 average monthly C$/US$ exchange
rate. Krone's statement of operations data have been converted from DM to
US$ at the rate of DM1.7591 = US$1.00 representing the 1998 average DM/US$
exchange rate for 1998.
(b) Adjustments for the acquisitions of Defiance, Noma and Krone, the spinoff
and related financing transactions, and the issuance of the notes.
(c) To record incremental goodwill amortization.
(d) To record estimated incremental general and administrative expenses
expected to be incurred as a result of GenTek operating as a stand-alone
entity.
(e) To record an increase in interest expense from the amounts included in the
historical financial statements to reflect the incurrence of additional
debt to finance the acquisitions and to reflect the amortization of
deferred financing costs associated with new borrowings.
31
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------
GENTEK ACQUIRED PRO FORMA
HISTORICAL COMPANIES(a) ADJUSTMENTS(b) PRO FORMA
---------- ------------ -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues.............................................. $609,324 $287,593 $ -- $896,917
Cost of sales............................................. 453,938 188,122 3,781 (c) 645,841
Selling, general and administrative expense............... 80,003 76,125 650 (d) 156,778
-------- -------- -------- --------
Operating profit.......................................... 75,383 23,346 (4,431) 94,298
Interest expense.......................................... 25,378 5,548 17,932 (e) 48,858
Interest income........................................... 739 148 -- 887
Other (income) expense, net............................... (913) (37) -- (950)
-------- -------- -------- --------
Income from continuing operations before income taxes and
extraordinary item...................................... 51,657 17,983 (22,363) 47,277
Income tax provision...................................... 23,890 3,229 (6,599) 20,520
Minority interest in income............................... -- 366 -- 366
-------- -------- -------- --------
Income from continuing operations before extraordinary
item.................................................... $ 27,767 $ 14,388 $(15,764) $ 26,391
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------
(a) Includes the results of Noma, Defiance and Krone for the periods prior to
their acquisition. Noma's statement of operations data have been converted
from C$ into US$ at the rate of C$1.51 = US$1.00 representing the average
monthly C$/US$ exchange rate for the three month period ended March 31,
1999. Krone's statement of operations data have been converted from DM to
US$ at the rate of DM1.8154 = US$1.00, representing the average daily
DM/US$ exchange rate for the eight month period ended August 31, 1999.
(b) Adjustments for the acquisitions of Defiance, Noma and Krone, the spinoff
and related financing transactions, and the issuance of the notes.
(c) To record incremental goodwill amortization.
(d) To record estimated incremental general and administrative expenses
expected to be incurred as a result of GenTek operating as a stand-alone
entity.
(e) To record an increase in interest expense from the amounts included in the
historical financial statements to reflect the incurrence of additional
debt to finance the acquisitions and to reflect the amortization of
deferred financing costs associated with new borrowings.
32
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data have been derived from and should
be read in conjunction with our Consolidated Financial Statements and notes for
our company included in this prospectus and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations'.
The statement of operations data set forth below for the nine months
ended September 30, 1998 and 1999 and the balance sheet data as of
September 30, 1999 are derived from the unaudited Consolidated Financial
Statements and notes included in this prospectus and, in the opinion of our
management, include all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation. The statement of
operations data set forth below for each of the years in the three-year period
ended December 31, 1998 and the balance sheet data at December 31, 1997 and 1998
are derived from the audited Consolidated Financial Statements and notes
included in this prospectus. The statement of operations data for the years
ended December 31, 1994 and 1995 and the balance sheet data at December 31,
1994, 1995 and 1996 are derived from financial statements of the Company not
included in this prospectus. The Consolidated Financial Statements as of
December 31, 1997 and 1998 and for the three years ended December 31, 1998 have
been audited by Deloitte & Touche LLP, independent auditors.
Because we did not operate as a separate, stand-alone entity through
April 30, 1999 (the date of the spinoff), we might have recorded different
results had we 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 we had been a separate, stand-alone entity during the periods shown,
or of our future performance as a separate, stand-alone entity. For a
description of the basis of presentation of the historical financial data, see
note 1 to such Consolidated Financial Statements.
The spinoff has been treated as a reverse spinoff for financial
statement purposes because we hold the greater proportion of the assets and
operations that were held by General Chemical Group prior to the spinoff.
Therefore, the spinoff is reflected, for financial statement presentation, as if
we had formed a new company consisting of the industrial chemicals business and
distributed the stock of that company as a dividend to our stockholders, with
our assets, operations and businesses remaining with us after the spinoff.
Accordingly, our financial statements reflect the financial position and results
of operations of our businesses as continuing operations and the financial
position and results of operations of the industrial chemicals business as
discontinued operations.
33
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $275,767 $290,185 $330,120 $368,516 $443,919 $331,453 $ 609,324
Gross profit...................... 89,116 84,822 100,883 116,604 117,293(1) 96,518 155,386
Operating profit.................. 34,997(2) 43,564 48,723(3) 67,526 51,721(4) 56,171 75,383(5)
Interest expense.................. 20,813 12,927 10,747 8,855 14,624 10,626 25,378
Income from continuing operations
before income taxes and
extraordinary item.............. 13,165 32,835 39,200 59,535 37,313 45,814 51,657
Income (loss) from continuing
operations before extraordinary
item............................ 7,155 (551)(6) 20,775 33,274 41,069(7) 26,973 27,767
Income from discontinued
operations...................... 21,150 21,644 25,833 23,041 10,299 9,339 1,006
Income before extraordinary
item............................ 28,305 21,093 46,608 56,315 51,368 36,312 28,773
Net income (8).................... $ 20,102 $ 21,093 $ 46,608 $ 56,315 $ 47,707 $ 32,651 $ 23,834
OTHER DATA:
Capital expenditures.............. $ 21,538 $ 24,842 $ 19,231 $ 26,203 $ 33,737 $ 22,185 $ 22,258
Depreciation and amortization..... 13,011 13,125 14,099 16,296 23,065 17,539 31,156
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents............ $ 28,143 $ 18,097 $ 50,091 $ 20,401 $ 61,310 $ 34,459
Total assets......................... 252,037 259,773 274,298 389,818 536,818 1,195,484
Long-term debt (including current
portion)........................... 304,750 291,495 234,609 258,004 357,531 755,440
Total equity (deficit)............... (216,831) (215,336) (119,753) (94,239) (54,696) 12,485
</TABLE>
- ------------
(1) Includes a one-time charge of $12.1 million ($7.3 million after tax)
primarily due to an asset impairment writedown for two of our manufacturing
facilities.
(2) Includes a one-time charge of $9.0 million ($5.4 million after tax) due to
litigation related to an incident at one of our manufacturing facilities.
(3) Includes a one-time charge of $6.8 million ($4.1 million after tax)
primarily related to awards made under a restricted unit plan, which
replaced certain prior equity programs.
(4) Includes incremental accruals of $9.8 million ($5.9 million after tax)
principally related to litigation and environmental spending.
(5) Includes a one-time charge of $6.2 million primarily related to the spinoff.
(6) Includes a nonrecurring charge to income tax expense of $17.1 million.
(7) Includes a nonrecurring gain of $19.5 million related to an income tax
settlement.
(8) For 1994, 1998, the nine months ended September 30, 1998 and the nine months
ended September 30, 1999, includes extraordinary losses of $8.2 million,
$3.7 million, $3.7 million and $4.9 million, respectively, related to the
early retirement of certain indebtedness.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a manufacturer of telecommunications equipment, industrial
components and performance chemicals sold into numerous markets for a wide
variety of end uses. We operate through three primary business segments,
manufacturing, performance products and telecommunications equipment. Our
manufacturing segment serves the automotive, appliance and electronic, and
industrial markets. Our performance products segment serves customers in many
industries including the pharmaceutical and personal care, environmental
services, technology and chemical processing markets. Our telecommunications
equipment segment serves public network and premises (or non-public) network
markets.
The percentage of our revenues generated by our three segments has
changed significantly this year. Our manufacturing segment has expanded
significantly this year, primarily due to the acquisitions of Noma in April 1999
and Defiance in February 1999. In addition, our telecommunications equipment
segment consists of Krone, which we acquired on August 20, 1999. Set forth below
are revenues for our three business segments on a consolidated basis:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Performance Products.................................. $240.9 $260.3 $315.8 $238.3 $254.6
Manufacturing......................................... 89.2 108.2 128.1 93.2 315.1
Telecommunications Equipment.......................... -- -- -- -- 39.6
------ ------ ------ ------ ------
Total............................................ $330.1 $368.5 $443.9 $331.5 $609.3
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
RECENT ACQUISITIONS
We have grown through acquisitions, and we will continue to pursue
acquisition and investment opportunities that will create value and enhance cash
flow and earnings. Generally, the businesses we have acquired have had lower
margins than our existing operations. One of our goals for the acquired
businesses is to increase earnings by implementing cost reduction programs and
achieving operating efficiencies. However, until we can achieve these
improvements, our segment operating margins may be negatively impacted.
Since 1997, we have made the following strategic acquisitions:
In September 1999, we acquired the business of Pacific Pac
International, Inc., a provider of ultrahigh purity solvents to the
electronics industry.
In August 1999, we acquired Krone, a leading global supplier of
connector technology for telecommunications and data networks, from
Jenoptik AG for total consideration of approximately $222 million
(including $63 million of assumed debt). Krone had pro forma sales of
DM 580.6 million (approximately $330.0 million) in the year ended
December 31, 1998.
In July 1999, we acquired the Structural Kinematics business of EG&G,
Inc. Structural Kinematics is a leading provider of testing and
engineering services to the automotive, truck and agricultural
equipment industries.
In April 1999, we acquired Noma for total consideration of
approximately $240 million. Noma is a leading North American producer
of insulated wire and wire-related products for the
35
<PAGE>
automotive, appliance and electronic and industrial markets. Noma had
sales of approximately $269 million for the year ended December 31,
1998.
In February 1999, we acquired Defiance for total consideration of
approximately $70 million. Defiance is a leading North American
manufacturer of specialty antifriction bearings for the transportation
industry and a provider of vehicle testing services, tooling design and
preproduction dies and components primarily for the automotive
industry. Defiance had sales of approximately $93 million for the
twelve months ended December 31,1998.
In April 1998, we acquired Reheis Inc., a worldwide leader in the
manufacture of the active chemical ingredients in antiperspirants and
over-the-counter antacids.
In February 1998, we acquired Sandco Automotive Ltd., a Canadian
manufacturer of stamped automobile engine components, principally
rocker arms and roller followers.
In July 1997, we acquired Peridot Holdings Inc., a leading manufacturer
and supplier of sulfuric acid and water treatment chemicals for the
pharmaceutical, water treatment, pulp and paper, electronics and
industrial markets.
We have financed our acquisitions to date through existing cash, bank
borrowings and the issuance of our senior subordinated notes. See ' -- Liquidity
and Capital Resources' below.
RECENT DEVELOPMENTS
We are currently discussing the formation of a strategic combination
with Prestolite Wire Corporation, Krone's marketing partner. This combination
may be in the form of a joint venture, partnership, an acquisition of some or
all of Prestolite's business, or other appropriate structure. Prestolite is a
leading North American manufacturer of copper and fiber optic wire and cable
products for telecommunications, automotive and industrial markets, with annual
sales of approximately $250 million.
We believe that the integration of Krone's and Prestolite's
telecommunications and data businesses could create additional value for our
company. The integration of Krone's and Prestolite's telecommunications and data
businesses would allow us to provide customers around the globe with total
connectivity and wiring solutions that optimize network transmission throughput
capabilities.
There can be no assurance, however, that agreement on any strategic
combination will be reached, or if such an agreement is reached, that it will
yield the benefits we currently believe are possible. As with acquisitions in
general, negotiating and consummating a transaction can be a lengthy and costly
process. Successfully implementing an operating strategy is likely to require
substantial attention from our management team, which could divert it from our
existing business. Further, because Prestolite is controlled by Paul Montrone,
our controlling shareholder and Chairman of our Board of Directors, any such
strategic combination would have to be approved by a special committee,
comprised of disinterested directors of GenTek. Such procedural and substantive
safeguards are likely to add additional time and expense to the consummation of
any such transaction.
36
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data for the
three years ended December 31, 1998 and for the nine months ended September 30,
1998 and 1999, and the percentage of our net revenues for the relevant period
presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ------------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................... $330.1 100% $368.5 100% $443.9 100% $331.4 100% $609.3 100%
Cost of sales..................... 229.2 69 251.9 68 326.6(1) 74 234.9 71 453.9 75
------ --- ------ --- ------ --- ------ --- ------ ---
Gross profit...................... 100.9 31 116.6 32 117.3 26 96.5 29 155.4 25
Selling, general and
administrative expense.......... 52.2(2) 16 49.1 13 65.6(3) 14 40.3 12 80.0(4) 13
------ --- ------ --- ------ --- ------ --- ------ ---
Operating profit.................. 48.7 15 67.5 19 51.7 12 56.2 17 75.4 12
Interest expense.................. 10.7 3 8.9 2 14.6 3 10.6 3 25.4 4
Interest income................... 1.4 -- 1.5 -- 1.2 -- 0.7 -- 0.7 --
Other (income) expense, net....... 0.2 -- 0.7 -- 0.9 -- 0.5 -- (1.0) --
------ --- ------ --- ------ --- ------ --- ------ ---
Income from continuing operations
before income taxes and
extraordinary item.............. 39.2 12 59.5 16 37.3 9 45.8 14 51.7 8
Income tax provision.............. 18.4 6 26.2 7 (3.7)(5) -- 18.8 6 23.9 4
------ --- ------ --- ------ --- ------ --- ------ ---
Income from continuing operations
before extraordinary item....... 20.8 6 33.3 9 41.1 9 27.0 8 27.8 5
Income from discontinued
operations...................... 25.8 8 23.0 6 10.3 2 9.3 3 1.0 --
------ --- ------ --- ------ --- ------ --- ------ ---
Income before extraordinary
operations...................... 46.6 14 56.3 15 51.4 11 36.3 11 28.8 5
Extraordinary item-loss from
extinguishment of debt (net of
tax)............................ -- -- -- -- 3.7 -- 3.7 1 4.9 1
------ --- ------ --- ------ --- ------ --- ------ ---
Net income........................ $ 46.6 14% $ 56.3 15% $ 47.7 11% $ 32.6 10% $ 23.8 4%
------ --- ------ --- ------ --- ------ --- ------ ---
------ --- ------ --- ------ --- ------ --- ------ ---
</TABLE>
- ------------
Note: Amounts may not total due to rounding.
(1) Includes a one-time charge of $12.1 million ($7.3 million after tax)
primarily due to an asset impairment writedown for two of our manufacturing
facilities.
(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.
(3) Includes incremental accruals of $9.8 million ($5.9 million after tax)
principally related to litigation and environmental spending.
(4) Includes a one-time charge of $6.2 million, primarily related to the
spinoff.
(5) Includes a nonrecurring gain of $19.5 million related to an income tax
settlement.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net revenues for the three and nine month periods ended September 30,
1999 increased 134% and 84% to $263.8 million and $609.3 million, respectively,
from $112.6 million and $331.5 million, for the comparable periods in 1998.
These increases were primarily due to the acquisitions made in 1999.
Gross profit for the three and nine month periods ended September 30,
1999 increased $36.2 million and $58.9 million, respectively, over the
comparable periods in 1998. These increases were principally related to the
acquisitions made in 1999 in the manufacturing segment. Gross profit as a
percentage of net revenues for the first nine months of 1999 was 25% compared to
29% for the prior year. This decrease is principally due to lower margins in the
acquired businesses and pricing pressures in certain of our performance products
markets.
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Selling, general and administrative expense increased $20.2 million and
$39.7 million for the three and nine month periods ended September 30, 1999 as
compared to the 1998 year levels, principally due to the acquisitions made in
1999 and a $6.2 million one-time charge recorded in the second quarter of 1999
primarily related to the spinoff. Selling, general and administrative expense as
a percentage of net revenues for the first nine months of 1999 was 13% as
compared to 12% for the comparable period in 1998, principally due to the
abovementioned one-time charge of $6.2 million.
Interest expense was $13.1 million and $25.4 million for the three and
nine month periods ended September 30, 1999 as compared with $4.1 million and
$10.6 million for the comparable periods of 1998 principally due to higher
outstanding debt balances following the 1998 and 1999 acquisitions.
1998 COMPARED WITH 1997
Net revenues were $443.9 million for 1998 compared with $368.5 million
for 1997. This increase was due to higher sales in both the manufacturing and
the performance products segments. The increase in sales of the manufacturing
segment reflects higher unit volumes. The increase in sales of the performance
products segment was due to the acquisitions of Reheis and Peridot.
Gross profit of $117.3 million was $0.7 million above the prior year's
level. This increase was principally due to increases in sales resulting from
acquired businesses in the performance products segment and higher volumes in
the manufacturing segment, partially offset by a one-time charge of $12.1
million recorded in 1998, principally related to an asset impairment writedown
for two of our manufacturing facilities. Excluding the effect of one-time
charges, gross profit as a percentage of sales was 29% for 1998 versus 32% for
1997, primarily due to the lower margins of the acquired businesses.
Selling, general and administrative expense as a percentage of net
revenues was 14% in 1998 versus 13% for 1997. This increase was principally due
to incremental accruals of $9.8 million in 1998 principally related to
litigation and environmental spending.
Interest expense increased by $5.7 million in 1998 from 1997 due to
higher outstanding debt balances as a result of acquisitions.
Income from the industrial chemicals business, recorded as discontinued
operations, was $10.3 million for 1998 versus $23.0 million for 1997. This
decrease was due to weaker pricing and lower export soda ash volumes to Asia.
Net income was $47.7 million for 1998 versus $56.3 million for 1997.
This decrease was due to the foregoing reasons and a $3.7 million extraordinary
item related to the early extinguishment of debt, substantially offset by a
nonrecurring gain of $19.5 million related to an income tax settlement.
1997 COMPARED WITH 1996
Net revenues were $368.5 million for 1997 compared with $330.1 million
for 1996, representing an increase of 12%. Approximately half of this increase
was due to higher sales of the performance products segment as the result of the
acquisition of Peridot on July 1, 1997. The other half of the increase was due
to higher Manufacturing segment sales as a result of increased volumes 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 16% 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.
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Income from the industrial chemicals business, recorded as discontinued
operations, was $23.0 million for 1997 versus $25.8 million for 1996. This
decrease was principally due to lower pricing for soda ash and calcium chloride.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $34.5 million at September 30, 1999
compared with $61.3 million at year-end 1998. During the first nine months of
1999, we generated cash flow from continuing operations of $47.0 million, had
net proceeds from debt of $846.8 million and cash flow from discontinued
operations of $122.7 million. Our cash flow was used to fund acquisitions of
$445.0 million, to repay debt of $573.4 million and to make capital expenditures
of $22.3 million.
We had working capital of $122.2 million at September 30, 1999 as
compared with $17.3 million at December 31, 1998. This increase in working
capital principally reflects the working capital of the newly acquired companies
partially offset by lower cash balances.
The increases in property, plant and equipment, goodwill and long-term
debt reflect the assets and debt related to the various acquisitions completed
during 1999.
In connection with the spinoff, we entered into a $550 million credit
facility with a syndicate of banks and other financial institutions, consisting
of a $300 million revolving credit facility and $250 million aggregate term loan
facilities. Our initial borrowing incurred at the time of the spinoff was $500
million (consisting of $250 million of term loans and $250 million of loans
under our revolving credit facility), of which we used approximately $487
million to repay a portion of General Chemical Group's third party indebtedness,
including borrowings to finance the acquisitions of Noma and Defiance. The
agreement for our credit facility contains restrictive covenants which impose
operating and financial restrictions on us, including the requirement that we
maintain maximum leverage and minimum interest coverage ratios. See 'Description
of Credit Facility.'
On August 9, 1999, we issued $200 million aggregate principal amount of
11% Senior Subordinated Notes due 2009 and received proceeds of $193.0 million
from such issuance. We used these proceeds to repay a portion of our outstanding
indebtedness under our credit facility. We paid the cash portion of the purchase
price for our acquisition of Krone by reborrowing under the revolving portion of
our credit facility.
As of September 30, 1999, we had $465 million in borrowings outstanding
under our credit facility and the ability to borrow an additional $85 million
under our credit facility (excluding approximately $13 million for letters of
credit issued under the credit facility). At September 30, 1999, our total
outstanding indebtedness was $755.4 million (including $200 million under the
notes).
We paid the cash consideration for Krone, Noma, Defiance, Structural
Kinematics and Pacific Pac through cash on hand and borrowings under our and
General Chemical Group's credit facilities.
Management believes that our cash flows will be sufficient to cover our
future interest expense, capital expenditures and working capital requirements.
We will use proceeds of borrowings under the revolving portion of our credit
facility to finance future acquisitions and investments. In the event we
identify additional acquisition candidates, however, our current sources of
liquidity may not be adequate. Accordingly, we may issue equity securities or
incur additional debt, subject to market conditions. We may also use our stock
as acquisition currency.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our cash flows and earnings are subject to fluctuations resulting from
changes in interest rates and changes in foreign currency exchange rates and we
selectively use financial instruments to manage these risks. Our objective in
managing our exposure to changes in foreign currency exchange rates and interest
rates is to reduce volatility on earnings and cash flow associated with such
changes. We have not entered, and do not intend to enter, into financial
instruments for speculation or trading purposes. Additional information
regarding our financial instruments is contained in Note 14 to the Consolidated
Financial Statements.
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We measure the market risk related to our holding of financial
instruments based on changes in interest rates and foreign currency rates using
a sensitivity analysis. The sensitivity analysis measures the potential loss in
fair values, cash flows and earnings based on a hypothetical 10% change in
interest and currency exchange rates. We used current market rates on our debt
and derivative portfolio to perform the sensitivity analysis. Such analysis
indicates that a hypothetical 10% change in interest rates or foreign currency
exchange rates would not have a material impact on our fair values, cash flows
or earnings.
ENVIRONMENTAL MATTERS
Our various 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, Australia, China, Germany, Great Britain, India, Indonesia,
Ireland and Mexico. We believe that we are in substantial compliance with such
laws and regulations. However, as a result of our operations, we are 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,
we believe that any such liability would not have a material adverse effect on
our financial position or results of operations. However, modifications or
changes in enforcement of existing laws and regulations or the adoption of new
laws and regulations in the future, particularly with respect to environmental
and safety standards could require expenditures which might be material to our
financial position or results of operations. See also 'Business -- Environmental
Matters.'
Our 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. At December 31, 1998 and September 30, 1999, accruals for
environmental matters were $25.0 million and $26.6 million, respectively. We
maintain 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, we do not maintain any insurance
other than as described above for potential liabilities related specifically to
remediation of existing environmental contamination or future environmental
contamination, if any.
We have an established program to ensure that our facilities comply with
environmental laws and regulations. Expenditures for 1998 approximated $11.7
million (of which approximately $1.0 million represented capital expenditures
and approximately $10.7 million related to ongoing operations and the management
and remediation of potential environmental contamination from prior operations).
Expenditures for 1997 approximated $7.1 million (of which approximately $1.6
million represented capital expenditures and approximately $5.5 million related
to ongoing operations and the management and remediation of potential
environmental contamination from prior operations). Management expects similar
expenditures in 1999 to be in the range of $9.0 million to $11.0 million,
including the facilities of Noma, Defiance and Krone. In addition, if
environmental laws and regulations affecting our operations become more
stringent, our costs for environmental compliance may increase above such range.
See 'Risk Factors -- We Are Subject to Environmental Laws and Regulations' and
'Business -- Environmental Matters.'
OTHER MATTERS
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. We are required to adopt FAS 133 for our fiscal
year beginning after June 15, 2000. We do not expect that the adoption of FAS
133 will have a material effect on our results of operations or financial
condition.
40
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BUSINESS
GENERAL
We are a manufacturer of telecommunications equipment, industrial
components and performance chemicals sold into numerous markets for a wide
variety of end uses. We operate through three primary business segments,
manufacturing, performance products and telecommunications equipment. Our
manufacturing segment serves the automotive, appliance and electronic, and
industrial markets. Our performance products segment serves customers in many
industries including the pharmaceutical and personal care, environmental
services, technology and chemical processing markets. Our telecommunications
equipment segment serves the public network and premises (or non-public) network
markets. Our products are frequently highly engineered and are important
components of, or provide critical attributes to, our customers' end products or
operations. We operate over 80 manufacturing and production facilities located
in the U.S., Canada, Australia, China, Germany, Great Britain, India, Indonesia,
Ireland and Mexico.
BUSINESS STRATEGY
Our goal is to build on our leading market positions by continuing to
improve our existing operations and to pursue value-enhancing acquisitions.
For our current operations, we intend to:
utilize our leadership positions to capitalize on the favorable growth
trends in selected end-markets;
improve our operating efficiency through productivity gains and other
cost reduction initiatives. For example, we believe that our recent
acquisitions of Noma, Defiance and Krone provide us with significant
cost saving opportunities;
grow our customer base by expanding into new geographic markets and
developing new products and end-markets, as well as new applications
for our existing products; and
leverage our strong customer relationships and recently expanded
product offerings through increased cross-selling to existing
customers.
In addition, we have grown through acquisitions and we will continue to
pursue acquisitions and investment opportunities that will create value and
enhance cash flow. We target acquisitions and investments that provide us:
Cost saving opportunities;
Enhanced positioning in existing markets;
Entry into new end-use and geographic markets; and
Turnaround opportunities for under-performing businesses.
COMPETITIVE STRENGTHS
WE HAVE SIGNIFICANT MARKET POSITIONS IN OUR BUSINESSES. We have leading
market shares in our primary markets. For example, we believe that we have
leading positions in North America in each of the following products and
services:
Wire and cable assemblies for manufacturers of major appliances;
Stamped valve-train components for the automotive industry;
Sulfuric acid regeneration services;
41
<PAGE>
Aluminum-based chemicals used in water treatment services and pulp and
paper production;
Active ingredients for antiperspirants; and
Active ingredients for over-the-counter antacids.
Our Krone subsidiary is a leading worldwide supplier of connection and
distribution technology for voice and data networks.
WE PROVIDE SPECIALIZED PRODUCTS AND SERVICES REQUIRING OPERATIONAL AND
TECHNICAL INTEGRATION WITH OUR CUSTOMERS. Our products and services are
frequently highly engineered and important components of, or provide critical
attributes to, our customers' end-products or operations. We generally work
closely with our customers in the design, engineering and production of these
products and we often provide ongoing technical service and support. As a
result, we enjoy strong customer relationships which allow us to achieve
attractive operating margins and maintain or enhance our market shares.
WE ARE HIGHLY DIVERSIFIED. We have highly diversified sources of revenue
and cash flow. We provide a wide range of products for a broad customer base
serving numerous end-uses and end-markets. For example, in 1998, no single
customer accounted for more than 10% of our pro forma sales. We believe that
this diversification provides us with a broad base from which to expand customer
relationships and increase revenues.
WE HAVE AN EXPERIENCED MANAGEMENT TEAM. Our management team has
significant experience managing and operating a variety of industrial
businesses. With an average of over 20 years of industry experience, we have
significant experience in improving productivity, reducing costs, and enhancing
customer relationships in competitive markets. In addition, our management team
has been successful in identifying, completing and integrating acquisitions,
which have enhanced our revenues and cash flow and expanded our customer base
and product offerings.
PRODUCTS AND SERVICES
TELECOMMUNICATIONS EQUIPMENT
Our telecommunications equipment segment was created through our
acquisition of Krone AG, a leading global supplier of connector technology for
telecommunications and data networks, from Jenoptik AG, a major German
technology group. Our telecommunications equipment segment is principally
operated through Krone and its subsidiaries, as wholly-owned subsidiaries of our
company.
Our telecommunications equipment segment provides connection and
distribution technology to two principal markets:
Public telecommunications networks; and
Premises (non-public) voice and data networks.
Krone has positioned itself as a global supplier, with more than 80% of
its 1998 sales generated outside Germany. Approximately 55% of Krone's sales are
in Europe, 18% in North and South America, and 27% in Asia and Australia. Krone
has subsidiaries in 25 countries, some of which operate as integrated production
and sales companies and others as sales companies only.
The product range of our telecommunications equipment segment includes
all connection and distribution systems, both for telecommunications access
networks and premises data networks using either copper or fiber optics,
together with comprehensive design, maintenance and testing services. The
systems solutions offered are based on Krone's LSA-Plus'TM' rapid connection
system which permits wire/cable connection without solder, screws, and wire
stripping of wire/cable lines in all types of communications networks. The
LSA-Plus'TM' system allows easy and rapid 'stapling' of wires into connector
plugs, without the need for soldering or time-consuming screwing or twisting
required by many
42
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competitors' products. In addition, this stapling action automatically punctures
the wire insulation, thereby avoiding any need for manual removal of the wire
insulation.
LSA-Plus'TM' systems are offered in various product lines and modules
that meet differing customer requirements. For example, Krone offers special
series for interior and exterior installations, special surge protector
components for optimal protection in communication networks, products for flush
mount assembly in small rooms and special modules for heavier gauge conductor
wire.
Krone also provides services related to its technology, including the
design, planning and construction of fixed networks, and the installation and
maintenance of communication systems.
Public Networks. In public networks, our telecommunications equipment
segment manufactures connectors and distributors for fixed telecommunication
access networks, and provides related services to customers. The connectors are
mainly used in the access portion of telecommunication networks to connect
copper or fiber optic wires at the main distribution frame, at the local
exchange, at other cable connector points and, finally, at the premises of the
subscriber. Key customers in this market include public network providers such
as Deutsche Telekom, British Telecommunications, Bell Atlantic, and
telecommunications systems manufacturers and suppliers such as Siemens and
Alcatel.
The state of the public network market varies by region. In highly
developed markets such as Europe and the U.S. where growth in new installations
is relatively flat, revenue is derived primarily from network renovation and
rationalization. In markets such as Eastern Europe, Asia, and Latin America
where telecommunications infrastructure is less developed, there is significant
growth in the installation and expansion of access networks.
Premises Networks. Our main products in premises networks are connection
and distribution components for voice, data and video communication
infrastructure within private and industrial building complexes that use both
copper and fiber optic cabling. The product range of our premises networks
business includes components needed for the connection of wires/cables in the
following areas:
Internal telephone systems: telephone cabling in building complexes,
and the increasing replacement of telephone cabling through structured
cabling; and
Structured cabling: complete solutions for wiring phones, workstations,
PCs and other communication devices throughout a building. Krone
provides connectors for structured cabling for data, voice and video
transmission networks for system solutions and higher capacity rates.
Key customers for our premises network market include distributors and
cable systems integrators who offer complete communications network solutions,
including Anixter, Greybar, Kent and Wadsworth Electronics.
The premises network market is in a state of change, with increasing
demand for private telecommunications networks. Growth in premises networks is
currently driven by increasing networking requirements for building technology,
the need for more efficient connectors and increasing demand as a result of the
growing home use of faxes and Internet.
Prior to our acquisition of Krone, Krone spun off its wireless local
loop business, which manufactures and sells radio telephone systems, and we
therefore did not acquire that business.
For further information on segment data, see 'Note 15 -- Geographic and
Industry Segment Information' in the Notes to the Consolidated Financial
Statements.
MANUFACTURING
Our manufacturing segment provides a broad range of engineered
components and services to three principal markets: automotive, appliance and
electronic, and industrial. Our products for these markets are described below:
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Automotive. For the automotive market, we provide:
precision-engineered components for valve-train systems, including
stamped and machined rocker and roller-rocker arms, cam follower
rollers, cam follower roller axles, antifriction bearings and other
hardened/machined components;
electronic wire and cable assemblies, such as wire harnesses, ignition
cables, molded parts, electro-mechanical assemblies, engine block
heaters, battery blankets and various electrical switches, used in the
manufacture of automobiles and personal recreation vehicles such as
snowmobiles and jet-skis;
computer-aided and mechanical vehicle testing services for the
automotive industry;
pre-production dies and tooling, and prototype design and production
which are used by our customers for prototype and short production runs
of automotive components or systems; and
fluid transport and handling equipment for automotive service
applications.
Our precision-engineered stamped and machined engine components for
valve-train systems improve engine efficiency by reducing engine friction and
component mass. These components are used both in traditional overhead valve and
in the increasingly popular single and double overhead cam (OHC) engines which
power 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. We believe that this OHC trend will
continue. Additionally, we have 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. Our 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.
Our wire and cable assembly products include a variety of automotive
electronic components for use in OEM production and the aftermarket. As a
leading Tier-2 supplier of products such as wire harnesses, ignition cables,
engine block heaters, battery blankets and various electrical and electro-
mechanical switches and assemblies, we provide our customers with a range of
technical services, including product design using Computer-Aided Design (CAD)
systems. As OEMs and Tier-1 suppliers strive to reduce costs and outsource
engineering, design, prototyping and testing services, our strong technical
capabilities position us as a strategic supplier to the automotive industry. In
addition, our vertical integration in wire and cable manufacture gives us a
competitive advantage over those of our competitors who purchase all of their
wire and cable requirements.
Through our computer-aided and mechanical vehicle testing offerings, we
provide computer-aided design, engineering and simulation services for
automotive structural and mechanical systems to OEMs and Tier 1 suppliers. We
provide a wide range of testing services for automotive components and systems
from single sub-systems, such as chassis, suspensions, seats and seating
assemblies, to entire vehicles. Our engineering and simulation services provide
customers with finite element modeling, kinematics, crash and variation
simulation analyses, experimental dynamics and vehicle development programs, and
allow our customers to test their automotive products for durability, stress,
noise, vibration and environmental considerations.
Our primary customers in the automotive industry include
DaimlerChrysler, Ford, General Motors, Honda, Nissan, Toyota, Volkswagen and
Volvo. Other customers include OEMs and Tier-1 suppliers such as Bombardier,
Bosch, Delphi, ITT, John Deere, Johnson Controls and Lear. Our fluid transport
and handling equipment is used in the automotive service industry by customers
such as Sunoco-Kendall and Jiffy Lube and in automotive service bays in tire
stores and auto dealerships.
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Automotive manufacturers generally award business to their suppliers by
individual engine line or model, often for multiple-model years. The loss of any
individual engine line or model contract would not be material to us. However,
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 Daimler-Chrysler, Ford or General Motors could have a material adverse impact
on the results of our manufacturing segment. None of these customers accounted
for 10% or more of our revenues in 1998.
Appliance and Electronic. We produce custom-designed power cord systems
and wire and cable assemblies for a broad range of appliances and electronic
products including:
household appliances, such as refrigerators, freezers, dishwashers,
washing machines, ovens, ranges, and vacuum cleaners;
electronic office equipment, including copiers and printers; and
various electronic products, such as medical equipment, ATM machines
and gaming machines.
Our specialized wiring expertise and high quality wire and cable
assemblies are generally provided to larger OEM customers. A highly competitive
environment has required our customers to improve their productivity by
outsourcing to lower cost producers. Our manufacturing facilities are
strategically located in both Canada and Mexico, permitting us to share with
customers efficiencies gained through our operating scale and lower costs.
A team of experienced engineers, skilled technicians and manufacturing
personnel works closely with our customers, from design and development through
to testing and verification. Our CAD system enables us to supply custom
requirements with faster development times and increased design flexibility.
Our customers in the appliance and electronic markets include Celestica,
Fantom, Friedrich, Frigidaire, NCR, Whirlpool and Xerox.
Industrial. For the industrial market, we manufacture:
custom-designed wire harness and power cord systems for power tools,
motors, pumps and other industrial products; and
wire and cable for industrial markets, the commercial and residential
construction industries and for a wide variety of end market uses by
OEMs.
We produce a broad product line of single- and multi-conductor wire and
cable, wire harnesses and power cord systems. Our wire jacketing expertise
includes the use of polyvinyl chloride (PVC), rubber, thermoplastic elastomer
(TPE) and cross-link compounds. Working closely on design and engineering issues
with our customers, our highly flexible manufacturing environment permits a
close match of productive capacity to any order volume, as well as custom color
matching and construction of specialized formulations. Our Canadian wire and
cable facility located at Stouffville, Ontario, features one of only three
continuous cast oxygen-free copper rod lines in North America. Copper rod
production is coupled with multi-wire drawing technology to produce high quality
copper strand as part of the wire and cable manufacturing process.
Our customers in the industrial market include Alcoa, Bridgeport,
Cincinnati Milicron, Lyall, Makino, Mori Seiki and Woods.
PERFORMANCE PRODUCTS
Our performance products segment provides a broad range of value-added
products and services to four principal markets: pharmaceutical and personal
care, environmental services, technology and chemical processing. Our products
and services for these markets are described below.
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Pharmaceutical and Personal Care. We are a leading supplier of the
active chemical ingredients used in the manufacture of over-the-counter ('OTC')
antiperspirants and antacids, and also supply active ingredients used in
prescription pharmaceuticals, nutritional supplements, nutraceuticals,
veterinary health products and personal care products. Our product line
includes:
aluminum and zirconium compounds for use in antiperspirants;
aluminum hydroxide and magnesium hydroxide blends used in OTC antacids
for acid-neutralization;
high-purity aluminum hydroxide for use as veterinary and human vaccine
adjuvants;
potassium chloride used in electrolyte replacement medications and
intravenous solutions;
pharmaceutical-grade aluminum chloride;
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.
We maintain leadership positions in many of our pharmaceutical and
personal care products. In antiperspirant actives, for example, we have
introduced more than 25 new products or product categories over the last six
years. 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. Based on the capabilities of our research and
development team and the numerous U.S. and foreign patents awarded to us, we
believe that we are the technical leader in the antiperspirant actives industry.
Some of our major customers in the pharmaceutical and personal care
market include Bristol-Myers Squibb, Carter-Wallace, Church & Dwight,
Colgate-Palmolive, Hoechst Marion Roussel, Hoffmann-LaRoche, Pfizer, Schering
Plough and Unilever.
Environmental Services. Our water treatment products and services are
designed to address the important environmental issues confronting our
customers. These value-added products and services provide cleaner drinking
water, restore algae-infested lakes, reduce damaging phosphorus runoff from
agricultural operations, and significantly reduce pollution from industrial
waste water. With a network of 34 plants strategically located throughout the
United States and Canada, we are the largest North American producer of aluminum
sulfate, or 'alum,' which is used as a coagulant in potable water and waste
water treatment applications, and a leading supplier of flocculents (a
polymer-based material used for settling and/or separating solids from liquids).
We are also a leading provider of 'closed loop' sulfuric acid regeneration
services, which significantly reduce the waste streams generated by certain
refineries and chemical plants.
Our water treatment products consist primarily of:
aluminum sulfate ('alum');
polymer-based enhanced coagulants and flocculents; and
sodium and ammonia salts and sulfites.
With the assistance of the company's Technical Center in Syracuse, New
York, we have introduced Al+Clear'r', an agrochemical product for the poultry
market. When applied to the litter in poultry houses, Al+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.
Our major customers for water treatment products include various water
treatment service providers and distributors such as Hercules/Betz and various
cities and municipalities (including the cities of Detroit, Denver and San
Francisco, and the Province of Ontario).
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In the environmental market, we also provide sulfuric acid regeneration
services to the refining and chemical industries, and market 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, thereby creating
the need to dispose of or regenerate the contaminated acid. We transport the
contaminated acid back to the company's facilities for recycling and redeliver
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. We are expanding our pollution abatement services
of treating and removing other waste streams generated by refineries, including
hydrogen sulfide and sulfur dioxide. Some of our major customers for our
sulfuric acid regeneration services include Chevron, Coastal, DuPont, Equilon
(formerly a Shell company), General Electric, Hess, Rohm & Haas, Sunoco, Tesoro
(formerly a Texaco company) and Tosco.
Technology. In the technology market, we provide 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 and disk drive industries.
We have recently introduced our Prisma'TM' CTP technology which allows
printers to transfer computer images directly to digitally imageable printing
plates, thereby eliminating intermediate film processing and reducing labor and
material costs. Our 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. Our major customers for
our products used in printing applications include Treasure Chest,
Quebecor-World and Crown Cork & Seal.
Our electronic chemicals include ultra-high-purity acids, caustics and
etchants for use in the manufacture of semiconductor processing chips and
computer disk drives. Within the past two years, we have completed construction
of a new plant that produces ultra-high-purity sulfuric acid with impurities
measured in the parts-per-trillion range. In addition, we are the exclusive U.S.
licensee for the manufacture and sale of Spinetch'TM' etchants, a proprietary
product line developed by Merck KGaA of Germany. Sales of the Spinetch'TM'
etchants are not material for us at this time. Customers for our electronic
chemicals include Hewlett Packard, IBM, Micron Technologies, National
Semiconductor and SEH America.
Chemical Processing. We manufacture a broad range of products that serve
as chemical intermediates in the production of such everyday products as
newspapers, tires, paints, dyes and carpets. We are a leading producer of:
alum and polymer-based enhanced coagulants used in paper manufacturing
to impart water resistance;
sodium and ammonia sulfites used to produce fixing and developing
solutions for conventional film and x-ray processing;
sodium nitrite, of which we are one of only two North American
producers, primarily used as a reactant in the manufacture of dyes,
pigments and rubber processing chemicals;
potassium fluoride and fluoborate derivatives sold into the metal
treatment, agrochemical, surfactant and analytical reagent markets; and
sulfuric acid, which is used in the manufacture of titanium pigments,
fertilizers, synthetic fibers, steel, petroleum and paper, as well as
many other products.
Major customers of our products in this market include 3M, AlliedSignal, Dow
Chemical, DSM, Eastman Chemical, Georgia Pacific, International Paper, Konishi
International, PPG Industries, Olin, Westvaco and W.R. Grace.
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COMPETITION
In each of our business segments, we operate in competitive markets.
Competition in our manufacturing segment's markets is based upon a number of
factors including design and engineering capabilities, quality, price and the
ability to meet customer delivery requirements. In the automotive market, we
compete with, among others, Eaton, Hitchiner, INA, Ingersoll-Rand, Sumitomo,
Yazaki and captive OEMs. In the appliance and electronic and industrial markets,
we compete with International Wire, General Cable, Alcatel, Belden, EDS Mexico
and Choctaw, among others.
Although our performance products segment generally has significant
market share positions in the product areas in which it competes, most of its
end markets are extremely competitive. Our major competitors are typically
segregated by end markets and include international, regional and, in some
cases, small independent producers. Our ability to compete effectively depends
on our ability to maintain competitive prices and to provide reliable and
responsible service to our customers. We believe that, with certain products
which have relatively higher freight costs, the proximity of our 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, our major competitors
include Barcroft, Giulini, Summit and Westwood. Our competitors in our
environmental market include the refineries that perform their own sulfuric acid
regeneration, as well as DuPont, Marsulex, Arch Chemical, PVS and Rhodia, which
also have sulfuric acid regeneration facilities that are generally located near
their major customers. In addition, we compete with Geo Specialty Chemicals,
U.S. Aluminates and other regional players in the water treatment market.
Competitors in the technology market include Kodak-Polychrome and Fuji, which
also provide printing-related products. With regard to electronic chemicals, our
principal competitors are Ashland and Arch Chemical. Competitors in the chemical
processing market include BASF, Calabrian, U.S. Salt, Kerley, Rhodia and Solvay
S.A.
Our telecommunications equipment segment also operates in highly
competitive markets, with many of our competitors being large, international and
technologically sophisticated companies. Competition in our telecommunications
equipment segment is based on a number of factors, including technological
advancements, product line breadth, price, technical support and service, and
product quality. The ability to achieve and maintain successful performance in
this segment is also dependent on our ability to develop products which meet the
ever- changing requirements of data and voice communications technology. In the
public network market, our principal competitor is Lucent Technologies. Other
significant competitors include Siemens, Quante/Pouyet, and Raychem. Our
principal competitors in the premises network market are Lucent Technologies,
AMP and Quante/Pouyet. This market is highly fragmented with many regional
suppliers.
SUPPLIERS; AVAILABILITY OF RESOURCES
We purchase a variety of raw materials for our businesses. Our primary
raw materials in our manufacturing segment are copper and steel. The primary raw
materials used by our telecommunications equipment segment are plastic and metal
alloy. Our 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 our
sulfuric acid regeneration business, we have the ability to manufacture sulfur
dioxide and sulfuric acid relatively inexpensively. Sulfur dioxide is a major
raw material in the manufacture of many of our 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 us to supply ourselves 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).
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We purchase our raw materials from a number of suppliers and, in
addition, believe that alternative sources are available to fulfill our needs.
In our opinion, the raw materials we need for our businesses will be available
in sufficient supply on a competitive basis for the foreseeable future.
SALES AND DISTRIBUTION
Our manufacturing segment has approximately 70 sales, marketing and
customer service personnel. Generally, we market our products directly to our
customers, but in certain industrial markets a distribution network is used. Our
technical and engineering staff is an integral part of our manufacturing
segment's sales and distribution effort. Since many of our products are
precision-engineered and custom-designed to customer specifications, our sales
force and engineers work closely with our customers in designing, producing,
testing and improving our products. In designing and developing new products,
our engineering staff often assists in the sales and marketing effort through
joint design and applications-engineering efforts with major customers.
In our performance products segment, we employ over 100 experienced
sales, marketing, distribution and customer service personnel. The sales force
is divided into both a general group and several specialized groups which focus
on specific products, end-users and geographic regions. This targeted approach
provides us with insight into emerging industry trends and creates opportunities
for product development.
Our performance products sales force markets products and services both
directly to end-users and indirectly through independent distributors.
Generally, sulfuric acid regeneration services are sold directly to end-users,
often pursuant to long-term contracts. In addition, we have 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. Our sales
contracts with our end-users and distributors are usually for one to three year
periods.
SEASONALITY; BACKLOGS
The businesses of our telecommunications equipment, manufacturing
and performance products segments are generally not seasonal. Due to the
nature of our businesses, there are no significant backlogs.
ENVIRONMENTAL MATTERS
Our various 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, Australia, China, Germany, Great Britain, India, Indonesia,
Ireland and Mexico. We believe that we are in substantial compliance with such
laws and regulations. However, as a result of our operations, we are 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 our
facilities. Based on information available at this time with respect to
potential liability involving these facilities, we believe that any such
liability will not have a material adverse effect on our 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, could require capital
expenditures which may be material or otherwise adversely impact our operations.
The Comprehensive Environmental Response Compensation and Liability Act
of 1980 (which we abbrevate to 'CERCLA' below) and similar state statutes have
been construed as imposing joint and several liability, under certain
circumstances, on present and former owners and operators of contaminated sites
and transporters and generators of hazardous substances regardless of fault. Our
facilities have operated for many years by us or their prior owners and
operators, and adverse environmental conditions may exist of which we are not
aware. The discovery of additional or unknown
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environmental contamination at any of our current or former facilities could
have a material adverse effect on our financial condition or results of
operation. In addition, we have received written notice from the Environmental
Protection Administration that we have been identified as a 'potentially
responsible party' under CERCLA at three third-party sites. We do not believe
that our liability, if any, for these sites will be material to our results of
operations or financial condition. In addition, Congress continues to consider
the reauthorization of and modifications to CERCLA. Because Congress has not yet
acted with respect to CERCLA, we do not have sufficient information to ascertain
the impact that any change might have on our potential liabilities, if any.
At any time, we may be involved in proceedings with various regulatory
authorities which could require us to pay various fines and penalties due to
violations of environmental laws and regulations at our 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 our sites. Again, although the amount of any liability
that could arise with respect to these matters cannot be accurately predicted,
we believe that the ultimate resolution of these matters will have no material
adverse effect on our results of operations or financial condition. See also
' -- Legal Proceedings' below.
Avtex Site at Front Royal, Virginia. On March 22, 1990, the
Environmental Protection Administration issued to us a Notice of Potential
Liability pursuant to Section 107(a) of CERCLA with respect to a site located in
Front Royal, Virginia, 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 us. On September 30, 1998, the
Environmental Protection Administration issued an administrative order under
Section 106 of CERCLA, which requires General Chemical Group (whose obligations
we assumed in connection with the Spinoff), AlliedSignal, Inc. and Avtex to
undertake certain removal actions at the acid plant. On October 19, 1998, we
delivered to the Environmental Protection Administration written notice of our
intention to comply with that 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. We have provided for the estimated
costs of $1.6 million for these activities in our accrual for environmental
liabilities relating to the order. We are working cooperatively with the
Environmental Protection Administration with respect to compliance with the
order and believe that such compliance will not have a material effect on our
results of operations or financial condition. See 'Risk Factors -- Our
operations are subject to environmental laws and regulations, whose requirements
could adversely affect our operations and profitability' and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Environmental Matters.'
EMPLOYEES/LABOR RELATIONS
At September 30, 1999, we had approximately 9,700 employees, of whom
approximately 2,950 were full-time salaried employees, approximately 1,350 were
full-time hourly employees (represented by ten different unions) and
approximately 5,400 were hourly employees working in nonunion facilities.
Approximately 1,300 of our employees are based in Germany. German-based
employees are members of unions and are subject to industry-wide and other
collective bargaining agreements.
Our union contracts have durations which vary from two to four years.
Since 1986, we have 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.
PROPERTIES
We operate over 80 manufacturing and production facilities located in
the United States, Canada, Australia, China, Germany, Great Britain, India,
Indonesia, Ireland and Mexico. Our headquarters are located in Hampton, New
Hampshire.
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Set forth below are the locations and uses of our major properties:
<TABLE>
<CAPTION>
LOCATION USE
- -------------------------------------------- --------------------------------------------
<S> <C>
Telecommunications Equipment
Englewood, Colorado......................... Production Facility and Offices
Sydney, Australia........................... Production Facility and Offices
Cheltenham, England......................... Production Facility and Offices
Berlin, Germany(1).......................... Production Facility and Offices
Mexico City, Mexico......................... Production Facility
Shanghai, People's Republic of China........ Production Facility
Bangalore, India............................ Production Facility
Jakarta, Indonesia.......................... Production Facility
Manufacturing
Livonia, Michigan(1)........................ Production Facility
Troy, Michigan(1)........................... Production Facility and Offices
Westland, Michigan(1)....................... Production Facility
Upper Sandusky, Ohio(1)..................... Production Facility
Toledo, Ohio................................ Production Facility
Defiance, Ohio.............................. Production Facility
Perrysburg, Ohio(1)......................... Production Facility and Offices
Mineral Wells, Texas........................ Production Facility
Imuris, Mexico.............................. Production Facility
Juarez, Mexico(1)........................... Production Facility
Nogales, Mexico(1).......................... Production Facility
Concord, Ontario............................ Production Facility
Guelph, Ontario(1).......................... Production Facility
Stouffville, Ontario........................ Production Facility
Tillsonburg, Ontario(1)..................... Production Facility
Toronto, Ontario............................ Production Facility
Waterdown, Ontario.......................... Production Facility
Performance Products
Hollister, California....................... Production Facility and Offices
Pittsburg, California....................... Production Facility
Richmond, California........................ Production Facility
North Claymont, Delaware.................... Production Facility, Offices and Warehouse
Augusta, Georgia............................ Production Facility
East St. Louis, Illinois.................... Production Facility
Berkeley Heights, New Jersey................ Production Facility, Offices and Warehouse
Newark, New Jersey.......................... Production Facility
Solvay, New York............................ Production Facility
Marcus Hook, Pennsylvania................... Production Facility, Offices and Warehouse
Midlothian, Texas........................... Production Facility
Anacortes, Washington....................... Production Facility
Racine, Wisconsin........................... Production Facility and Offices
Dublin, Ireland............................. Production Facility, Offices and Warehouse
Thorold, Ontario............................ Production Facility
Valleyfield, Quebec......................... Production Facility
Offices
Hampton, New Hampshire(1)................... Headquarters
Parsippany, New Jersey(1)................... Offices
</TABLE>
- ------------
(1) Leased.
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LEGAL PROCEEDINGS
General. We are 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 upon currently-available information is that any such liability
not covered by insurance will have no material adverse effect on our 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, E.D. Wesley Co., Peck Foods Corporation,
certain hotels, numerous insurance companies, several municipalities and General
Chemical Group (whose obligations we assumed). The principal allegations against
us are that a water treatment chemical sold by us to the City of Milwaukee
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 (whose obligations we assumed), 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 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, we believe 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 GenTek, continued in the discovery phase of the
litigation.
On August 20, 1999, the Company and its insurer, National Fire Union
Insurance Company of Pittsburgh, Pennsylvania ('National Union') entered into a
settlement with plaintiffs to resolve the case. The settlement agreement
provides that National Union shall pay the total amount of $1,500,000, which
shall be allocated to provide approximately $1,150,000 to compensate claimants
and $350,000 for plaintiffs' attorneys' fees and settlement administration
costs. The settlement is structured as a class action settlement pursuant to
which all claims will be barred upon final court approval of the settlement. The
Company reserves the right to terminate the settlement in the event that any
claimants opt out of the settlement, the settlement is appealed or the terms of
the settlement are modified or vacated. The trial court granted preliminary
approval of the settlement on October 19, 1999. The deadline for claimants to
opt out of the settlement was January 3, 2000, and to our knowledge only one
claimant elected to opt out of the settlement. Objections to the settlement must
be filed by February 7, 2000. The final approval hearing has been scheduled for
March 2, 2000.
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 (whose obligations we have
assumed), alleging that sulfur dioxide and sulfur trioxide releases from our
Delaware Valley facility caused various respiratory and pulmonary injuries.
Unspecified damages in excess of $50,000 for each plaintiff are sought. The
litigation has entered the discovery phase. We have denied all material
allegations of the complaints and will continue to defend ourselves vigorously
in this matter. We further believe that our current accruals and available
insurance should provide adequate coverage in the event
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of an adverse result in this matter and that, based on currently available
information, this matter will not have a material adverse effect on our results
of operations or financial condition.
In addition, on September 24, 1999, the same attorneys that filed the
April, 1998 actions against the Company also filed a purported class action
complaint against the Company, titled Whisnant vs. General Chemical Corporation,
(in the court of Common Pleas, Delaware County, Pennsylvania, on behalf of 550
current and former employees of the Sunoco (formerly Sun Company, Inc.) Marcus
Hook, Pennsylvania refinery located immediately adjacent to the Company's
Delaware Valley facility. The complaint alleges that unspecified releases of
sulfur dioxide and sulfur trioxide over unspecified timeframes caused injuries
to the plaintiffs, and seeks, among other things, to establish a 'trust fund'
for medical monitoring for the plaintiffs. The Company believes this claim is
without merit and will vigorously defend itself in this matter. Management
further believes that the Company's current accruals and available insurance
should provide adequate coverage in the event of an adverse result in this
matter, and that, based on currently available information, this matter will not
have a material adverse effect on the Company's results of operations or
financial condition.
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MANAGEMENT
MANAGEMENT
The following table sets forth our directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Paul M. Montrone............................ 58 Director; Chairman of the Board
Paul M. Meister............................. 47 Director; Vice Chairman of the Board
Richard R. Russell.......................... 57 Director; President and Chief Executive Officer
Michael R. Herman........................... 37 Vice President and General Counsel
William C. Keightley........................ 46 Vice President and Chief Financial Officer
Kevin J. O'Connor........................... 49 Controller
John W. Gildea.............................. 55 Director
Bruce Koepfgen.............................. 47 Director
Scott M. Sperling........................... 41 Director
Ira Stepanian............................... 62 Director
</TABLE>
Paul Montrone is a Director and the Chairman of our Board. He is the
Chairman of the Board of General Chemical Group, a position he has held since
1995, and a Director of General Chemical Group, a position he has held since
1988. Mr. Montrone was President of General Chemical Group from 1987 to 1994.
Mr. Montrone is the Chairman of the Board and the Chief Executive Officer of
Fisher Scientific International Inc., a distributor of laboratory and scientific
products, and a director of Waste Management, Inc. and the New York Metropolitan
Opera.
Paul Meister is a Director and the Vice Chairman of our Board. He is the
Vice Chairman of the Board of General Chemical Group, a position he has held
since 1998, and a Director of General Chemical Group, a position he has held
since 1994. Mr. Meister has been the Vice Chairman of the Board and the
Executive Vice President and Chief Financial Officer of Fisher Scientific
International since March 1998, since prior to 1994, he has been Chief Financial
Officer of Fisher Scientific International, and from 1994 to March 1998, he was
Senior Vice President of Fisher Scientific International. Mr. Meister is also a
Director of Minerals Technologies Inc. and M&F Worldwide Corp.
Richard Russell is our President and Chief Executive Officer and a
Director. From 1994 until the spinoff date, he served as the President and Chief
Executive Officer and a Director of General Chemical Group. Mr. Russell has also
been the President and Chief Executive Officer of General Chemical Corporation
since 1986.
Michael Herman is a Vice President and our General Counsel. From 1997
until the spinoff date, he served as the Vice President and General Counsel of
General Chemical Corporation. Mr. Herman had served as Deputy General Counsel of
General Chemical Corporation from 1995 until 1997, and as Associate General
Counsel of General Chemical Corporation from 1992 to 1995.
William Keightley is our Vice President, Finance and Chief Financial
Officer. From March 1999 until the spinoff date, he served as the Vice President
and Chief Financial Officer of General Chemical Group. Mr. Keightley served as
Vice President, Finance of Waste Management, Inc. from June 1997 to December
1998 and was Vice President, Finance of Wheelabrator Technologies Inc. from May
1996 to June 1997. From 1992 until May 1996, Mr. Keightley served as Chief
Financial Officer of a subsidiary of Waste Management, Inc.
Kevin O'Connor is our Controller. From March 1996 until the spinoff
date, he served as the Controller of General Chemical Group. Mr. O'Connor served
as Controller of General Chemical Corporation from 1986 to March 1996.
John Gildea is a Director. From 1997 until the spinoff date, he served
as a Director of General Chemical Group. Mr. Gildea has been Managing Director
of Gildea Management Company (investment
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management firm) since prior to 1994. He is also a Director of American Service
Group, Inc., Barry's Jewelers, Inc. and Konover Property Trust.
Bruce Koepfgen was elected as a Director on September 30, 1999. Mr.
Koepfgen is a private investor who spent 23 years with Salomon Brothers Inc., 15
of which he was a managing director. Most recently, he led Salomon's efforts in
Fixed Income Sales and managed its Chicago office and Midwest Sales Territory,
Salomon's largest regional office. He also was chairman of Salomon Analytics, a
company established to develop sophisticated fixed income analytic tools for
institutional investors.
Scott Sperling is a Director. From 1996 until the spinoff date, he
served as a Director of General Chemical Group. Mr. Sperling is the President of
TH Lee, Putnam Capital and has been a Managing Director of Thomas H. Lee Company
(private equity investment firm) since July 1994. Mr. Sperling is Trustee of THL
Equity Trust III, the General Partner of Equity Advisors III Limited
Partnership, which is the General Partner of THL Equity Fund III and Managing
Director of THL Equity Advisors IV, LLC, the general partner of THL Equity Fund
IV, L.P. Mr. Sperling was Managing Partner of The Aeneas Group Inc., a private
capital affiliate of Harvard Management Company, from prior to 1993 to September
1994. He is also a Director of Fisher, The Learning Company, Inc., Livent, Inc.,
Safelite Glass Corp., Wyndham International and several private corporations.
Ira Stepanian is a Director. From 1996 until the Spinoff Date, he served
as a Director of General Chemical Group. He was Chairman and Chief Executive
Officer of Bank of Boston Corporation and its principal subsidiary, The First
National Bank of Boston, from prior to 1994 until 1995.
COMMITTEES OF THE BOARD OF GENTEK
The Board of Directors of GenTek has four standing committees:
(1) an Audit Committee;
(2) a Compensation Committee;
(3) an Executive Committee; and
(4) a Nominating Committee.
The Audit Committee consists of Messrs. Gildea, Sperling and Stepanian,
with Mr. Stepanian serving as Chairman. It is responsible for, among other
things:
recommending the firm to be appointed as independent accountants to
audit GenTek's financial statements and to perform services related to
the audit;
approving in advance the general nature of each professional service
performed by the independent public accountants;
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;
considering the effect of such performance on the accountants'
independence; directing and supervising, when appropriate, special
investigations into matters within the scope of the independent public
accountants' duties; and
performing such other tasks related to and in furtherance of the
foregoing as it may consider necessary or appropriate or as may be
assigned to it by the Board from time to time.
The Compensation Committee consists of Messrs. Meister and Sperling,
with Mr. Sperling serving as Chairman. It is responsible for, among other
things:
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<PAGE>
reviewing and recommending compensation arrangements for Directors and
officers;
approving such arrangements for other senior level employees;
administering certain benefit and compensation plans of GenTek and its
subsidiaries;
monitoring the activities of an internal committee of members of
management established to carry out policies and guidelines with
respect to such plans; and
performing such other tasks related to and in furtherance of the
foregoing as it may consider necessary or appropriate or as may be
assigned to it by the Board from time to time.
A subcommittee of the Compensation Committee, comprised solely of
'outside directors' (as such term is used in Section 162(m) of the Internal
Revenue Code) who are also 'non-employee directors' (as such term is defined in
Rule 16b-3 of the Securities Exchange Act), has exclusive authority:
(1) 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
(2) to administer elements of the GenTek performance 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 GenTek
Inc. performance plan have been met.
In the remainder of this prospectus, 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.
An 'outside director' means an individual who:
(1) is not an employee of GenTek;
(2) does not receive compensation from GenTek for prior services as an
employee;
(3) has never been an officer of GenTek; and
(4) only receives remuneration as a director from GenTek and not in any other
capacity.
The term 'non-employee director' means an individual who:
(1) only receives remuneration as a director from GenTek and not in any other
capacity;
(2) is not currently an officer of GenTek; and
(3) has no interest in any transactions or business relationships with GenTek.
The Executive Committee consists of Messrs. Montrone, Russell and
Stepanian, with Mr. Montrone serving as Chairman. The Executive Committee
possesses, and may exercise during the interval between meetings of the Board,
all the powers of the Board. The Committee is responsible for overseeing the
management and direction of all business and affairs of GenTek, in such manner
as the Executive Committee deems in the best interests of GenTek. Meetings maybe
called by the Chief Executive Officer of GenTek or the Chairman of the
Committee.
The Nominating Committee consists of all members of the Board, with Mr.
Montrone serving as Chairman. The Nominating Committee is responsible for
nominating persons for election to the Board. The Nominating Committee will
consider nominees properly recommended by stockholders.
56
<PAGE>
COMPENSATION OF DIRECTORS
The employee directors of GenTek do not receive any compensation for
services performed as a director or for meeting attendance. The non-employee
directors of GenTek are entitled to receive cash compensation and compensation
under the plans described below.
CASH COMPENSATION. Our non-employee directors receive compensation of
$40,000 per year, with no additional fees for attendance at the company's Board
or committee meetings. Employee directors are not paid any fees or additional
compensation for service as members of our Board or any of its committees. All
directors are reimbursed for expenses incurred in connection with attending our
Board and committee meetings.
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS. Under GenTek's retirement
plan for non-employee directors, any non-employee director who retires from our
Board with at least five years of service as a director (other than Messrs.
Montrone and Meister) will be eligible for an annual retirement benefit for the
remainder of his or her lifetime. The annual retirement benefit is equal to 50%
of the director fee in effect at the date of such director's retirement for a
director who retires with five years of eligible service and is increased by 10%
of the director fee in effect at the date of such director's retirement for each
additional year of service, up to 100% of such fee for ten or more years of
service as a director or for directors who retire after age 70. Payment of the
retirement benefits to any director will commence upon the later of the
director's retirement from our Board or the attainment of age 60. We may suspend
or terminate retirement benefits if the retired director refuses to render
consultative services and advice to us or engages in any activity which competes
with our business.
RESTRICTED UNIT PLAN FOR NON-EMPLOYEE DIRECTORS. We adopted, effective
as of the spinoff, a restricted unit plan for non-employee directors, under
which each of our non-employee directors (other than Messrs. Montrone and
Meister), upon becoming a director, will receive a one-time grant of 5,000
restricted units evidencing a right to receive shares of common stock, subject
to certain restrictions. We 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 common stock underlying such director's restricted units from the date
of grant until the payment date described below. No shares of common stock will
be issued at the time restricted units are granted, and we will not be required
to set aside a fund for any such grant or for amounts credited to the memorandum
account. Under the terms of the plan, neither the restricted units nor the
memorandum account may be sold, assigned, pledged or otherwise disposed of
twenty-five percent of the restricted units and the related cash and stock
dividends will vest for each year of service as a director. Vested restricted
units and the related cash and stock dividends will not be payable until the
director ceases to be a member of our Board. At that time, the director will
receive one share of 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 cash and
stock dividends that have not vested at the time the director ceases to be a
director will be canceled unless service has terminated because of death or
disability, in which event all such restricted units and related cash and stock
dividends will vest immediately. When payment of restricted units is made, non-
employee directors (other than Messrs. Montrone and Meister) will also receive
cash and securities equal to the related cash and stock dividends, 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
common stock reserved for issuance under the plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee determines the compensation of executive
officers of GenTek. None of the members of the Compensation Committee is or was
an officer or employee of GenTek. Mr. Meister, a member of the Compensation
Committee, is a Managing Director of Latona Associates, a management company
which performs a range of advisory services for GenTek. See the description of
'Agreements with Latona Associates' under 'Affiliate Relationships and
Transactions.'
57
<PAGE>
EXECUTIVE COMPENSATION
In general, compensation for our executive officers and other key
employees consists 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 GenTek's long-term
incentive plan (described below).
PERFORMANCE PLAN
Prior to the consummation of the spinoff, our Board adopted, and General
Chemical Group, as sole shareholder of GenTek approved, effective upon the
consummation of the spinoff, a performance plan under which executive officers
and key employees of GenTek and its subsidiaries are eligible to receive annual
or other periodic bonuses. The performance plan is administered by the
Compensation Committee of our Board of Directors. Non-employee directors will
not be eligible for awards under the performance plan.
Each year, we will establish target incentive bonuses for participants
in the performance plan. Bonuses will be payable under the performance plan for
a year if we meet 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
has 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 performance plan vests broad powers in the Compensation Committee to
administer and interpret the plan. The Compensation Committee's powers include
authority, within the limitations set forth in the performance 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 performance plan also
generally vests broad powers in the Compensation Committee to amend and
terminate the performance plan.
LONG-TERM INCENTIVE PLAN
Prior to the consummation of the spinoff, our Board of Directors adopted
and General Chemical Group, as sole stockholder of GenTek approved, effective
upon the consummation of the spinoff, a long-term incentive plan. The long-term
incentive plan provides for the grant of any or all of the following types of
awards:
(1) stock options, including incentive stock options;
(2) stock appreciation rights;
(3) restricted stock and restricted units;
(4) incentive stock and incentive units; and
(5) deferred stock units.
58
<PAGE>
The long-term incentive plan also provides for the grant of a split of
General Chemical Group equity-related incentive awards held by all employees in
connection with the Spinoff. See ' -- General Chemical Group Stock Option and
Restricted Unit Conversion' below.
Awards under the long-term incentive plan may be granted to key
employees, including our executive officers and executive officers of our
subsidiaries and affiliates, but may not be granted to any non-employee
director. The number of employees participating in the long-term incentive plan
will vary from year to year. Initially, 1,600,000 shares of common stock have
been authorized for issuance under the long-term incentive plan, which number of
shares includes the shares issued as a result of the split of General Chemical
Group equity-related incentive awards, as described under ' -- General Chemical
Group Stock Option and Restricted Unit Conversion' below.
If shares subject to an option under the long-term incentive plan cease
to be subject to that option, if shares awarded under the long-term incentive
plan are forfeited or if an award otherwise terminates without a payment being
made to the participant in the form of common stock, those shares will again be
available for future award under the long-term incentive plan. In the event of
certain changes in our 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 long-term incentive plan, and, where
applicable, the exercise price of outstanding awards under the long-term
incentive plan. The long-term incentive plan 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 Internal Revenue Code for
incentive stock options, or 'nonqualified,' which includes those awards that are
not intended to satisfy the requirements of Section 422 of the Internal Revenue
Code. Under the terms of the long-term incentive plan, the exercise price of the
options will, unless the Compensation Committee determines otherwise, not be
less than fair market value of GenTek's common stock 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 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 us as a result of the holder's
(1) death;
(2) disability;
(3) early retirement with the consent of the Compensation Committee; or
(4) 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 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. Such new options will be
subject to the same terms and
59
<PAGE>
conditions as the exercised option except that the exercise price will be the
fair market value on the date the new option is granted and such options will
not be exercisable for six months.
Stock Appreciation Rights
The long-term incentive plan authorizes the Compensation Committee to
grant stock appreciation rights in tandem with a stock option, in addition to a
stock option, or freestanding and unrelated to a stock option. Stock
appreciation rights 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 stock appreciation right. The base price may
not be less than 100% of the fair market value of the GenTek common stock on the
date the stock appreciation right is granted. The Committee shall determine when
an stock appreciation right is exercisable, the method of exercise, and whether
settlement of the stock appreciation right is to be made in cash, shares of
common stock or a combination of the foregoing.
Restricted Stock and Restricted Units
The long-term incentive plan authorizes the Compensation Committee to
grant awards in the form of restricted stock and restricted units. For purposes
of the long-term incentive plan, restricted stock is an award of common stock
and a restricted unit is a contractual right to receive GenTek common stock (or
cash based on fair market value of 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 long-term incentive plan allows for the grant of awards in the form
of incentive stock and incentive units. For purposes of the long-term incentive
plan, incentive stock is an award of 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 long-term incentive plan'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
60
<PAGE>
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.
Deferred Stock
An award of deferred stock confers upon a participant the right to
receive shares of 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 and receive the equivalent amount in
elective units based on the fair market value of 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 amount deferred by
the participant. Deferred stock units carry no voting rights until the shares
have been issued. The Compensation Committee will determine whether any cash and
stock dividends 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 cash and stock dividends with respect thereto
are fully vested at all times. Unless the Compensation Committee provides
otherwise, supplemental stock units and cash and stock dividends 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 cash and stock dividends with respect thereto will become fully vested on
the third anniversary of the corresponding 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. A change of
control is defined in the long-term incentive plan and includes:
(1) a change in the composition of a majority of the Board of Directors of
GenTek unless the selection or nomination of each of the new members was
approved by a majority of incumbent members of the Board of Directors of
GenTek;
(2) the acquisition by any person or group, with certain exceptions, of the
beneficial ownership of securities representing more than 20 percent of the
voting power of GenTek's then outstanding voting securities having the
right to elect directors;
(3) the consummation, after approval by GenTek's stockholders, of a merger or
other business combination with an entity other than a majority-owned
subsidiary of GenTek, or the sale of all or substantially all of GenTek's
assets; or
(4) the purchase by any person or group, with certain exceptions, of 20% or
more of the outstanding shares of GenTek's common stock pursuant to a
tender or exchange offer.
These provisions of the long-term incentive plan may have an anti-takeover
effect.
Notwithstanding the foregoing, a change in control will not be deemed to
occur in the event we file for bankruptcy, liquidation or reorganization under
the United States Bankruptcy Code.
The Board or the Compensation Committee may amend, suspend or terminate
the long-term incentive plan.
OTHER BENEFIT PLANS AND ARRANGEMENTS
Our salaried employees continue to participate in the General Chemical
Corporation pension plan -- of which we continued 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 we established or continued
to sponsor pursuant to the employee benefits agreement. In addition to the
pension plan, we will continue to be the sponsor of existing employee benefit
plans that cover our employees. In connection
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<PAGE>
with the spinoff, GenTek caused a transfer of plan assets and liabilities, where
applicable, to a corresponding 'mirror' employee benefit plan established by
General Chemical Group for the benefit of employees of the industrial chemicals
business who were participants in the plan sponsored by us immediately prior to
the spinoff. For further information on the employee benefit agreement we
entered into in connection with the spinoff, see the section 'Arrangements
Between GenTek and General Chemical Group Relating to the Spinoff -- Employee
Benefits Agreement.'
A participating employee's annual retirement benefit is determined by
the employee's credited service under the salaried employees' pension plan and
average annual earnings during the five years of the final ten years of service
credited under the salaried employees' pension plan for which such employees'
earnings were highest. Annual earnings include principally salary, overtime and
short-term incentive compensation. The salaried employees' pension plan provides
that a participating employee's right to receive benefits under the salaried
employees' pension plan becomes fully vested after five years of service. Under
the salaried employees' pension plan, benefits are adjusted by a portion of the
social security benefits received by participants.
In addition, our key executives participate in an unfunded nonqualified
excess benefit plan which pays benefits which would otherwise accrue in
accordance with the provisions of the salaried employees' pension plan, but
which are not payable under the salaried employees' pension plan by reason of
certain benefit limitations imposed by the Internal Revenue Code.
The table below indicates the estimated maximum annual retirement
benefit a hypothetical participant would be entitled to receive under the
salaried employees' pension plan and the excess benefit plan. The amounts shown
are without regard to benefit limitations imposed by the Internal Revenue Code,
before any deduction for social security benefits if the retirement occurred
December 31, 1998, at the age of 65, after the indicated number of years of
credited service and if average annual earnings equaled the amounts indicated.
Compensation qualifying as annual earnings under the salaried employees' pension
plan approximates the amounts set forth as the salary and bonus of the executive
officers in the 'Summary Compensation Table' included in the next section of
this prospectus. The number of years of credited service under the salaried
employees' pension plan for Messrs. Russell, Passino, Tanis, Wilkinson and Klink
is approximately 22, 19, 11, 14 and 24, respectively.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
----------------------------------------------------
AVERAGE 15 20 25 30 35
ANNUAL EARNINGS YEARS YEARS YEARS YEARS 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>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes compensation awarded or paid by General
Chemical Group and its subsidiaries during the periods indicated below to our
Chief Executive Officer and the four most highly compensated other executive
officers of General Chemical Group at year-end 1998 who, since the Spinoff, have
been employees of our subsidiary, General Chemical Corporation. Except for Mr.
Russell, who is the President and Chief Executive Officer of GenTek, none of
these officers is an executive officer of GenTek. The positions indicated in the
table are the position such persons held with General Chemical Group. See
'Management.' Our senior management currently receives compensation similar to
that received by the senior management of General Chemical Group in the past.
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All stock compensation in prior years has been in the form of shares of
the common stock, or options to purchase shares of the common stock, of General
Chemical Group.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------- ----------------------
NAME AND FISCAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
------------------ ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Richard R. Russell ............................ 1998 $400,000 $ 75,000 -- $26,000
President and Chief Executive Officer 1997 400,000 375,000 -- 46,000
1996 400,000 425,000 400,000 49,000
Ralph M. Passino .............................. 1998 250,000 50,000 -- 16,000
Vice President and General Manager, 1997 250,000 225,000 -- 28,000
Manufacturing Group 1996 250,000 265,000 65,000 30,000
James N. Tanis ................................ 1998 250,000 50,000 -- 16,000
Vice President and General Manager, 1997 250,000 225,000 -- 28,000
Performance Products 1996 250,000 225,000 65,000 28,000
James A. Wilkinson ............................ 1998 220,000 40,000 -- 14,000
Vice President, Manufacturing 1997 220,000 110,000 -- 20,000
1996 220,000 100,000 20,000 18,000
Bodo B. Klink ................................. 1998 205,000 35,000 -- 13,000
Vice President, Business Development and 1997 205,000 120,000 5,000 20,000
Services 1996 195,000 150,000 20,000 20,000
</TABLE>
OPTION GRANTS
The following table sets forth information concerning individual grants
of stock options by General Chemical Group to the executive officers of the
General Chemical Group named in the previous table through year-end 1998 for the
purchase of General Chemical Group Common Stock. There were no stock options
granted by General Chemical Group to these officers during 1998. 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 ' -- General Chemical Group Stock Option and Restricted Unit Conversion'
below.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT 12/31/98 OPTIONS AT 12/31/98
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard R. Russell.............. -- -- -- 400,000 $0 $0
Ralph M. Passino................ -- -- 24,000 41,000 0 0
James N. Tanis.................. -- -- 24,000 41,000 0 0
James A. Wilkinson.............. -- -- 12,000 8,000 0 0
Bodo B. Klink................... -- -- 12,000 13,000 0 0
</TABLE>
GENERAL CHEMICAL GROUP STOCK OPTION AND RESTRICTED UNIT CONVERSION
Under 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 had their interests adjusted as described
below.
Stock Options. Our employees who held General Chemical Group stock
options as of the Spinoff Date received options to purchase under the GenTek
Inc., long-term incentive plan the same number of shares of GenTek as entitled
by their GCG stock options. The exercise price of their General Chemical Group
stock options was adjusted, and the exercise price of their GenTek stock options
was established, in a manner that preserved (1) the difference between the
exercise price and value of the shares covered by the General Chemical Group
stock option and (2) the ratio of the exercise price per share to the fair
market value of the share covered by the option. All other terms of such
adjusted options remained unchanged in the spinoff. Individuals who continue to
provide employment, consulting and similar services to both GenTek and General
Chemical Group similarly retained their options to acquire shares of common
stock of General Chemical Group and received additional options to acquire
shares of common stock of GenTek, in each case as adjusted in the manner
described above.
Restricted Units. Each restricted unit, whether held by employees of
GenTek or General Chemical Group, represented a similar award with respect to a
share of each of GenTek and General Chemical Group.
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BENEFICIAL OWNERSHIP OF COMMON STOCK
The table below sets forth, to the best of our knowledge, certain
information regarding the beneficial ownership of shares of our Common Stock by:
(1) each person who beneficially owns more than 5% of such shares,
(2) each of our directors,
(3) each of the executive officers named in the tables in the preceding section
of this prospectus and
(4) all directors and executive officers as a group.
Our issued and outstanding capital stock consists of shares of Common
Stock, entitling its holder to one vote for each share, and Class B Common
Stock, entitling its holder to ten votes for each share. Holders of Class B
Common Stock may convert each such share of Class B Stock at any time and from
time to time into one share of Common Stock. The shares of Common Stock are
registered under the Exchange Act and are listed on the New York Stock Exchange.
There are significant restrictions on transfers of 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 liquidation
distributions.
As of January 24, 2000, a total of 20,815,120 shares were issued and
outstanding, consisting of 16,856,699 shares of Common Stock and 3,958,421
shares of Class B Common Stock.
The ownership percentages of our Common Stock shown above have been
calculated assuming the conversion of all outstanding shares of Class B Common
Stock into Common Stock. For the purpose of identifying persons who beneficially
own more than 5% of the shares of Common Stock, we have assumed that no
outstanding shares of Class B Common Stock have been converted.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
GENTEK
---------------------------
COMMON PERCENT OF
NAME OF BENEFICIAL OWNER STOCK CLASS
------------------------ ---------- ----------
<S> <C> <C>
DIRECTORS AND OFFICERS
Paul M. Montrone(1)(2)(3)(4).............................. 9,811,421 47.1%
Paul M. Meister(5)........................................ 2,061,251 9.9
John W. Gildea(6)(12)..................................... 595,996 2.9
Richard R. Russell(7)..................................... 76,972 *
Ralph M. Passino(8)....................................... 76,986 *
James N. Tanis(9)......................................... 69,986 *
James A. Wilkinson(10).................................... 46,693 *
Bodo W. Klink(11)......................................... 39,157 *
Scott M. Sperling(12)..................................... 25,000 *
Ira Stepanian(12)......................................... 25,000 *
Bruce Koepfgen(13)........................................ 9,000
All directors and Named Executive Officers as a group
(11 persons)(14)........................................ 10,793,711 51.9
5% SHAREHOLDERS
Paul M. Montrone(1)(2)(3)(4).............................. 9,811,421 47.1
Paul M. Meister(5)........................................ 2,061,251 9.9
1996 and February 1998 GRATs(2)(4)........................ 3,552,502 17.1
J.P. Morgan and Co. Incorporated(15)...................... 1,717,550 8.3
Thomson Horstmann & Bryant, Inc.(16)...................... 889,250 4.3
</TABLE>
- ------------
* Less than 1%.
(1) Includes (a) 1,706,095 shares of Class B Common Stock and 1,420,163 shares
of Common Stock held directly by Mr. Montrone, (b) 30,000 shares of Common
Stock held directly by Sandra A. Montrone, the wife of Mr. Montrone, and
(c) 3,000 shares of Common stock held by family trust. Also includes the
shares of Class B Common Stock and Common Stock owned by the 1996 GRAT, the
February 1998 GRAT and the December 1998 GRAT and the 1999 GRAT (see
notes 3, 4 and 5 below). By virtue of his position as co-trustee of the
December 1998 GRAT and the 1999 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 address for
Mr. Montrone is c/o GenTek Inc., Liberty Lane, Hampton, New Hampshire
03842.
(2) A grantor retained annuity trust formed in 1996 (the '1996 GRAT') owns
829,140 shares of Class B Common Stock and 1,214,881 shares of Common
Stock. A grantor retained annuity trust formed in February 1998 (the
'February 1998 GRAT') owns 611,903 shares of Class B Common Stock and
896,578 shares of 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
(footnotes continued on next page)
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(footnotes continued from previous page)
Mr. Montrone, and Mr. Meister are the co-trustees of the 1996 GRAT and Mrs.
Montrone is the sole trustee with investment and voting discretion of the
February 1998 GRAT. 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. 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.
(3) Grantor retained annuity trusts were formed in each of December 1998 (the
'December 1998 GRAT') and March 1999 (the '1999 GRAT' and, together with
the 1996 GRAT, February 1998 GRAT and December 1998 GRAT, the 'Montrone
Trusts') Mr. and Ms. Montrone are co-trustees of both trusts. The December
1998 GRAT owns 1,099,661 shares of Common Stock. The 1999 GRAT owns 811,283
shares of Class B Common Stock and 1,188,717 Shares of Common Stock.
Wilmington Trust Company is the administrative trustee of the
December 1998 GRAT and the 1999 GRAT. By virtue of their position as co-
trustees, each of Mr. and Ms. Montrone may be deemed the beneficial owner
of all shares held by the December 1998 GRAT and the 1999 GRAT.
(4) 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.
(5) Includes 10,000 shares of Common Stock owned by Mr. Meister directly, an
aggregate of 7,500 restricted units granted pursuant to the General
Chemical Group's Restricted Unit Plan, of which 1,500 restricted units
vested on each of November 15, 1996, May 15, 1997 and May 15, 1998 and
3,000 restricted units vested on May 15, 1999. Also includes 829,140
shares of Class B Common Stock and 1,214,881 shares of Common Stock held
by the 1996 GRAT, of which Mr. Meister is a co-trustee.
(6) Includes 75,000 shares of Common Stock held by Mr. Gildea directly, 25,000
shares of Common Stock held by defined benefit plan of Gildea Investment
Company, a Connecticut S Corporation of which Mr. Gildea is an officer and
sole stockholder and information presented herein is based solely upon a
Schedule 13D filing made with the SEC on February 16, 1999 by Mr. John W.
Gildea, a director of GenTek, on behalf of himself and Network Fund III,
Ltd. ('Network'). Network is an investment fund managed by Gildea
Management Company, of which Mr. Gildea is the Chairman of the Board of
Directors, Chief Executive Officer and sole stockholder. According to such
filing, Network possesses sole voting power over 470,996 shares of the
above shares and sole dispositive power over 470,996 of the above shares
while Mr. Gildea possesses sole voting and sole dispositive power over all
of the above shares. The address of Mr. Gildea is 115 East Putnam Avenue,
Greenwich, CT 06830. The address for Network is P.O. Box 219, Butterfield
House, Grand Cayman, Cayman Islands, BWI.
(7) Includes 20,000 shares of Common Stock held by Mr. Russell's wife, 1,000
shares of Common Stock held by Mr. Russell's daughter, an aggregate of
55,972 restricted units granted pursuant to the General Chemical Group's
Restricted Unit Plan, of which 11,194 restricted units vested on each of
November 15, 1996, May 15, 1997 and May 15, 1998 and 22,390 restricted
units vested on May 15, 1999. Mr. Russell disclaims any beneficial
ownership of the 21,000 shares of Common Stock held by his wife and
daughter.
(8) Consists of 9,000 shares of Common Stock held by Mr. Passino's wife and
children, an aggregate of 27,986 restricted units granted pursuant to the
General Chemical Group's Restricted Unit Plan, of which 5,597 restricted
units vested on each of November 15, 1996, May 15, 1997 and May 15, 1998
and 11,195 restricted units vested on May 15, 1999, options to purchase
40,000 shares of Common Stock, which options vested 12,000 shares on each
of May 15, 1997 and May 15, 1998 and 16,000 shares on May 15, 1999.
Mr. Passino disclaims any beneficial ownership of the 9,000 shares of
Common Stock held by his wife and children.
(9) Includes 2,000 shares of Common Stock held by Mr. Tanis directly, an
aggregate of 16,791 restricted units granted pursuant to the General
Chemical Group's Restricted Unit Plan, of which 5,597 restricted units
vested on each of November 15, 1996, May 15, 1997 and May 15, 1998 and
11,195 restricted units will vest on May 15, 1999. Also includes options to
purchase 40,000 shares of Common Stock, which options vested 12,000 shares
on each of May 15, 1997 and May 15, 1998 and 16,000 shares on May 15, 1999.
(10) Includes 13,633 shares of Common Stock held by Mr. Wilkinson directly,
4,353 shares held by Mr. Wilkinson's spouse, 8,707 restricted units vesting
on May 15, 1999 and options to purchase 20,000 shares of Common Stock,
which options vested 6,000 shares on each of May 15, 1997 and May 15, 1998
and 8,000 shares on May 15, 1999.
(11) Includes 500 shares of Common Stock held by Mr. Klink directly, an
aggregate of 18,657 restricted units granted pursuant to the General
Chemical Group's Restricted Unit Plan, of which 3,732 restricted units
vested on each of November 15, 1996, May 15, 1997 and May 15, 1998 and
7,461 restricted units vested on May 15, 1999. Also includes options to
purchase 20,000 shares of Common Stock, which options vested 6,000 shares
on each of May 15, 1997 and May 15, 1998, and 8,000 shares on May 15, 1999.
(12) Includes 5,000 restricted units granted pursuant to General Chemical
Group's Restricted Unit Plan for Non-Employee Directors and options to
purchase 20,000 shares of Common Stock.
(13) Includes 5,000 restricted units granted pursuant to GenTek's Restricted
Unit Plan for Non-Employee Directors.
(14) Of such shares, 9,811,421 are beneficially owned by Mr. Montrone (see
notes 1, 2, 3 and 4 above) and 590,996 are beneficially owned by
Mr. Gildea (see note 5 above). Also includes the 2,061,521 shares
beneficially owned by Mr. Meister, of which 2,044,021 shares are included
in the shares beneficially owned by Mr. Montrone.
(15) The information presented herein is based solely upon a Schedule 13G filing
made with the SEC by J.P. Morgan and Co. Incorporated ('J.P. Morgan') on
October 8, 1999. According to such filing, J.P. Morgan has sole voting
power over 1,359,650 of the above shares, shared voting power over none of
the above shares and sole dispositive power over all of the above shares.
The address of J.P. Morgan is 60 Wall Street, New York, New York 10260. The
percentage ownership of Common Stock by J.P. Morgan 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 J.P. Morgan would be 10.2%.
(16) The information presented herein is based solely upon a Schedule 13G filing
made with the SEC by Thomson Horstmann Bryant, Inc. ('Horstmann') on
January 28, 1999. According to such filing, Horstmann as sole voting power
over 572,600 of the above shares, shared voting power over 15,600 of the
above shares and sole dispositive power over all of the above shares. The
address of Horstmann is Park 80 West, Plaza Two, Saddle Brook, New Jersey
07663. The percentage ownership of Common Stock by Horstmann 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 Horstmann would be 5.3%.
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AFFILIATE RELATIONSHIPS AND TRANSACTIONS
OUR ARRANGEMENTS WITH THE GENERAL CHEMICAL GROUP RELATING TO THE SPINOFF
In connection with the spinoff, the General Chemical Group and GenTek
entered into agreements to facilitate the separation of our manufacturing and
performance products businesses from the industrial chemicals business of
General Chemical Group. For a description of these agreements see 'Our
Arrangements with General Chemical Group Relating to the Spinoff' below.
AGREEMENTS WITH LATONA ASSOCIATES
Latona Associates Inc. is a management company that, since 1995, has
provided General Chemical Group with strategic management, business and
financial advisory services, including guidance and advice related to
financings, security offerings, recapitalizations, restructurings, acquisitions
and tax and employee benefit matters. In 1998, General Chemical Group paid
Latona Associates $5.9 million for such services, of which approximately $4.7
million was attributable to our businesses. Through the first three quarters of
1999, we have paid Latona $3.6 million. Paul M. Montrone, the controlling
stockholder and Chairman of our Board, also controls Latona Associates. In
addition, Paul M. Meister, a member of our Board, is a Managing Director of
Latona Associates.
In connection with the spinoff, Latona Associates agreed to provide its
services separately to us and to General Chemical Group and to split its current
fee between us and General Chemical Group. As a result, we will pay Latona
Associates an annual fee of $4.5 million, 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, if we request Latona to
provide advisory services in connection with any acquisition, business
combination or other strategic transaction, we will pay Latona Associates
additional fees, comparable to those received by investment banking firms for
such services (subject to the approval of a majority of our independent
directors). In 1999, Latona Associates has advised us with respect to our
acquisitions of Noma, Defiance and Krone and has received total fees of $3.6
million for services rendered in connection with these transactions. In 1998,
Latona received fees of $0.5 million for advisory services provided with respect
to acquisitions, combinations and other strategic transactions.
Our agreement with Latona Associates is substantially similar to General
Chemical Group's existing agreement with Latona and will extend through 2004.
The agreement may be terminated by us or Latona Associates 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. We may terminate the agreement if Mr. Montrone ceases to hold, directly
or indirectly, shares of our capital stock constituting at least 20% of the
aggregate voting power of our capital stock.
While there can be no assurance that the amount of fees to be paid by
GenTek to Latona Associates will not exceed the amount that GenTek would have to
pay to obtain from unaffiliated third parties the services to be provided by
Latona Associates, GenTek believes that the employees of Latona Associates have
extensive knowledge concerning its business which would be impractical for a
third party to obtain. As a result, GenTek has not compared the fee payable to
Latona Associates 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 Associates, 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 New York Stock Exchange and prevailing corporate practices.
REGISTRATION RIGHTS AGREEMENT
In order to facilitate obtaining the private letter ruling of the
Internal Revenue Service concerning the tax-free nature of the spinoff,
Mr. Montrone and the Montrone family trusts converted 5,800,000 of their shares
of Class B Common Stock into Common Stock of General Chemical Group. As a result
of such conversion, the voting power of the shares held or controlled by
Mr. Montrone and the
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Montrone family trusts decreased from 89.9% to 80.5%. We believe that, without
such conversion, the spinoff could have adverse tax consequences to General
Chemical Group.
Under a registration rights agreement, Mr. Montrone and the Montrone
family trusts may request, at any time until April 1, 2004, the registration of
their shares of Common Stock (including shares of Common Stock received upon
conversion of any Class B Common Stock) for sale under the Securities Act. We
will be required to accept up to three requests for registration and, in
addition, to include the shares of Mr. Montrone and the Montrone family trusts
in a proposed registration of shares of Common Stock under the Securities Act in
connection with the sale of shares of Common Stock by us or any of our
stockholders. We will be responsible for the expenses of the registration of
shares of Mr. Montrone and the Montrone family trusts, other than brokerage and
underwriting commissions and taxes relating to the sale of the shares.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
On January 24, 2000, the authorized capital stock of GenTek consisted
of 100 million shares of common stock, 40 million shares of Class B common stock
and 10 million shares of undesignated preferred stock issuable in series by the
Board of Directors (the 'Preferred Stock'). On January 24, 2000, 16,856,699
shares of common stock and 3,958,421 shares of Class B common stock were issued
and outstanding, and no shares of Preferred Stock were issued or outstanding. On
January 24, 2000, all outstanding shares of common stock and Class B common
stock were 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
Amended and Restated Bylaws (the 'Bylaws'), copies of which are incorporated by
reference in this Prospectus.
COMMON STOCK AND CLASS B COMMON STOCK
Except for the disparity in voting power, the conversion provisions and
the transfer restrictions described below, 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 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 are
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 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
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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.
UNDESIGNATED PREFERRED STOCK
The Board of Directors is authorized to issue up to 10 million 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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OUR ARRANGEMENTS WITH GENERAL CHEMICAL GROUP
RELATING TO THE SPINOFF
In connection with the spinoff, General Chemical Group and GenTek
entered into the agreements described in this section to facilitate the
separation of our manufacturing and performance products business from the
industrial chemicals business of General Chemical Group and an orderly
transition in establishing GenTek and General Chemical Group each as separate,
stand-alone companies. The agreements summarized below have been filed as
exhibits to the registration statement of which this prospectus forms a part.
The following summarizes the material terms of such agreements.
Currently, GenTek and General Chemical Group have two common directors:
Messrs. Montrone and Meister. Because Messrs. Montrone and Meister serve as
directors of both GenTek and General Chemical Group, they may have conflicts of
interest in connection with the agreements summarized below. The Boards of
Directors of GenTek and General Chemical Group will deal with proposals
regarding amendments to, waivers of, extensions for other changes in the terms
of the agreements summarized below on a case by case basis, taking into account
the requirements of the New York Stock Exchange and prevailing corporate
practice, including the disclosure of the terms of the potential transaction and
the interests of Messrs. Montrone and Meister or the approval of the transaction
by the disinterested directors of GenTek.
There can be no assurance that the terms of the agreements summarized
below are at least as favorable to GenTek as terms it would have negotiated with
unaffiliated third parties. Given the pre-spinoff relationship of GenTek and
General Chemical Group, the desire of GenTek and General Chemical Group to
continue aspects of their pre-spinoff operations for a transitional period and
the extensive knowledge of GenTek's personnel concerning Group and General
Chemical, it was impracticable or undesirable for GenTek to seek to enter into
similar arrangements with unaffiliated third parties. As a result, GenTek has
not compared the terms of these agreements with the terms it would have
negotiated with unaffiliated third parties.
SEPARATION AGREEMENT
The separation agreement provided for, among other things, the split up
at and after the spinoff between GenTek and General Chemical Group of certain
assets and liabilities held by General Chemical Group before the spinoff. Under
the separation agreement:
GENTEK'S ASSETS: The following became assets of GenTek at or prior to
the spinoff:
the capital stock of General Chemical Corporation;
the capital stock of Noma, Reheis, Defiance, Toledo Technologies Inc.,
Balcrank Products Inc., PDI and the other subsidiaries that are engaged
in our businesses; and
any other assets that are not used principally in the industrial
chemicals business.
GENERAL CHEMICAL GROUP'S ASSETS: The following assets were retained by
General Chemical Group at and after the spinoff:
the capital stock of New Hampshire Oak, General Chemical Industrial
Products Inc., General Chemical Canada Ltd. and the other subsidiaries
that are engaged in the industrial chemicals business of General
Chemical Group;
all of General Chemical Corporation's 51% interest in General Chemical
(Soda Ash) Partners, and all rights of the managing partner of such
partnership; and
all other assets used principally in the industrial chemicals business.
GENTEK'S LIABILITIES: As of the Spinoff, all liabilities of GenTek's
businesses became exclusively the liabilities of our company, including all
liabilities:
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incurred in the conduct or operation of our business or the ownership
or use of our assets, whether arising before, at or after the spinoff;
of our subsidiaries, whether or not incurred in the conduct or
operation of our businesses or the ownership of the our assets;
of GenTek arising under the separation agreement or any other
agreements with General Chemical Group relating to the spinoff;
undertaken by General Chemical Group in connection with its acquisition
of Noma, Defiance, Reheis, Peridot and Sandco Automotive; and
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 our businesses.
GENERAL CHEMICAL GROUP'S LIABILITIES: All liabilities of General
Chemical Group, other than the liabilities of GenTek just described, have been
retained by General Chemical Group, including all liabilities:
incurred in the conduct or operation of its industrial chemicals
business or the ownership or use of Industrial Assets;
set forth on the balance sheet of the industrial chemicals business;
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 its businesses;
of General Chemical Group arising under the separation agreement or any
other agreements with GenTek relating to the spinoff; and
of General Chemical Group or any of its subsidiaries that do not relate
either to our businesses or the industrial chemicals business,
including liabilities relating to any business formerly owned or
operated by any of them (other than any such business that had been
engaged in our businesses) or arising out of the sale thereof.
INDEMNIFICATION. After the spinoff, GenTek and General Chemical Group
will indemnify each other and their respective directors, officers, employees
and agents from any losses, including reasonable attorney's fees, incurred by
any respective indemnitee due to the failure of the indemnifying party to
satisfy its obligations under the separation agreement.
If the indemnity is insufficient to hold harmless an indemnified party
for any indemnifiable losses, each indemnifying party will pay its fair share of
the losses. In addition, General Chemical Group will use its best efforts to
maintain directors' and officers' liability insurance coverage at least equal to
General Chemical Group's pre-spinoff directors' and officers' liability
insurance coverage for a period of six 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 AND NON-SOLICITATION. Each of GenTek and General
Chemical Group have agreed that, subject to certain exceptions, neither will
compete with the other prior to the fifth anniversary of the spinoff. GenTek and
General Chemical Group have also agreed not to hire, or solicit for employment,
any director, officer or supervisory-level employee of the other until the third
anniversary of the spinoff.
EMPLOYEE BENEFITS AGREEMENT
In connection with the spinoff, GenTek and General Chemical Group
entered into an employee benefits agreement that, among other things, separated
the assets and liabilities under General Chemical Group's employee benefit plans
and other employment-related liabilities between us and General Chemical Group.
As a general matter, GenTek and General Chemical Group each agreed:
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(1) to continue to employ our respective employees; and
(2) to assume the liabilities existing at the time of the spinoff for our
respective employees and former employees.
The employee benefits agreement also provides 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.
We and General Chemical Group, effective as of the date of the spinoff,
established or have maintained 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 sponsored for their employees prior
to the spinoff. The employee benefits agreement provides for the separation of
the amounts necessary to fund the projected benefit obligations under the
General Chemical Group pension plans of our current and former employees, on the
one hand, and General Chemical Group'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.
We have established a long-term incentive plan under which stock
options, stock appreciation rights, and other equity-related incentive awards,
as well as cash performance awards, may be granted. Under the employee benefits
agreement, effective as of the spinoff date, the outstanding General Chemical
Group equity-related awards held by our current or former employees also
received similar awards with respect to our stock, adjusted so as to preserve
(a) the difference between the exercise price and the value of shares of General
Chemical Group prior to the spinoff date and (b) the ratio of the exercise price
per share of our common stock and the common stock of General Chemical Group to
the pre-spinoff fair market value of the General Chemical Group shares relating
to the award.
TRANSITION SUPPORT AGREEMENT
Under a transition support agreement, for a period of up to twelve
months following the spinoff, we will provide General Chemical Group with tax,
legal, accounting, treasury, purchasing services, human resources, insurance
management and claims administration, and certain other administrative services,
and General Chemical Group will provide us with certain services as we may agree
upon. In addition, we provide General Chemical Group with management information
services and related functions, including personnel, hardware and software, on a
service contract basis. This arrangement will remain in effect through
approximately December 2001. During this period, we will provide to General
Chemical Group the services related to the mitigation and remediation of the
potential impact of Year 2000 problems of the General Chemical Group.
We provide General Chemical Group with these general administrative and
management information services and functions for a fee that reflects a pro rata
allocation, based on the extent of services and functions provided, of our
overall costs and expenses for such services and functions, plus an appropriate
margin. Upon not less than 60 days prior written notice, either we or General
Chemical Group may direct the other to discontinue any services provided under
the transition support agreement, except with respect to management information
services 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 also provides 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 support agreement, other than for gross negligence or
willful misconduct.
SUBLEASE AGREEMENT
General Chemical Group uses a portion of our office space in Parsippany,
New Jersey under a sublease agreement with our subsidiary, General Chemical
Corporation. The sublease payments by General Chemical Group reflect a pro rata
allocation, based upon the square footage of the subleased
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premises, of General Chemical Corporation's overall rental and other occupancy
costs. The sublease agreement also provides for customary maintenance and
ancillary services.
TAX SHARING AGREEMENT
We and General Chemical Group entered into a tax sharing agreement which
provides, among other things, that
(1) except for taxes described in clauses (2) and (3) below, we will be
responsible for all taxes of any affiliated consolidated, combined or
unitary tax group that includes GenTek or any of its subsidiaries for all
periods ending on or before the spinoff date;
(2) we and General Chemical Group generally will each be responsible for 50% of
any taxes attributable to the spinoff, including any taxes resulting from
the application of section 355(e) of the Code to the spinoff, including any
taxes resulting from the application of section 355(e) of the Code to the
spinofff, except that we and General Chemical Group will be responsible for
100% of such taxes that are attributable to an act of such party or any of
its subsidiaries;
(3) we will pay to General Chemical Group our share of current taxes of any
affiliated consolidated, combined or unitary tax group that includes us or
any of our subsidiaries, for all periods ending on or before the spinoff
date; and
(4) separate company taxes generally will be borne by the company that is
responsible for such taxes under local law.
The tax sharing agreement also establishes, as between us and General
Chemical Group, 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
Internal Revenue Service or any other taxing authority and will not affect the
several liability of our company and General Chemical Group and our respective
subsidiaries to the Internal Revenue Service for Federal income taxes of the
General Chemical Group consolidated group relating to periods beginning prior to
the spinoff date.
The tax sharing agreement also restricts the ability of our company and
General Chemical Group to take certain actions which could adversely affect the
tax-free nature of the spinoff including as a result of the recognition of gain
under section 355(e) of the Code. In particular, the Tax Sharing Agreement
provides that in the event Paul Montrone and the Montrone family trusts no
longer control 50% of the voting power of our company or General Chemical Group,
both we and General Chemical Group generally will be prohibited from entering
into any transaction or series of transactions, during the two years following
the spinoff, under which one or more persons would control 50% or more of the
voting power or value of our company or General Chemical Group. The tax sharing
agreement provides that each of our company and General Chemical Group may
enjoin the other company from engaging in any such restricted action.
INTELLECTUAL PROPERTY AGREEMENT
Under an intellectual property agreement, General Chemical Group has the
rights to and interest in the copyrights, trademarks, trade secrets and other
intellectual property of General Chemical Group used prior to the spinoff
primarily in the industrial chemicals business, and we have the rights to and
interest in all other intellectual property of General Chemical Group. As of the
spinoff, we and General Chemical Group each licensed to the other party, on a
non-exclusive basis, those items of intellectual property that such party owns
and the other party needs to use for the continued operations of its businesses,
subject to customary limitations.
We entered into a license with General Chemical Group regarding the
General Chemical name and logo. We own this name and logo and granted to General
Chemical Group, for a one-time up-front
73
<PAGE>
fee, a perpetual license to use this licensed property in connection with the
soda ash and calcium chloride activities and operations of the industrial
chemicals business of General Chemical Group.
PURCHASES OF SODA ASH AND CALCIUM CHLORIDE
We are an end user of soda ash. We purchase our soda ash requirements
from General Chemical Group, both to meet our own supply needs and to resell to
our distributors and customers who purchase multiple GenTek products. These
purchases are on terms similar to those for our purchases of soda ash from the
industrial chemicals business of General Chemical Group prior to the spinoff. We
will also purchase calcium chloride for resale to our distributors and customers
who purchase multiple products of our businesses. These purchases of soda ash
and calcium chloride are not material to our businesses.
We are party to contracts with end users and distributors of soda ash
and calcium chloride. Prior to the spinoff, we assigned certain of our soda ash
and calcium chloride sales contracts to General Chemical Industrial Products
Inc., a subsidiary of General Chemical Group, except for contracts with
distributors that also cover products of our businesses. These other contracts
remain with us. General Chemical Industrial Products Inc. provides us with soda
ash and calcium chloride to enable us 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, General Chemical Industrial Products
Inc. will enter into new contracts with them directly. For the year ended
December 31, 1998 and the nine months ended September 30, 1999, sales by General
Chemical Group to us amounted to $5.3 million and $10.0 million, respectively.
74
<PAGE>
DESCRIPTION OF CREDIT FACILITY AND SENIOR SUBORDINATED NOTES
CREDIT FACILITY
GENERAL. GenTek and Noma have entered into a credit facility with a
group of lenders and The Chase Manhattan Bank, as administrative agent. The
credit facility provides for $300 million of revolving loans to GenTek, $100
million of tranche A term loans to GenTek and $150 million of tranche B term
loans to Noma. On the spinoff date, GenTek borrowed $250 million under the
revolving portion of the credit facility and all $100 million of the A Term
Loans, and Noma borrowed all $150 million of the B Term Loans. Approximately
$486 million of such borrowings was used to repay a portion of General Chemical
Group's third party indebtedness, including borrowings to finance our
acquisition of Noma and Defiance earlier this year prior to the spinoff. We used
the proceeds of the sale of the 11% Senior Subordinated Notes due 2009 to repay
part of the amounts outstanding under the revolving portion of the credit
facility, and subsequently borrowed $159 million under the revolving portion of
the credit facility to finance our acquisition of Krone.
Our term loan borrowings under the credit facility at September 30, 1999
consisted of $100 million of tranche A term loans, $150 million of tranche B
term loans and $215 million of loans under the revolving portion of the credit
facility. As of September 30, 1999, we had the ability to borrow an additional
$85 million under the revolving portion of the credit facility (excluding $13
million for letters of credit), subject to customary borrowing conditions.
Amounts borrowed under the revolving portion of the credit facility may be used
to finance acquisitions and for general corporate purposes including working
capital, capital expenditures and other payments. A portion of the revolving
portion of the credit facility is available for the issuance of letters of
credit.
SECURITY. All indebtedness of GenTek under the credit facility is
guaranteed, on a joint and several basis, by the direct and indirect domestic
subsidiaries of GenTek (with certain exceptions), and all indebtedness of Noma
under the credit facility is guaranteed by GenTek, the domestic subsidiaries of
GenTek and the subsidiaries of Noma. The credit facility is secured by 100% of
the owned capital stock of the direct and indirect domestic subsidiaries of
GenTek, and 65% of certain foreign subsidiaries of GenTek.
MATURITY; PREPAYMENT. Commitments under the revolving portion of the
credit facility terminate on April 30, 2005, at which time all outstanding
borrowings under the revolving portion of the credit facility will mature and be
payable. The tranche A term loans mature and are payable in the following
amounts (in equal quarterly installments): (a) $2.5 million from September 30,
2000 through June 30, 2001, (b) $5.0 million from September 30, 2001 through
June 30, 2002, (c) $12.5 million from September 30, 2002 through June 30, 2003,
(d) $30.0 million from September 30, 2003 through June 30, 2004, and (e) $50.0
million from September 30, 2004 through April 30, 2005. The tranche B term loans
mature and are payable in the following amounts (in equal quarterly
installments): (a) $1.5 million in each 12-month period beginning September 30,
1999 until September 30, 2006, and (b) $139.5 million from September 30, 2006
through April 30, 2007.
The credit facility is subject to mandatory prepayments out of proceeds
received from the sale or disposition of certain assets, sale or issuance of
certain indebtedness and certain insurance recoveries of GenTek. GenTek may
prepay borrowings under the credit facility without any premium or penalty.
INTEREST RATES. Interest is due on amounts outstanding under the credit
facility on March 31, June 30, September 30 and December 31, except that in the
case of Eurodollar loans, GenTek and Noma may elect to pay interest
semi-annually. The interest rate applicable to borrowings under the credit
facility will be based, at the option of GenTek, on ABR or Eurodollar Rate, in
each case plus a specified margin based on the GenTek's ratio of funded debt to
pro forma EBITDA calculated on a rolling four quarter basis. Such margin on the
revolving portion of the credit facility and the tranche A term loans ranges
between 0% and 0.75% in the case of ABR loans, and between 1.00% and 2.00% in
the case of Eurodollar loans. The margin on the tranche B term loans ranges
between 1.00% and 1.50% in the case of ABR loans and between 2.25% and 2.75% in
the case of Eurodollar loans.
75
<PAGE>
REPRESENTATIONS AND WARRANTIES. The credit facility contains
representations and warranties customarily found in loan agreements for similar
financings.
COVENANTS; EVENTS OF DEFAULT. The credit facility contains numerous
restrictive financial and other covenants, including without limitation:
(1) restrictions on indebtedness, liens and guarantees;
(2) restrictions on certain mergers, consolidations, liquidations and
dissolutions, sales of assets, investments, leases, changes in lines of
business, modifications of subordinated and other debt instruments,
amendments to the documents executed in connection with the spinoff,
transactions with affiliates, and negative pledge clauses and clauses
restricting subsidiary distributions;
(3) restrictions on certain payments (capital expenditures, prepayment on the
notes and other junior indebtedness, dividend payments, and redemptions or
other payments on the capital stock); and
(4) certain financial tests, including a maximum senior leverage ratio, a
maximum leverage ratio and a minimum interest coverage ratio. The credit
facility provides for certain customary events of default, including an
event of default upon the occurrence of a change of control of GenTek.
The credit facility requires GenTek to comply with the following
financial ratios as of the last day of any of its fiscal quarters, beginning
with the quarter ending September 30, 1999:
<TABLE>
<S> <C>
Senior Leverage Ratio....................................... 3.75:1.00
Leverage Ratio.............................................. 5.00:1.00
Interest Coverage Ratio..................................... 2.50:1.00
</TABLE>
The credit facility has specific tailored definitions of senior leverage
ratio, leverage ratio and interest coverage ratio. We urge you to read the
credit agreement in order to understand these definitions and the financial
ratios. GenTek believes that it is currently in compliance with the covenants in
its credit facility.
SENIOR SUBORDINATED NOTES
Our 11% Senior Subordinated Notes due 2009 were issued on August 9, 1999
in the aggregate principal amount of $200 million under an Indenture between
GenTek and U.S. National Trust Association as Trustee. We used the proceeds of
the sale of these notes to repay part of the amounts outstanding under the
revolving portion of the credit facility, and subsequently borrowed $159 million
under the revolving portion of the credit facility to finance our acquisition of
Krone.
The notes will mature on August 1, 2009. The notes accrue interest at a
rate of 11% per annum and interest is payable semi-annually in arrears on each
February 1 and August 1, commencing February 1, 2000, to the holders of record
of notes at the close of business on January 15 and July 15, respectively,
immediately preceding such interest payment date.
We may redeem the notes, in whole or in part, on or after August 1,
2004, at the redemption prices listed below plus accrued and unpaid interest, if
any, to the date of redemption.
<TABLE>
<CAPTION>
REDEMPTION PRICES
-----------------
<S> <C>
Beginning August 1, 2004.................................. 105.500%
Beginning August 1, 2005.................................. 103.667
Beginning August 1, 2006.................................. 101.833
Beginning August 1, 2007 and thereafter................... 100.000
</TABLE>
In addition, any time prior to August 1, 2002, we may redeem up to 35%
of the notes at 111.0% of the principal amount, plus accrued and unpaid
interest, with the net proceeds of our equity issuances, provided at least 65%
of the original aggregate principal amount of the notes remains outstanding
immediately after such redemption.
76
<PAGE>
Upon a change of control, we will be required to make an offer to
repurchase each holder's notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
The Indenture defines 'change of control.'
The notes are unsecured senior subordinated obligations and rank:
subordinate to all of our senior indebtedness;
equally with all of our other unsecured senior subordinated
indebtedness;
senior to all of our subordinated indebtedness; and
effectiveness junior to all liabilities of our subsidiaries.
The notes are guaranteed on an unsecured senior subordinated basis by
certain of our existing and future domestic restricted subsidiaries. The notes
are not guaranteed by our foreign subsidiaries or our subsidiaries that are not
guarantors of our Credit Facility.
The terms of the notes include, among other things, restrictions on our
ability to:
incur additional indebtedness;
make restricted payments;
enter into transactions with affiliates;
create liens;
cause dividends and other payments by subsidiaries; and
effect consolidations, mergers and the sale of assets.
77
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material United States income tax
consequences of the offering to the holders of the common stock upon the
distribution of rights and to the holders of the rights upon their exercise.
This summary is based on provisions of the Internal Revenue Code of
1986, as amended (the 'Code'), existing and proposed Treasury regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all as of the date hereof and all of which are subject to change, possibly on a
retroactive basis.
This summary is limited to those who have held the common stock, and
will hold the rights and any shares acquired upon the exercise of rights as
'capital assets' within the meaning of section 1221 of the Code. This summary
does not address all of the tax consequences that may be relevant to particular
holders in light of their personal circumstances, or to holders who are subject
to special rules (such as banks and other financial institutions,
broker-dealers, real estate investment trusts, regulated investment companies,
insurance companies, tax-exempt organizations and foreign taxpayers). In
addition, this summary does not include any description of the tax laws of any
state, local or non-U.S. government that may be applicable to a particular
holder.
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO THEM OF THIS
OFFERING, AS WELL AS THE TAX CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.
DISTRIBUTION OF RIGHTS. Holders of our common stock will not recognize
taxable income for federal income tax purposes upon distribution of the rights.
SHAREHOLDER BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided
in the following sentence, the basis of the rights received by a shareholder as
a distribution with respect to such shareholder's common stock will be zero. If,
however, either (i) the fair market value of the rights on their date of
issuance is 15% or more of the fair market value (on the date of issuance) of
the common stock with respect to which they are received or (ii) the shareholder
properly elects, in his or her federal income tax return for the taxable year in
which the rights are received, to allocate part of the basis of such common
stock to the rights, then upon exercise or transfer of the rights, the
shareholder's basis in such common stock will be allocated between the common
stock and the rights in proportion to the fair market values of each on the date
of issuance.
The holding period of a shareholder with respect to the rights received
as a distribution on such shareholder's common stock will include the
shareholder's holding period for the common stock with respect to which the
rights were distributed.
In the case of a purchaser of rights, the tax basis of such rights will
be equal to the purchase price paid, and the holding period for such rights will
commence on the day following the date of the purchase. For information on the
persons to whom the rights can be transferred, as well as information on how the
rights can be transferred, see 'The Rights Offering -- Transferability of
Rights.'
TRANSFER OF THE RIGHTS. A holder who sells rights generally will
recognize gain, but not loss, equal to the excess of the sale proceeds over the
tax basis, if any, of such rights. The holder's gain on the sale of rights will
be long-term capital gain if the holding period for the rights is more than one
year. (See 'The Rights Offering -- Transferability of Rights').
LAPSE OF THE RIGHTS. Holders who allow the rights received by them in
this offering to lapse will not recognize any gain or loss, and no adjustment
will be made to the basis of the common stock, if any, they own. Purchasers of
the rights will recognize a loss equal to the tax basis of their rights, if such
rights expire unexercised. Any loss recognized on the expiration of the rights
acquired by a purchaser will be a capital loss. (See 'The Rights Offering --
Transferability of Rights').
78
<PAGE>
EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF THE COMMON STOCK.
Holders will not recognize any gain or loss upon the exercise of rights. The
basis of the shares acquired through exercise of the rights will be equal to the
sum of the subscription price for the rights and the holder's basis in such
rights, if any. The holding period for the shares acquired through exercise of
the rights will begin on the date the rights are exercised.
SALE OF SHARES. The sale of shares will result in the recognition of
gain or loss to the shareholder in an amount equal to the difference between the
amount realized and the shareholder's basis in the shares. Gain or loss upon the
sale of the shares will be long-term capital gain or loss if the holding period
for the shares is more than one year.
PLAN OF DISTRIBUTION
We are offering shares of our common stock directly to you pursuant to
this subscription rights offering. We have not employed any brokers, dealers or
underwriters in connection with the solicitation or exercise of subscription
privileges in this subscription rights offering and no commissions, fees or
discounts will be paid in connection with it. Certain of our officers and other
employees may solicit responses from you, but such officers and other employees
will not receive any commissions or compensation for such services other than
their normal employment compensation.
GenTek will pay the fees and expenses of ChaseMellon Shareholder
Services, L.L.C., as subscription agent, and also has agreed to indemnify the
subscription agent from any liability it may incur in connection with the rights
offering.
On or about January 25, 2000, we will distribute the rights and copies
of this prospectus to individuals who owned shares of our common stock on the
record date. If you wish to exercise your rights and subscribe for new shares of
common stock, you should follow the procedures described under 'The Rights
Offering -- Procedure to Exercise Rights.' The subscription rights generally are
non-transferable; there are substantial restrictions on the transfer of the
rights, as described under 'The Rights Offering -- Restrictions on
Transferability of Rights.'
Shares of GenTek common stock received through the exercise of
subscription rights will be traded on the NYSE under the symbol 'GK,' as our
currently outstanding shares of common stock now trade.
LEGAL MATTERS
The validity of the issuance of the securities offered in this offering
will be passed upon for us by Debevoise & Plimpton, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 included
in this prospectus and the related financial statement schedule included
elsewhere in the registration statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the registration statement, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of Noma Industries Limited as of December 31,
1998 and 1997 and for each of the three years in the period ended December 31,
1998 included in the Form 10, filed by GenTek, Inc., incorporated by reference
in this prospectus have been audited by Deloitte & Touche LLP, Chartered
Accountants, independent auditors, as stated in their report which is
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
79
<PAGE>
The financial statements of Krone AG as of December 31, 1998 and 1997
and for each of the two years in the period ended December 31, 1998 included in
the Current Report on Form 8-K/A, filed November 3, 1999 by GenTek, Inc.,
incorporated by reference in this prospectus have been audited by Deloitte &
Touche GmbH, independent auditors, as stated in their report which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
FINANCIAL STATEMENTS OF NOMA AND KRONE
We have filed the financial statements of Noma with the SEC as part
of our Registration Statement on Form 10, which is incorporated herein by
reference. We have also filed with the SEC the financial statements of
Krone as part of our Current Report on Form 8-K/A filed on November 3, 1999,
which also is incorporated herein by reference. We describe in the next
paragraph how you can examine the information that we have filed or will file
in the future with the SEC; in addition, we will send you copies of these
and any other exhibits to the registration statement if you direct a request
for copies to the address given in 'Important Information About This Prospectus'
prior to the deadline stated in that section.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 to register with
the SEC the rights and the shares of our common stock to be issued upon the
exercise of the rights. This prospectus is part of that registration statement.
As allowed by the SEC's rules, this prospectus does not contain all of the
information you can find in the registration statement or the exhibits to the
registration statement.
We file annual, quarterly and other information with the SEC. You may
read and copy any reports, statements and other information we file at the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call 1 (800) SEC-0330 for further information on the public
reference rooms. Our filings will also be available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at http://www.sec.gov.
80
<PAGE>
GENTEK INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-2
Consolidated Statements of Operations for the three years
ended December 31, 1998................................... F-3
Consolidated Balance Sheets at December 31, 1997 and 1998... F-4
Consolidated Statements of Cash Flows for the three years
ended December 31, 1998................................... F-5
Consolidated Statements of Changes in Equity (Deficit) for
the three years ended December 31, 1998................... F-6
Notes to the Consolidated Financial Statements.............. F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations for the three months
ended September 30, 1998
and 1999, and the nine months ended September 30, 1998 and
1999...................................................... F-29
Consolidated Balance Sheets at December 31, 1998 and
September 30, 1999........................................ F-30
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998
and 1999.................................................. F-31
Notes to the Unaudited Consolidated Financial Statements.... F-32
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
GENTEK INC.:
We have audited the accompanying consolidated balance sheets of GenTek
Inc. and subsidiaries as of December 31, 1997 and 1998, 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, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the 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 GenTek Inc. and subsidiaries
at December 31, 1997 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 11, 1999
(March 18, 1999 as to Notes 1 and 3 and July 12, 1999 as to Note 18)
F-2
<PAGE>
GENTEK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net revenues................................................ $330,120 $368,516 $443,919
Cost of sales............................................... 229,237 251,912 326,626
Selling, general and administrative expense................. 52,160 49,078 65,572
-------- -------- --------
Operating profit.......................................... 48,723 67,526 51,721
Interest expense............................................ 10,747 8,855 14,624
Interest income............................................. 1,404 1,475 1,165
Foreign currency transaction (gains) losses................. (83) 442 629
Other expense, net.......................................... 263 169 320
-------- -------- --------
Income from continuing operations before income taxes and
extraordinary item..................................... 39,200 59,535 37,313
Income tax provision........................................ 18,425 26,261 (3,756)
-------- -------- --------
Income from continuing operations before extraordinary
item................................................... 20,775 33,274 41,069
Income from discontinued operations (net of tax)............ 25,833 23,041 10,299
-------- -------- --------
Income before extraordinary item.......................... 46,608 56,315 51,368
Extraordinary item -- loss from extinguishment of debt (net
of tax of $2,395)......................................... -- -- 3,661
-------- -------- --------
Net income................................................ $ 46,608 $ 56,315 $ 47,707
-------- -------- --------
-------- -------- --------
EARNINGS PER COMMON SHARE -- BASIC:
Income from continuing operations........................... $ .98 $ 1.55 $ 1.95
Income from discontinued operations (net of tax)............ 1.21 1.08 .49
Extraordinary item -- loss from extinguishment of debt (net
of tax)................................................... -- -- .17
-------- -------- --------
Net income................................................ $ 2.19 $ 2.63 $ 2.27
-------- -------- --------
-------- -------- --------
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION:
Income from continuing operations........................... $ .95 $ 1.48 $ 1.88
Income from discontinued operations (net of tax)............ 1.18 1.02 .47
Extraordinary item -- loss from extinguishment of debt (net
of tax)................................................... -- -- .17
-------- -------- --------
Net income................................................ $ 2.13 $ 2.50 $ 2.18
-------- -------- --------
-------- -------- --------
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-3
<PAGE>
GENTEK INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 20,401 $ 61,310
Receivables, net.......................................... 49,803 60,620
Inventories............................................... 25,328 37,619
Deferred income taxes..................................... 9,850 11,494
Other current assets...................................... 153 826
-------- --------
Total current assets................................... 105,535 171,869
Property, plant and equipment, net.......................... 160,154 196,526
Goodwill, net of amortization............................... 19,192 71,444
Other assets................................................ 19,432 21,687
Net assets of discontinued operations....................... 85,505 75,292
-------- --------
Total assets........................................... $389,818 $536,818
-------- --------
-------- --------
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 32,116 $ 42,813
Accrued liabilities....................................... 48,846 51,965
Income taxes payable...................................... 2,662 8,960
Current portion of long-term debt......................... 17,392 50,802
-------- --------
Total current liabilities.............................. 101,016 154,540
Long-term debt.............................................. 240,612 306,729
Other liabilities........................................... 142,429 130,245
-------- --------
Total liabilities...................................... 484,057 591,514
-------- --------
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 and outstanding: 12,558,697 and
12,654,489 shares at December 31, 1997 and 1998,
respectively........................................... 126 127
Class B Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding: 9,758,421
shares at December 31, 1997 and 1998................... 97 97
Capital deficit........................................... (183,814) (182,563)
Accumulated other comprehensive loss...................... (2,197) (2,446)
Retained earnings......................................... 118,855 162,378
Treasury stock, at cost: 1,362,898 and 1,641,166 shares at
December 31, 1997 and 1998, respectively............... (27,306) (32,289)
-------- --------
Total equity (deficit)................................. (94,239) (54,696)
-------- --------
Total liabilities and equity (deficit)................. $389,818 $536,818
-------- --------
-------- --------
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-4
<PAGE>
GENTEK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 46,608 $ 56,315 $ 47,707
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 14,099 16,296 23,065
Net loss on disposition/impairment of long-term
assets.............................................. 673 431 11,910
Unrealized exchange (gain) loss...................... 31 1,405 1,313
Restricted unit plan costs........................... 11,319 1,302 1,309
Loss on extinguishment of debt....................... -- -- 6,056
Income from discontinued operations.................. (25,833) (23,041) (10,299)
(Increase) decrease in receivables................... (2,412) (4,835) 1,216
Increase in inventories.............................. (2,441) (1,597) (2,596)
Increase (decrease) in accounts payable.............. (216) 1,944 6,241
Decrease in accrued liabilities...................... (14,312) (1,656) (1,871)
Increase in income taxes payable..................... 459 1,440 6,298
Increase (decrease) in other liabilities and assets,
net................................................. 10,862 8,175 (33,081)
-------- -------- --------
Net cash provided by continuing operations........ 38,837 56,179 57,268
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (19,231) (26,203) (33,737)
Proceeds from sales or disposals of long-term assets...... 43 63 767
Payments from related parties............................. 14,000 -- --
Cash provided by discontinued operations.................. 16,392 331 20,512
Acquisition of businesses net of cash acquired*........... -- (30,130) (90,935)
-------- -------- --------
Net cash provided by (used for) investing
activities...................................... 11,204 (55,939) (103,393)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from initial public offering................. 40,600 -- --
Proceeds from long-term debt.............................. 20,000 49,000 389,858
Repayment of long-term debt............................... (76,886) (45,536) (293,778)
Payments to acquire treasury stock........................ (123) (27,183) (5,485)
Exercise of stock options................................. -- -- 445
Dividends................................................. (1,668) (5,368) (4,184)
-------- -------- --------
Net cash provided by (used for) financing
activities...................................... (18,077) (29,087) 86,856
-------- -------- --------
Effect of exchange rate changes on cash..................... 30 (843) 178
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ 31,994 (29,690) 40,909
Cash and cash equivalents at beginning of period............ 18,097 50,091 20,401
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 50,091 $ 20,401 $ 61,310
-------- -------- --------
-------- -------- --------
Supplemental information:
Cash paid for income taxes................................ $ 23,051 $ 35,179 $ 19,754
-------- -------- --------
-------- -------- --------
Cash paid for interest.................................... $ 22,809 $ 20,923 $ 29,353
-------- -------- --------
-------- -------- --------
* 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-5
<PAGE>
GENTEK INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
CLASS B COMPREHENSIVE
COMMON COMMON TREASURY CAPITAL INCOME RETAINED COMPREHENSIVE
STOCK STOCK STOCK DEFICIT (LOSS) EARNINGS TOTAL INCOME
------ ------- -------- --------- ------------- -------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... $ 197 $ -- $ -- $(237,140) $(1,362) $ 22,969 $(215,336) $ --
Net income..................... -- -- -- -- -- 46,608 46,608 46,608
Foreign currency translation... -- -- -- -- (73) -- (73) (44)
-------
Comprehensive income........... -- -- -- -- -- -- -- $46,564
-------
-------
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,
cancellations, tax benefits
and other.................... 1 -- -- 11,350 -- -- 11,351
Purchase of treasury stock..... -- -- (123) -- -- -- (123)
----- ---- -------- --------- ------- -------- ---------
Balance at December 31, 1996..... 80 143 (123) (185,215) (1,435) 66,797 (119,753)
Net income..................... -- -- -- -- -- 56,315 56,315 $56,315
Foreign currency translation... -- -- -- -- (762) -- (762) (461)
-------
Comprehensive income........... -- -- -- -- -- -- -- $55,854
-------
-------
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)
----- ---- -------- --------- ------- -------- ---------
Balance at December 31, 1997..... 126 97 (27,306) (183,814) (2,197) 118,855 (94,239)
Net income..................... -- -- -- -- -- 47,707 47,707 $47,707
Foreign currency translation... -- -- -- -- (249) -- (249) (150)
-------
Comprehensive income........... -- -- -- -- -- -- -- $47,557
-------
-------
Dividends (per share $.20)..... -- -- -- -- -- (4,184) (4,184)
Restricted unit plan grants,
cancellations, tax benefits
and other.................... 1 -- -- 1,313 -- -- 1,314
Purchase of treasury stock..... -- -- (4,983) (62) -- -- (5,045)
----- ---- -------- --------- ------- -------- ---------
Balance at December 31, 1998..... $ 127 $ 97 $(32,289) $(182,563) $(2,446) $162,378 $ (54,696)
----- ---- -------- --------- ------- -------- ---------
----- ---- -------- --------- ------- -------- ---------
</TABLE>
F-6
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
GenTek Inc.'s ('GenTek' or the 'Company') manufacturing and performance
products businesses (the 'GenTek Business') were formerly part of the businesses
of The General Chemical Group Inc. ('GCG'). GCG separated the GenTek Business
from GCG's soda ash and calcium chloride business (the Industrial Chemicals
Business) through a spinoff (the 'Spinoff'). On March 9, 1999, the Board of
Directors of GCG approved the Spinoff, subject to, among other things, GCG
obtaining a private letter ruling from the United States Internal Revenue
Service (the 'IRS') that the Spinoff would be tax-free to GCG's shareholders. On
March 18, 1999, GCG received a favorable tax ruling from the IRS. GCG
accomplished the Spinoff by transferring the GenTek Business to GenTek, and
distributing the common stock of GenTek to GCG's shareholders on April 30, 1999
(the 'Spinoff Date').
Since the Spinoff Date, GCG and GenTek have been separate, stand-alone
companies with GenTek operating the GenTek Business, and GCG operating the
Industrial Chemicals Business. GenTek's common stock is listed on the New York
Stock Exchange (under the symbol 'GK').
The Spinoff has been treated as a reverse spinoff for financial
statement purposes because a greater proportion of the former assets and
operations of GCG are held by GenTek. Therefore, the Spinoff has been reflected,
for financial statement presentation, as if GenTek formed a new company
consisting of the Industrial Chemicals Segment and distributed the stock of the
company as a dividend to GenTek's stockholders, with the assets and operations
of the Performance Products and Manufacturing Segments remaining with GenTek.
Accordingly, the GenTek financial statements reflect the financial position and
results of operations of the Performance Products and Manufacturing Segments as
continuing operations and the financial position and results of operations of
the Industrial Chemicals Business as discontinued operations.
For the purpose of governing certain ongoing relationships between GCG
and GenTek after the Spinoff and to provide mechanisms for an orderly
transition, GCG and GenTek have entered into various agreements. Management
believes that the agreements are comparable to those which would have been
reached in arm's length negotiations with unaffiliated parties.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
All highly liquid instruments purchased with a maturity of three months
or less are considered to be cash equivalents.
Inventories are valued at the lower of cost or market, using the
last-in, first-out ('LIFO') method for most 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. Estimated lives range from 5 to 35
years for buildings and leasehold improvements and one to 20 years for machinery
and equipment.
The Company evaluates the recovery of long-lived assets not held for
sale by measuring the carrying value of these assets against the estimated
undiscounted future cash flows associated with them. At the time such
evaluations indicate that the future cash flows are not sufficient to recover
the carrying value of such assets, the carrying values are adjusted to their
fair values, which have been determined on a discounted cash flow basis. During
1998, based on these evaluations, the Company recorded an $11,600 impairment
charge, which is included in cost of sales, primarily related to two of its
manufacturing facilities in its Performance Products Segment.
F-7
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED 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 period
which ranges from 25 to 35 years. 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. As of December 31, 1997 and
1998, goodwill is reflected net of accumulated amortization of $400 and $2,671,
respectively.
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 $16,244 and $25,016 at
December 31, 1997 and 1998, respectively. These amounts do not include estimated
third-party recoveries nor have they been discounted.
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 to
which they relate.
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 required to adopt FAS 133
for fiscal years beginning after June 15, 1999. The Company does not expect that
the adoption of FAS 133 will have a material effect on the Company's results of
operations or financial condition.
The capital deficit at December 31, 1995 of $237,140 arose as a result
of dividends and distributions in prior periods exceeding accumulated earnings
and capital contributions.
Certain prior-period amounts have been reclassified to conform with the
current presentation.
NOTE 3 -- DISCONTINUED OPERATIONS
Discontinued operations represent the Industrial Chemicals Business of
GCG (see Note 1). An allocation of certain assets, liabilities and expenses has
been made related to discontinued operations. In the opinion of management,
expenses have been allocated to the discontinued operations in a reasonable and
consistent basis using management's estimate of services provided to the
discontinued business by GCG. General corporate overhead expenses have not been
allocated to discontinued operations. However, such allocations are not
necessarily indicative of the level of expenses which might have been incurred
had the Industrial Chemicals Business been operating as a stand-alone entity
during the periods presented or expected to be incurred after the spinoff.
Prior to the Spinoff Date, the Industrial Chemicals Business
participated in the Company's centralized cash management and financing program,
and income from discontinued operations includes an allocation of net interest
expense. Net interest expense has been allocated to the Industrial Chemicals
Business assuming that the Industrial Chemicals Business' pro rata base
borrowing requirements was $150,000 for all periods. 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 Industrial Chemicals Business
operated as a separate, stand-alone public entity. Subsequent to the Spinoff,
the Industrial Chemicals Business is 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 Industrial Chemicals Business' financial results include the costs
incurred by The General Chemical Group pension and postretirement benefit plans
for employees and retirees of the Industrial Chemicals Business. Also, the
provision for income taxes has been determined as if the Industrial Chemicals
Business had filed separate tax returns under its existing structure for the
periods presented.
F-8
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The assets and liabilities of the Industrial Chemicals Business are
classified on the balance sheet as 'Net assets of discontinued operations' and
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,352 $ 1,127
Receivables, net.................................. 72,917 58,601
Inventories....................................... 20,630 25,508
Deferred income taxes............................. 4,295 4,392
Other current assets.............................. 2,217 1,659
-------- --------
Total current assets......................... 101,411 91,287
Property, plant and equipment, net..................... 144,035 141,808
Other assets........................................... 16,729 15,619
-------- --------
Total assets from discontinued operations.... $262,175 $248,714
-------- --------
LIABILITIES
Current liabilities:
Accounts payable.................................. $ 29,216 $ 24,298
Accrued liabilities............................... 24,412 25,146
Income taxes payable.............................. 1,914 1,988
-------- --------
Total current liabilities.................... 55,542 51,432
Other liabilities...................................... 77,827 78,561
Minority interest...................................... 43,301 43,429
-------- --------
Total liabilities from discontinued
operations................................. 176,670 173,422
-------- --------
Net assets of discontinued operations.................. $ 85,505 $ 75,292
-------- --------
-------- --------
</TABLE>
The results from operations of the Industrial Chemicals Business are
reflected in the Statements of Operations as 'Income from Discontinued
Operations' and are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net revenues............................................... $298,945 $289,700 $261,469
Cost of sales.............................................. 198,802 204,769 202,338
Selling, general and administrative expense................ 19,650 15,365 16,634
-------- -------- --------
Operating profit........................................... 80,493 69,566 42,497
Interest expense........................................... 13,001 12,747 11,747
Interest income............................................ 1,029 1,029 930
Foreign currency transaction (gains) losses................ (86) 185 447
Other expense, net......................................... 441 285 524
-------- -------- --------
Income before minority interest and income taxes........... 68,166 57,378 30,709
Minority interest.......................................... 31,635 24,253 16,666
-------- -------- --------
Income before income taxes................................. 36,531 33,125 14,043
Income tax provision....................................... 10,698 10,084 3,744
-------- -------- --------
Net income............................................ $ 25,833 $ 23,041 $ 10,299
-------- -------- --------
-------- -------- --------
</TABLE>
F-9
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4 -- CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $.01 per share, of which 11,195,799 and 11,013,323 were
outstanding at December 31, 1997 and 1998, 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 9,758,421 shares
were outstanding at December 31, 1997 and 1998. 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 were outstanding at December 31,
1997 and 1998.
During the second quarter of 1997, a former stockholder converted all
4.4 million shares of 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 same stockholder, at a price of $20 per share.
During 1997 and 1998, the Company purchased 1,356,573 and 278,268 shares of
Common Stock, respectively. These purchases were funded from the Company's cash
balance and have been recorded as treasury stock.
NOTE 5 -- 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.
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,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Basic earnings per common share:
Weighted average common shares outstanding.................. 21,424,401 21,048,240
---------- ----------
---------- ----------
Diluted earnings per common share:
Weighted average common shares outstanding.................. 21,424,401 21,048,240
Options..................................................... 1,078,241 807,404
---------- ----------
Total.................................................. 22,502,642 21,855,644
---------- ----------
---------- ----------
</TABLE>
Options to purchase 10,000 and 398,500 of common stock were outstanding
during 1997 and 1998, respectively, but were not included in the computation of
diluted earnings per common share because the exercise price was greater than
the average market price of the common shares. The options, which expire during
2007 and 2008, were still outstanding at December 31, 1998.
NOTE 6 -- ACQUISITIONS
On July 1, 1997 the Company acquired for $30,130 all of the outstanding
stock of Peridot Holdings, Inc. ('Peridot'), a manufacturer and supplier of
sulfuric acid and water treatment chemicals. On February 6, 1998, the Company
acquired for $6,999 all of the outstanding stock of Sandco Automotive Ltd.
('Sandco'), a manufacturer of engine parts for the North American automobile
industry and its aftermarket. On April 1, 1998, the Company acquired for $83,936
all of the outstanding stock of Reheis Inc. ('Reheis'), a 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.
F-10
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Funding for these transactions was provided by existing cash and borrowings
under the Company's existing credit facilities. The acquisitions were accounted
for under the purchase method, and accordingly, the net assets and results of
operations are included in the financial statements from the date of their
respective acquisitions. The allocation of purchase price for the above-
mentioned acquisitions are based on valuation information available to the
Company which is subject to change as such information is finalized. Goodwill is
being amortized on a straight line basis over a period which ranges from 25 to
35 years. Had the Sandco and Reheis acquisitions occurred as of January 1, 1997,
net sales would have been $457,195 and $459,684 for 1997 and 1998, respectively;
income before extraordinary items would have been $54,309 ($2.41 per share) and
$50,717 ($2.32 per share) for 1997 and 1998, respectively; and net income would
have been $54,309 ($2.41 per share) and $47,056 ($2.15 per share) for 1997 and
1998, respectively.
NOTE 7 -- INCOME TAXES
Income from continuing operations before income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
United States............................................... $36,433 $58,314 $34,150
Foreign..................................................... 2,767 1,221 3,163
------- ------- -------
Total.................................................. $39,200 $59,535 $37,313
------- ------- -------
------- ------- -------
</TABLE>
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
United States:
Current................................................ $12,363 $24,669 $(3,532)
Deferred............................................... 2,262 (3,120) (3,776)
Foreign:
Current................................................ 1,117 589 911
Deferred............................................... (65) (97) (18)
State:
Current................................................ 2,262 4,890 3,470
Deferred............................................... 486 (670) (811)
------- ------- -------
Total............................................. $18,425 $26,261 $(3,756)
------- ------- -------
------- ------- -------
</TABLE>
A summary of the components of deferred tax assets and liabilities is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
-------- --------
<S> <C> <C>
Postretirement benefits..................................... $ 19,390 $ 19,507
Nondeductible accruals...................................... 35,888 43,830
Other....................................................... 2,472 3,372
-------- --------
Deferred tax assets.................................... 57,750 66,709
-------- --------
Property, plant and equipment............................... 28,788 32,977
Pensions.................................................... 1,860 2,007
Inventory................................................... 3,754 3,437
Other....................................................... 1,048 2,965
-------- --------
Deferred tax liabilities............................... 35,450 41,386
-------- --------
Net deferred tax assets..................................... $ 22,300 $ 25,323
-------- --------
-------- --------
</TABLE>
F-11
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The difference between the Company's effective income tax rate and the
United States statutory rate is reconciled below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1996 1997 1998
---- ---- -----
<S> <C> <C> <C>
U.S. federal statutory rate................................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.................. 4.3 4.5 4.5
Tax effect of foreign operations............................ 6.7 4.1 (5.8)
Reversal of provision for disputed items.................... -- -- (44.1)
Other....................................................... 1.0 .5 .3
---- ---- -----
Total.................................................. 47.0% 44.1% (10.1)%
---- ---- -----
---- ---- -----
</TABLE>
In connection with the Spinoff, GenTek entered into a tax sharing
agreement with GCG which requires GenTek to indemnify and hold harmless GCG for
consolidated tax liabilities attributable to periods before the Spinoff Date.
The IRS examinations of the Company's federal income tax returns for
1990 and 1991 resulted in the issuance of a deficiency notice during 1995. The
Company filed an administrative appeal with the IRS in 1995 contesting the items
denoted in the deficiency notice. At December 31, 1997, the Company had accrued
$25,388 for this notice, which was included in other liabilities on the balance
sheet. During 1998 the Company entered into a settlement agreement with the IRS
settling all items denoted in the original deficiency notice. The settlement
agreement binds the IRS for all years subsequent to 1989 on the items denoted in
the original deficiency notice. The Company recorded an income tax benefit of
$19,527 in connection with the reversal of amounts previously accrued in
connection with the deficiency notice settlement agreement.
NOTE 8 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
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 Company also maintains several plans providing postretirement
benefits other than pensions covering substantially all hourly and certain
salaried employees. The Company funds these benefits on a pay-as-you-go basis.
The long-term portion of accrued postretirement benefit cost related to
continuing operations of $48,184 and $48,766 at December 31, 1997 and 1998,
respectively, is included in other liabilities on the balance sheet.
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
DECEMBER 31, DECEMBER 31,
------------------------------ ---------------------------
1996 1997 1998 1996 1997 1998
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES:
Components of Net Periodic Benefit Cost
Service Cost....................... $ 4,748 $ 5,217 $ 5,645 $ 1,455 $ 1,575 $ 1,568
Interest Cost...................... 13,125 13,873 14,935 3,587 3,896 4,046
Expected Return on Plan Assets..... (12,241) (13,466) (15,156) -- -- --
Amortization of Net Prior
Service Cost.................. 841 843 910 (1,604) (1,604) (1,604)
(Gain)/Loss................... 80 46 10 (757) (587) (628)
-------- -------- -------- ------- ------- -------
Net Periodic Benefit Cost.......... $ 6,553 $ 6,513 $ 6,344 $ 2,681 $ 3,280 $ 3,382
-------- -------- -------- ------- ------- -------
-------- -------- -------- ------- ------- -------
</TABLE>
F-12
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
DECEMBER 31, DECEMBER 31,
------------------- ---------------------
1997 1998 1997 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Prior Measurement Date........ $187,760 $203,495 $ 55,578 $ 57,522
Service Cost........................................ 5,217 5,533 1,575 1,568
Interest Cost....................................... 13,873 14,856 3,896 4,046
Actuarial (Gain)/Loss............................... 960 22,332 (1,800) (948)
Benefits Paid....................................... (9,077) (10,648) (2,318) (2,989)
Plan Amendments..................................... 699 -- -- --
Business Combinations............................... 4,063 1,333 591 --
-------- -------- -------- --------
Benefit Obligation at Measurement Date.............. $203,495 $236,901 $ 57,522 $ 59,199
-------- -------- -------- --------
-------- -------- -------- --------
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
DECEMBER 31, DECEMBER 31,
------------------- ---------------------
1997 1998 1997 1998
-------- -------- --------- ---------
Change in Plan Assets
<S> <C> <C> <C> <C>
Fair Value of Assets at Prior Measurement Date...... $166,661 $193,301 $ -- $ --
Actual Return on Plan Assets........................ 29,122 17,124 -- --
Employer Contributions.............................. 2,470 3,065 2,318 2,989
Benefits Paid....................................... (9,077) (10,649) (2,318) (2,989)
Business Combinations............................... 4,125 1,147 -- --
-------- -------- -------- --------
Fair Value of Assets at Measurement Date............ $193,301 $203,988 $ -- $ --
-------- -------- -------- --------
-------- -------- -------- --------
Reconciliation of Funded Status
Funded Status....................................... $(10,194) $(32,913) $(57,522) $(59,199)
Unrecognized Net
Transition (Asset)/Obligation.................. -- 13 -- --
Prior Service Cost............................. 7,091 6,178 (11,104) (9,500)
(Gain)/Loss.................................... (23,796) (3,540) (8,309) (8,629)
-------- -------- -------- --------
Net Amount Recognized............................... $(26,899) $(30,262) $(76,935) $(77,328)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The assumptions used in accounting for the plans in 1996, 1997 and 1998
were:
<TABLE>
<CAPTION>
PENSION PLANS
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Discount rate............................................... 7 1/2% 7 1/2% 6 3/4%
Long-term rate of return on assets.......................... 9% 9% 9%
Average rate of increase in employee compensation........... 5% 5% 5%
</TABLE>
The assumption used in accounting for the medical plans in 1998 was an 8
percent health care cost trend rate (decreasing to 6 percent in the year 2001
and beyond). A one percent increase in the health care trend rate would increase
the accumulated postretirement benefit obligation by $3,881 at year end 1998 and
the net periodic cost by $330 for the year. A one percent decrease in the health
care trend rate would decrease the accumulated postretirement benefit obligation
by $4,206 at year end 1998 and the net periodic cost by $357 for the year.
The assumption used in accounting for the plans in 1997 was a 10 percent
health care cost trend rate (decreasing to 7 1/2 percent in the year 2000 and
beyond).
F-13
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The dates used to measure plan assets and liabilities were October 31,
1997 and 1998 for all plans. Pension plan assets are invested primarily in
stocks, bonds, short-term securities and cash equivalents.
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
DECEMBER 31, DECEMBER 31,
-------------------------- -------------------------
1996 1997 1998 1996 1997 1998
------- ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
CANADA:
Components of Net Periodic Benefit Cost
Service Cost............................. $ 1,494 $1,352 $ 1,463 $ 310 $ 302 $ 332
Interest Cost............................ 3,727 3,868 3,789 864 1,032 1,014
Expected Return on Plan Assets........... (4,662) (4,877) (4,881) -- -- --
Amortization of Net Prior Service Cost... 92 90 84 -- -- --
(Gain)/Loss.............................. 467 432 458 -- -- --
------- ------ ------- ------- ------ ------
Net Periodic Benefit Cost........... $ 1,118 $ 865 $ 913 $ 1,174 $1,334 $1,346
------- ------ ------- ------- ------ ------
------- ------ ------- ------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
DECEMBER 31, DECEMBER 31,
----------------- ---------------------
1997 1998 1997 1998
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Prior Measurement Date.......... $50,714 $55,493 $ 13,297 $ 14,631
Service Cost.......................................... 1,349 1,457 302 330
Interest Cost......................................... 3,857 3,773 1,029 1,010
Actuarial (Gain)/Loss................................. 3,977 5,823 592 (934)
Foreign Currency Translation.......................... (899) (3,701) (235) (977)
Benefits Paid......................................... (3,505) (3,240) (354) (370)
------- ------- -------- --------
Benefit Obligation at Measurement Date........... $55,493 $59,605 $ 14,631 $ 13,690
------- ------- -------- --------
------- ------- -------- --------
Change in Plan Assets
Fair Value of Assets at Prior Measurement Date........ $59,940 $66,181 $ -- $ --
Actual Return on Plan Assets.......................... 10,611 2,633 -- --
Employer Contributions................................ 1,085 1,643 354 370
Foreign Currency Translation.......................... (1,950) (4,412) -- --
Benefits Paid......................................... (3,505) (3,240) (354) (370)
------- ------- -------- --------
Fair Value of Assets at Measurement Date......... $66,181 $62,805 $ -- $ --
------- ------- -------- --------
------- ------- -------- --------
Reconciliation of Funded Status
Funded Status......................................... $11,576 $ 3,201 $(14,631) $(13,691)
Unrecognized Net Prior Service Cost................... 834 695 -- --
(Gain)/Loss........................................... 6,392 13,560 1,340 316
------- ------- -------- --------
Net Amount Recognized............................ $18,802 $17,456 $(13,291) $(13,375)
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
The assumptions used in accounting for the plans in 1996, 1997 and 1998
were:
<TABLE>
<CAPTION>
PENSION PLANS
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Estimated discount rate..................................... 8% 7 1/2% 6 3/4%
Estimated long-term rate of return on assets................ 9% 9% 9%
Average rate of increase in employee compensation........... 5 1/4% 5 1/4% 5 1/4%
</TABLE>
F-14
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The assumption used in accounting for the medical plans in 1998 was an
8.4 percent health care cost trend rate (decreasing to 6 percent in the year
2003 and beyond). A one percent increase in the health care trend rate would
increase the accumulated postretirement benefit obligation by $2,803 at year end
1998 and the net periodic cost by $289 for the year. A one percent decrease in
the health care trend rate would decrease the accumulated postretirement benefit
obligation by $2,209 at year end 1998 and the net periodic cost by $223 for the
year.
The assumption used in accounting for the plans in 1997 was a 10 percent
health care cost trend rate (decreasing to 7 1/2 percent in the year 2003 and
beyond).
The dates used to measure plan assets and liabilities were October 31,
1997 and 1998 for all plans. Plan assets are invested primarily in stocks,
bonds, short-term securities and cash equivalents.
Following the Spinoff, the Industrial Chemicals Business and the GenTek
Business assumed responsibility for pension and other postretirement benefits
for retirees whose last work assignment was with their respective business and
the active employees of each or their respective businesses. Separate defined
benefit plans have been established for both companies, with assets included in
trusts under qualified pension plans being divided between the trusts. Each
domestic plan received the legally required funding as specified under the
Employee Retirement Income Security Act of 1974 and foreign plans received
funding as specified under the applicable statutory requirements.
GCG's net periodic benefit cost for pension and other postretirement
benefits disclosed above includes amounts related to the Industrial Chemicals
Business retirees who participated in certain of the Company's defined benefits
and postretirement benefits plans. GCG's periodic benefit cost has been
allocated to the Industrial Chemicals Business and is included in 'Discontinued
Operations' in the Statement of Operations. Periodic benefit cost allocated to
discontinued operations was $5,400, $5,380 and $4,618 for 1998, 1997 and 1996,
respectively.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Future minimum rental payments for operating leases (primarily for
transportation equipment, offices and warehouses) related to continuing
operations having initial or remaining noncancellable lease terms in excess of
one year as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1999........................................................ $ 5,180
2000........................................................ 4,286
2001........................................................ 2,188
2002........................................................ 1,901
2003 and thereafter......................................... 1,883
-------
$15,438
-------
-------
</TABLE>
Rental expense for the years ended December 31, 1996, 1997 and 1998 was
$4,239, $4,621, and $5,632, respectively.
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
F-15
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
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 $16,244 and $20,116 at December 31,
1997 and 1998, respectively. These amounts do not include estimated third-party
recoveries nor have they been discounted.
Avtex Site at Front Royal, Virginia. On March 22, 1990, the EPA issued
to the Company 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 Company. On September 30, 1998, the EPA
issued an administrative order under Section 106 of CERCLA (the 'Order'), which
requires the Company, AlliedSignal, Inc. and Avtex to undertake certain removal
actions at the acid plant. On October 19, 1998, the Company 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 Company
has provided for the estimated costs of $1,600 for these activities in its
accrual for environmental liabilities relating to the Order. The Company 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 Company's
results of operations or financial condition.
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. 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
Prior to the Spinoff, GCG was 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 of $1,018, $1,099 and $1,195 per quarter for the
years 1996, 1997 and 1998, respectively.
Latona has agreed to provide its services separately to GenTek and GCG.
GenTek will pay Latona, subsequent to the Spinoff, a quarterly fee of $1,125, to
be adjusted after 1999 for increases in the U.S. consumer price index. In
addition, if Latona provides advisory services to GenTek in connection with any
acquisition, business combination or other strategic transaction, GenTek will
pay Latona Associates additional fees comparable with fees received by
investment banking firms for such services. During 1998, the Company paid Latona
$500 in connection with the acquisition of Reheis. This agreement expires on
December 31, 2004.
F-16
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- ADDITIONAL FINANCIAL INFORMATION
The following are summaries of selected balance sheet items:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
------- -------
<S> <C> <C>
Receivables
Trade....................................................... $51,730 $62,810
Other....................................................... 1,626 1,536
Allowance for doubtful accounts............................. (3,553) (3,726)
------- -------
$49,803 $60,620
------- -------
------- -------
Inventories
Raw materials............................................... $ 8,093 $11,395
Work in process............................................. 3,090 6,049
Finished products........................................... 9,999 15,706
Supplies and containers..................................... 4,146 4,469
------- -------
$25,328 $37,619
------- -------
------- -------
</TABLE>
Inventories valued at LIFO amounted to $16,835 and $17,450 at
December 31, 1997 and 1998, respectively, which were below estimated replacement
cost by $615 and $730, respectively. The impact of LIFO liquidations in 1996,
1997 and 1998 was not significant.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
Property, Plant and Equipment -------- ---------
<S> <C> <C>
Land and improvements..................................... $ 20,876 $ 26,219
Machinery and equipment................................... 194,992 261,260
Buildings and leasehold improvements...................... 31,637 43,912
Construction in progress.................................. 10,111 19,178
-------- ---------
257,616 350,569
Less accumulated depreciation and amortization............ (97,462) (154,043)
-------- ---------
$160,154 $ 196,526
-------- ---------
-------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
Accrued Liabilities ------- -------
<S> <C> <C>
Wages, salaries and benefits................................ $17,820 $17,616
Taxes, other than income taxes.............................. 2,867 3,256
Other....................................................... 28,159 31,093
------- -------
$48,846 $51,965
------- -------
------- -------
</TABLE>
F-17
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
MATURITIES 1997 1998
---------- -------- --------
<S> <C> <C> <C>
Bank Term Loan A -- floating rate........................... 2000-2004 $ -- $100,000
Bank Term Loan B -- floating rate........................... 1999-2006 -- 199,000
Bank Term Loan -- floating rate............................. 1999-2001 65,217 --
Senior Subordinated Notes -- 9.25%.......................... 2003 100,000 --
Canada Senior Notes -- 9.09%................................ 1999 50,787 48,269
$130,000 U.S. Revolving Credit Facility -- floating rate.... 42,000 --
General Chemical Canada Limited
Revolving Credit Facility -- floating rate................ 2000 -- 3,877
Other Debt -- floating rate................................. -- 6,385
-------- --------
Total Debt............................................. 258,004 357,531
Less: Current Portion.................................. 17,392 50,802
-------- --------
Net Long-Term Debt..................................... $240,612 $306,729
-------- --------
-------- --------
</TABLE>
As of December 31, 1998, aggregate maturities of long-term debt for each
of the years in the five year period ending December 31, 2003 were $50,802,
$11,780, $19,700, $13,250 and $23,250.
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. The rate in effect at December 31, 1998 for Term Loan A and Term
Loan B was 6.25 percent and 7.25 percent, respectively. 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.
General Chemical Canada Limited has a C$15,000 Revolving Credit Facility
maturing June 22, 2000. This facility bears interest at a rate equal to a spread
over a reference rate.
Commitment fees paid for the above-mentioned facilities were $414, $274,
and $446 for 1996, 1997 and 1998, respectively.
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.
F-18
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Information with respect to all stock options is summarized below:
<TABLE>
<CAPTION>
AVERAGE OPTION
PRICE PER
SHARES 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
Options Granted........................................ 398,500 23.72
Options Exercised...................................... 25,200 17.67
Options Forfeited...................................... 35,000 18.24
---------
Options Outstanding at December 31, 1998.................... 1,679,500 $19.37
---------
---------
</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 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. 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
1998 would have been reduced to $45,857 with basic earnings per common share of
$2.18 and diluted earnings per share of $2.10. For purposes of this calculation,
the fair value of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions used for 1996,
1997 and 1998, respectively: dividend yield of 1.0 percent, 0.7 percent and 1.5
percent, respectively; expected volatility of 27 percent, 41 percent and 42
percent, respectively; weighted average risk-free interest rate of 6.42 percent,
5.50 percent and 4.65 percent, respectively; and, weighted average expected
lives of six years. All options granted under the stock option plan had 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 Stockholders. 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, $1,302 and $1,309 for 1996, 1997 and 1998, respectively.
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 a portion of its floating-rate to fixed-rate debt in order
to reduce the Company's exposure to movements in interest rates. Such agreements
involve the exchange of fixed and floating interest rate payments over the life
of the
F-19
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
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
NOTIONAL -------------------
DECEMBER 31, AMOUNT MATURITIES RECEIVE(1) PAY(2)
------------ -------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1997........................................... $ 75,000 1998-1999 5.8% 6.8%
1998........................................... $100,000 1999-2006 5.6% 6.6%
</TABLE>
- ------------
(1) Three-month LIBOR.
(2) Represents the weighted average rate.
At December 31, 1998, the Company was also party to a currency and
interest rate swap, which partially hedges the Company's Canadian subsidiary's
9.09 percent Senior Notes. The agreement, which matures in 1999, provides for
the payment of C$48,400 at a fixed rate of 7.54 percent in exchange for the
receipt of US$35,000 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, 1997 DECEMBER 31, 1998
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Long-term debt.................................. $258,004 $262,918 $357,531 $357,737
Unrealized gain on swap agreements.............. $ -- $ 521 $ -- $ 309
</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-20
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 15 -- GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies.
Geographic area information for continuing operations is summarized as
follows:
<TABLE>
<CAPTION>
TOTAL REVENUES OPERATING PROFIT IDENTIFIABLE ASSETS
------------------------------ --------------------------- -------------------
1996 1997 1998 1996 1997 1998 1997 1998
-------- -------- -------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States(1)..... $318,946 $358,774 $423,441 $46,052 $66,342 $47,734 $298,926 $437,892
Foreign(2)........... 17,228 15,710 26,173 2,671 1,184 3,987 5,387 23,634
Elimination(3)....... (6,054) (5,968) (5,695) -- -- -- -- --
-------- -------- -------- ------- ------- ------- -------- --------
$330,120 $368,516 $443,919 $48,723 $67,526 $51,721 $304,313 $461,526
-------- -------- -------- ------- ------- ------- -------- --------
-------- -------- -------- ------- ------- ------- -------- --------
</TABLE>
- ------------
(1) Includes export sales of $4,946, $5,430 and $4,914 for the years ended
December 31, 1996, 1997 and 1998, respectively.
(2) Principally Canada.
(3) Sales between geographic areas are recorded at prices comparable to market
prices charged to third-party customers and are eliminated in consolidation.
Industry segment information for continuing operations is summarized as
follows:
<TABLE>
<CAPTION>
TOTAL REVENUES OPERATING PROFIT
------------------------------ ---------------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Performance Products................................... $240,895 $260,351 $315,787 $43,202 $48,292 $25,711
Manufacturing.......................................... 89,225 108,165 128,132 12,472 23,531 30,649
-------- -------- -------- ------- ------- -------
Total Segment...................................... 330,120 368,516 443,919 55,674 71,823 56,360
Eliminations and other corporate expenses.............. -- -- -- (6,951) (4,297) (4,639)
-------- -------- -------- ------- ------- -------
Consolidated........................................... $330,120 $368,516 $443,919 $48,723 $67,526 $51,721
-------- -------- --------
-------- -------- --------
Interest expense....................................... 10,747 8,855 14,624
Other income, net...................................... (1,224) (864) (216)
------- ------- -------
Consolidated income from continuing operations before
income taxes and extraordinary item.................. $39,200 $59,535 $37,313
------- ------- -------
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES DEPRECIATION AND AMORTIZATION
--------------------------- ------------------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Performance Products.............................. $17,612 $23,563 $24,260 $11,332 $13,688 $19,763
Manufacturing..................................... 1,619 2,640 9,477 2,767 2,608 3,302
------- ------- ------- ------- ------- -------
Consolidated...................................... $19,231 $26,203 $33,737 $14,099 $16,296 $23,065
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
-------------------
DECEMBER 31,
-------------------
1997 1998
---- ----
<S> <C> <C>
Performance Products........................................ $245,734 381,202
Manufacturing............................................... 56,586 78,267
Corporate................................................... 1,993 2,057
-------- --------
Consolidated................................................ $304,313 $461,526
-------- --------
-------- --------
</TABLE>
F-21
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 16 -- SUMMARIZED FINANCIAL INFORMATION
The Company has issued its Senior Subordinated Notes due 2009 which are
fully and unconditionally guaranteed, on a joint and several basis, by all of
the Company's wholly owned, domestic subsidiaries ('Subsidiary Guarantors'). The
non-guarantor subsidiaries are foreign or are part of the Industrial Chemicals
Business which are no longer part of GenTek as a result of the Spinoff.
The following condensed consolidating financial information illustrates
the composition of the combined Subsidiary Guarantors. The Company believes that
the separate complete financial statements of the respective guarantors would
not provide additional material information which would be useful in assessing
the financial composition of the Subsidiary Guarantors.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $ -- $ 312,895 $ 17,225 $ -- $ 330,120
Cost of sales......................... -- 216,661 12,576 -- 229,237
Selling, general and administrative
expenses............................ 4,389 46,572 1,199 -- 52,160
--------- --------- --------- -------- ---------
Operating profit................. (4,389) 49,662 3,450 -- 48,723
Interest expense...................... -- 10,747 -- -- 10,747
Other (income) expense, net........... (177) (1,041) (6) -- (1,224)
--------- --------- --------- -------- ---------
Income before continuing
operations before income taxes
and extraordinary item......... (4,212) 39,956 3,456 -- 39,200
Income tax provision.................. (1,594) 18,741 1,278 -- 18,425
Equity in income from subsidiaries.... 49,226 28,011 -- (77,237) --
--------- --------- --------- -------- ---------
Income from continuing operations
before extraordinary item........... 46,608 49,226 2,178 (77,237) 20,775
Income from discontinued operations
(net of tax)........................ -- -- 25,833 -- 25,833
--------- --------- --------- -------- ---------
Income before extraordinary
item........................... 46,608 49,226 28,011 (77,237) 46,608
Extraordinary item (net of tax)....... -- -- -- -- --
--------- --------- --------- -------- ---------
Net income....................... $ 46,608 $ 49,226 $ 28,011 $(77,237) $ 46,608
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
</TABLE>
F-22
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $ -- $ 352,806 $ 15,710 $ -- $ 368,516
Cost of sales......................... -- 240,210 11,702 -- 251,912
Selling, general and administrative
expenses............................ 2,562 45,335 1,181 -- 49,078
--------- --------- --------- -------- ---------
Operating profit................. (2,562) 67,261 2,827 -- 67,526
Interest expense...................... -- 8,855 -- -- 8,855
Other (income) expense, net........... 33 (901) 4 -- (864)
--------- --------- --------- -------- ---------
Income before continuing
operations before income taxes
and extraordinary item......... (2,595) 59,307 2,823 -- 59,535
Income tax provision.................. (1,111) 26,329 1,043 -- 26,261
Equity in income from subsidiaries.... 57,799 24,821 -- (82,620) --
--------- --------- --------- -------- ---------
Income from continuing operations
before extraordinary item...... 56,315 57,799 1,780 (82,620) 33,274
Income from discontinued operations
(net of tax)........................ -- -- 23,041 -- 23,041
--------- --------- --------- -------- ---------
Income before extraordinary
item........................... 56,315 57,799 24,821 (82,620) 56,315
Extraordinary item (net of tax)....... -- -- -- -- --
--------- --------- --------- -------- ---------
Net income....................... $ 56,315 $ 57,799 $ 24,821 $(82,620) $ 56,315
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $ -- $ 410,778 $ 33,141 $ -- $ 443,919
Cost of sales......................... -- 301,347 25,279 -- 326,626
Selling, general and administrative
expenses............................ 2,758 59,621 3,193 -- 65,572
--------- --------- --------- -------- ---------
Operating profit................. (2,758) 49,810 4,669 -- 51,721
Interest expense...................... 455 13,790 379 -- 14,624
Other (income) expense, net........... 30 (208) (38) -- (216)
--------- --------- --------- -------- ---------
Income before continuing
operations before income taxes
and extraordinary item......... (3,243) 36,228 4,328 -- 37,313
Income tax provision.................. (1,469) (3,599) 1,312 -- (3,756)
Equity in income from subsidiaries.... 49,481 13,315 -- (62,796) --
--------- --------- --------- -------- ---------
Income from continuing operations
before extraordinary item...... 47,707 53,142 3,016 (62,796) 41,069
Income from discontinued operations
(net of tax)........................ -- -- 10,299 -- 10,299
--------- --------- --------- -------- ---------
Income before extraordinary
item........................... 47,707 53,142 13,315 (62,796) 51,368
Extraordinary item (net of tax)....... -- 3,661 -- -- 3,661
--------- --------- --------- -------- ---------
Net income....................... $ 47,707 $ 49,481 $ 13,315 $(62,796) $ 47,707
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
</TABLE>
F-23
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......... $ 51 $ 20,350 $-- $ -- $ 20,401
Receivables, net.................. -- 47,010 2,793 -- 49,803
Inventories....................... -- 24,177 1,151 -- 25,328
Other current assets.............. -- 10,003 -- -- 10,003
-------- -------- ------- -------- --------
Total current assets......... 51 101,540 3,944 -- 105,535
Property, plant and equipment, net..... -- 158,658 1,496 -- 160,154
Goodwill, net of amortization.......... -- 19,192 -- -- 19,192
Intercompany receivable (payable)...... (51,394) 51,394 -- -- --
Investment in subsidaries.............. (40,856) 88,410 -- (47,554) --
Other assets........................... 2,324 17,108 -- -- 19,432
Net assets of discontinued
businesses........................... -- -- 85,505 -- 85,505
-------- -------- ------- -------- --------
Total assets................. $(89,875) $436,302 $90,945 $(47,554) $389,818
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Current liabilities:
Accounts payable.................. $ 379 $ 30,320 $ 1,417 $ -- $ 32,116
Accrued liabilities............... 3,698 47,475 335 -- 51,508
Current portion of long-term
debt............................ -- 17,392 -- -- 17,392
-------- -------- ------- -------- --------
Total current liabilities.... 4,077 95,187 1,752 -- 101,016
Long-term debt......................... -- 240,612 -- -- 240,612
Other liabilities...................... 287 141,359 783 -- 142,429
-------- -------- ------- -------- --------
Total liabilities............ 4,364 477,158 2,535 -- 484,057
Equity (deficit)....................... (94,239) (40,856) 88,410 (47,554) (94,239)
-------- -------- ------- -------- --------
Total liabilities and equity
(deficit).................. $(89,875) $436,302 $90,945 $(47,554) $389,818
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
</TABLE>
F-24
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......... $ 3,147 $ 57,159 $ 1,004 $ -- $ 61,310
Receivables, net.................. 1,900 53,009 5,711 -- 60,620
Inventories....................... -- 33,731 3,888 -- 37,619
Other current assets.............. -- 11,864 456 -- 12,320
-------- --------- ------- -------- --------
Total current assets......... 5,047 155,763 11,059 -- 171,869
Property, plant and equipment, net..... -- 185,784 10,742 -- 196,526
Goodwill, net of amortization.......... -- 69,533 1,911 -- 71,444
Intercompany receivable (payable)...... 231,395 (231,282) (113) -- --
Investment in subsidaries.............. 9,410 84,830 -- (94,240) --
Other assets........................... 2,172 19,480 35 -- 21,687
Net assets of discontinued
businesses........................... -- -- 75,292 -- 75,292
-------- --------- ------- -------- --------
Total assets................. $248,024 $ 284,108 $98,926 $(94,240) $536,818
-------- --------- ------- -------- --------
-------- --------- ------- -------- --------
Current liabilities:
Accounts payable.................. $ 2,550 $ 35,816 $ 4,447 $ -- $ 42,813
Accrued liabilities............... 677 59,075 1,173 -- 60,925
Current portion of long-term
debt............................ 2,000 48,270 532 -- 50,802
-------- --------- ------- -------- --------
Total current liabilities.... 5,227 143,161 6,152 -- 154,540
Long-term debt......................... 297,000 3,876 5,853 -- 306,729
Other liabilities...................... 493 127,661 2,091 -- 130,245
-------- --------- ------- -------- --------
Total liabilities............ 302,720 274,698 14,096 -- 591,514
Equity (deficit)....................... (54,696) 9,410 84,830 (94,240) (54,696)
-------- --------- ------- -------- --------
Total liabilities and equity
(deficit).................. $248,024 $ 284,108 $98,926 $(94,240) $536,818
-------- --------- ------- -------- --------
-------- --------- ------- -------- --------
</TABLE>
F-25
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................ $ (2,012) $ 38,870 $ 1,979 $ -- $ 38,837
--------- --------- --------- ------- ---------
Cash flows from investing activities:
Cash provided by discontinued
operations....................... -- -- 16,392 -- 16,392
Other.............................. -- (4,875) (313) -- (5,188)
--------- --------- --------- ------- ---------
Net cash provided by (used in) investing
activities............................ -- (4,875) 16,079 -- 11,204
--------- --------- --------- ------- ---------
Cash flows from financing activities:
Intercompany cash transfers........ (36,795) 54,883 (18,088) -- --
Other.............................. 38,809 (56,886) -- -- (18,077)
--------- --------- --------- ------- ---------
Net cash provided by (used in) financing
activities............................ 2,014 (2,003) (18,088) -- (18,077)
--------- --------- --------- ------- ---------
Effect of exchange rates on cash........ -- -- 30 -- 30
--------- --------- --------- ------- ---------
Increase (decrease) in cash and cash
equivalents........................... 2 31,992 -- -- 31,994
Cash and cash equivalents at beginning
of year............................... -- 18,097 -- -- 18,097
--------- --------- --------- ------- ---------
Cash and cash equivalents at end of
year.................................. $ 2 $ 50,089 $ -- $ -- $ 50,091
--------- --------- --------- ------- ---------
--------- --------- --------- ------- ---------
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................ $ (4,048) $ 57,579 $ 2,648 $ -- $ 56,179
--------- --------- --------- ------- ---------
Cash flows from investing activities:
Acquisition of businesses net of
cash acquired.................... -- (30,130) -- -- (30,130)
Cash provided by discontinued
operations....................... -- -- 331 -- 331
Other.............................. -- (26,105) (35) -- (26,140)
--------- --------- --------- ------- ---------
Net cash provided by (used in) investing
activities............................ -- (56,235) 296 -- (55,939)
--------- --------- --------- ------- ---------
Cash flows from financing activities:
Intercompany cash transfers........ 36,648 (34,547) (2,101) -- --
Other.............................. (32,551) 3,464 -- -- (29,087)
--------- --------- --------- ------- ---------
Net cash provided by (used in) financing
activities............................ 4,097 (31,083) (2,101) -- (29,087)
--------- --------- --------- ------- ---------
Effect of exchange rates on cash........ -- -- (843) -- (843)
--------- --------- --------- ------- ---------
Increase (decrease) in cash and cash
equivalents........................... 49 (29,739) -- -- (29,690)
Cash and cash equivalents at beginning
of year............................... 2 50,089 -- -- 50,091
--------- --------- --------- ------- ---------
Cash and cash equivalents at end of
year.................................. $ 51 $ 20,350 $ -- $ -- $ 20,401
--------- --------- --------- ------- ---------
--------- --------- --------- ------- ---------
</TABLE>
F-26
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................ $ (4,166) $ 56,803 $ 4,631 $ -- $ 57,268
--------- --------- --------- ------- ---------
Cash flows from investing activities:
Acquisition of businesses net of
cash acquired.................... -- (90,935) -- -- (90,935)
Cash provided by discontinued
operations....................... -- -- 20,512 -- 20,512
Other.............................. -- (32,170) (800) -- (32,970)
--------- --------- --------- ------- ---------
Net cash provided by (used in) investing
activities............................ -- (123,105) 19,712 -- (103,393)
--------- --------- --------- ------- ---------
Cash flows from financing activities:
Intercompany cash transfers........ (280,040) 309,942 (29,902) -- --
Other.............................. 287,302 (206,831) 6,385 -- 86,856
--------- --------- --------- ------- ---------
Net cash provided by (used in) financing
activities............................ 7,262 103,111 (23,517) -- 86,856
--------- --------- --------- ------- ---------
Effect of exchange rates on cash........ -- -- 178 -- 178
--------- --------- --------- ------- ---------
Increase (decrease) in cash and cash
equivalents........................... 3,096 36,809 1,004 -- 40,909
Cash and cash equivalents at beginning
of year............................... 51 20,350 -- -- 20,401
--------- --------- --------- ------- ---------
Cash and cash equivalents at end of
year.................................. $ 3,147 $ 57,159 $ 1,004 $ -- $ 61,310
--------- --------- --------- ------- ---------
--------- --------- --------- ------- ---------
</TABLE>
NOTE 17 -- UNAUDITED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
1997
----------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Net revenues................................. $ 86,000 $ 88,212 $ 97,456 $ 96,848 $368,516
Income from continuing operations............ 7,310 9,379 8,941 7,644 33,274
Income from discontinued operations.......... 4,404 7,879 6,161 4,597 23,041
Net income................................... 11,714 17,258 15,102 12,241 56,315
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per common share -- basic:
Income from continuing operations....... .34 .44 .42 .36 1.55
Income from discontinued operations..... .21 .37 .29 .21 1.08
-------- -------- -------- -------- --------
Net income......................... .55 .81 .71 .57 2.63
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per common share -- assuming
dilution:
Income from continuing operations....... .32 .42 .40 .34 1.48
Income from discontinued operations..... .20 .35 .27 .20 1.02
-------- -------- -------- -------- --------
Net income......................... $ .52 $ .77 $ .67 $ .54 $ 2.50
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
F-27
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998
----------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Net revenues................................. $100,536 $118,355 $112,562 $112,466 $443,919
Income from continuing operations before
extraordinary item......................... 7,751 10,497 8,725 14,096 41,069
Income (loss) from discontinued operations... 2,110 4,189 3,041 959 10,299
Income before extraordinary item............. 9,861 14,686 11,766 15,055 51,368
Net income................................... 9,861 11,025(1) 11,766 15,055(2) 47,707
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per common share -- basic:
Income from continuing operations....... .37 .49 .42 .67 1.95
Income from discontinued operations..... .10 .20 .14 .05 .49
Extraordinary item -- loss on extinguishment
of debt (net of tax)....................... -- .17 -- -- .17
-------- -------- -------- -------- --------
Net income......................... .47 .52 .56 .72 2.27
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per common share -- assuming
dilution:
Income from continuing operations....... .35 .48 .40 .65 1.88
Income from discontinued operations..... .10 .19 .14 .04 .47
Extraordinary item -- loss from
extinguishment of debt (net of tax)........ -- .17 -- -- .17
-------- -------- -------- -------- --------
Net income......................... $ .45 $ .50 $ .54 $ .69 $ 2.18
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</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.
(1) In the second quarter of 1998, the Company recorded an extraordinary loss of
$3,661 ($.17 per share) related to the early retirement of certain
outstanding indebtedness.
(2) During the fourth quarter of 1998, the Company recorded a one-time charge of
$12,885 ($7,789 after tax or $.36 per share) primarily due to an asset
impairment writedown for two of the Company's manufacturing facilities and
incremental accruals of $11,300 ($6,831 after tax or $.31 per share)
principally related to litigation and environmental spending. During the
fourth quarter of 1998, the Company also recorded a non-recurring gain of
$19,500 ($.89 per share) related to an income tax settlement.
NOTE 18 -- SUBSEQUENT EVENTS
On February 23, 1999, the Company acquired for approximately $58,000
Defiance Inc., a manufacturer of specialty antifriction bearings for the
transportation industry and a provider of vehicle testing services, tooling
design and preproduction dies and components primarily for the automotive
industry. On April 6, 1999, the Company acquired for approximately $220,000 Noma
Industries Limited, a leading North American producer of insulated wire and
wire-related products for the automotive, appliance and electronic industries.
On July 2, 1999, the Company acquired Structural Kinematics, a leading provider
of testing and engineering services to the automotive, truck and agricultural
equipment industries.
On July 12, 1999, the Company announced that it has agreed to purchase
Berlin-based Krone AG from Jenoptik AG. Krone is a leading global supplier of
connection and distribution technology for telecommunications and data networks.
The Krone acquisition is expected to be completed during the third quarter. The
acquisitions will be financed through existing credit facilities and additional
debt securities.
F-28
<PAGE>
GENTEK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues............................................ $112,562 $263,834 $331,453 $609,324
Cost of sales........................................... 80,692 195,792 234,935 453,938
Selling, general and administrative expense............. 13,951 34,159 40,347 80,003
-------- -------- -------- --------
Operating profit...................................... 17,919 33,883 56,171 75,383
Interest expense........................................ 4,099 13,077 10,626 25,378
Interest income......................................... 336 146 678 739
Foreign currency transaction (gains) losses............. 107 (787) 398 (1,175)
Other (income) expense, net............................. (109) 123 11 262
-------- -------- -------- --------
Income from continuing operations before income taxes
and extraordinary item............................. 14,158 21,616 45,814 51,657
Income tax provision.................................... 5,432 10,896 18,841 23,890
-------- -------- -------- --------
Income from continuing operations before extraordinary
item............................................... 8,726 10,720 26,973 27,767
Income from discontinued operations (net of tax)........ 3,040 -- 9,339 1,006
-------- -------- -------- --------
Income before extraordinary item...................... 11,766 10,720 36,312 28,773
Extraordinary item -- loss from extinguishment of debt
(net of tax of $2,395 and $3,231, respectively)....... -- -- 3,661 4,939
-------- -------- -------- --------
Net income............................................ $ 11,766 $ 10,720 $ 32,651 $ 23,834
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER COMMON SHARE -- BASIC:
Income from continuing operations....................... $ .42 $ .51 $ 1.28 $ 1.32
Income from discontinued operations (net of tax)........ .14 -- .44 .05
Extraordinary item -- loss from extinguishment of debt
(net of tax).......................................... -- -- .17 .23
-------- -------- -------- --------
Net income............................................ $ .56 $ .51 $ 1.55 $ 1.14
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION:
Income from continuing operations....................... $ .40 $ .50 $ 1.23 $ 1.29
Income from discontinued operations (net of tax)........ .14 -- .43 .05
Extraordinary item -- loss from extinguishment of debt
(net of tax).......................................... -- -- .17 .23
-------- -------- -------- --------
Net income.............................................. $ .54 $ .50 $ 1.49 $ 1.11
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-29
<PAGE>
GENTEK INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 61,310 $ 34,459
Receivables, net.......................................... 60,620 211,999
Inventories............................................... 37,619 118,012
Deferred income taxes..................................... 11,494 27,645
Other current assets...................................... 826 25,108
-------- ----------
Total current assets................................... 171,869 417,223
Property, plant and equipment, net.......................... 196,526 353,096
Goodwill, net of amortization............................... 71,444 393,357
Other assets................................................ 21,687 31,808
Net assets of discontinued operations....................... 75,292 --
-------- ----------
Total assets........................................... $536,818 $1,195,484
-------- ----------
-------- ----------
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 42,813 $ 90,052
Accrued liabilities....................................... 60,925 161,752
Current portion of long-term debt......................... 50,802 43,236
-------- ----------
Total current liabilities.............................. 154,540 295,040
Long-term debt.............................................. 306,729 712,204
Other liabilities........................................... 130,245 175,755
-------- ----------
Total liabilities...................................... 591,514 1,182,999
-------- ----------
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: 12,654,489 and 16,876,017 shares at
December 31, 1998 and September 30, 1999,
respectively........................................... 127 168
Class B Common Stock, $.01 par value; authorized
40,000,000 shares; issued 9,758,421 and 3,958,421
shares at December 31, 1998 and September 30, 1999,
respectively........................................... 97 40
Capital deficit........................................... (182,563) (848)
Accumulated other comprehensive income.................... (2,446) 98
Retained earnings......................................... 162,378 13,289
Treasury stock, at cost: 1,641,166 and 16,192 shares at
December 31, 1998 and September 30, 1999,
respectively........................................... (32,289) (262)
-------- ----------
Total equity (deficit)................................. (54,696) 12,485
-------- ----------
Total liabilities and equity (deficit)................. $536,818 $1,195,484
-------- ----------
-------- ----------
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-30
<PAGE>
GENTEK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1999
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 32,651 $ 23,834
Adjustments to reconcile net income to net cash provided
by continuing operations:
Depreciation and amortization........................ 17,539 31,156
Net loss on disposition of long-term assets.......... 113 219
Unrealized exchange gain (loss)...................... 898 (779)
Restricted unit plan costs........................... 843 607
Loss on extinguishment of debt....................... 6,056 8,170
Income from discontinued operations.................. (6,680) (1,006)
Increase in receivables.............................. (4,547) (21,875)
Increase in inventories.............................. (3,060) (77)
(Decrease) in accounts payable....................... (1,207) (1,331)
Increase (decrease) in accrued liabilities........... (2,438) 11,251
Increase (decrease) in other liabilities and assets,
net................................................. (7,601) (3,165)
--------- ---------
Net cash provided by continuing operations........ 32,567 47,004
--------- ---------
Cash flows from investing activities:
Capital expenditures...................................... (22,185) (22,258)
Proceeds from sales or disposals of long term assets...... 256 354
Cash provided by discontinued operations.................. 19,509 122,711
Acquisition of businesses net of cash acquired*........... (90,935) (445,020)
--------- ---------
Net cash used for investing activities................. (93,355) (344,213)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 383,428 846,827
Repayment of long-term debt............................... (290,804) (573,435)
Payment to acquire treasury stock......................... (4,000) (635)
Exercise of stock options................................. 314 --
Dividends................................................. (2,099) (2,079)
--------- ---------
Net cash provided by financing activities.............. 86,839 270,678
--------- ---------
Effect of exchange rate changes on cash................... (368) (320)
--------- ---------
Increase (decrease) in cash and cash equivalents............ 25,683 (26,851)
Cash and cash equivalents at beginning of period............ 20,401 61,310
--------- ---------
Cash and cash equivalents at end of period.................. $ 46,084 $ 34,459
--------- ---------
--------- ---------
Supplemental information:
Cash paid for income taxes................................ $ 16,721 $ 25,020
--------- ---------
--------- ---------
Cash paid for interest.................................... $ 16,830 $ 17,696
--------- ---------
--------- ---------
*Purchase of businesses net of cash acquired:
Working Capital, other than cash.......................... $ (14,303) $ (79,008)
Plant, property and equipment............................. (36,436) (158,078)
Other assets.............................................. (41,622) (341,309)
Noncurrent liabilities.................................... 1,426 133,375
--------- ---------
Net cash used to acquire businesses.................... $ (90,935) $(445,020)
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-31
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
GenTek Inc.'s ('GenTek' or the 'Company') manufacturing and performance
products businesses owned by the Company as of April 30, 1999 (the 'GenTek
Business') were formerly part of The General Chemical Group Inc. ('GCG'). GCG
separated the GenTek Business from GCG's soda ash and calcium chloride business
(the 'Industrial Chemicals Business') through a spinoff (the 'Spinoff'). GCG
accomplished the Spinoff by transferring the GenTek Business to GenTek, and
distributing the common stock of GenTek to GCG's shareholders on April 30, 1999
(the 'Spinoff Date'). Since the Spinoff Date, GCG and GenTek have been separate,
stand-alone companies with GenTek operating the GenTek Business, and GCG
operating the Industrial Chemicals Business.
The Spinoff has been treated as a reverse spinoff for financial
statement purposes because the GenTek Business constitutes a greater proportion
of GCG's assets and operations. Therefore, the Spinoff has been reflected, for
financial statement presentation, as if GenTek formed a new company consisting
of the Industrial Chemicals Segment and distributed the stock of that company as
a dividend to GenTek's stockholders, with the assets and operations of the
Performance Products and Manufacturing Segments remaining with GenTek.
Accordingly, the GenTek financial statements reflect the financial position and
results of operations of the Performance Products and Manufacturing Segments as
continuing operations and the financial position and results of operations of
the industrial chemicals business as discontinued operations. The distribution
of the net liabilities of the industrial chemicals business has been recorded as
a capital contribution to the Company.
For the purpose of governing certain ongoing relationships between GCG
and GenTek after the Spinoff and to provide mechanisms for an orderly
transition, GCG and GenTek entered into various agreements which are described
in Amendment No. 2 to the Registration Statement on Form 10 (file
no. 001-14789) of GenTek (the 'Form 10') filed with the Securities and Exchange
Act of 1934.
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the 'SEC'). 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, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. These statements should be read in conjunction with the
annual financial statements included elsewhere in this prospectus.
NOTE 2 -- DISCONTINUED OPERATIONS
Discontinued operations represent the Industrial Chemical Business of
GCG (see Note 1). Prior to the Spinoff Date an allocation of certain assets,
liabilities and expenses was made related to discontinued operations. In the
opinion of management, expenses were allocated to the discontinued operations in
a reasonable and consistent basis using management's estimate of services
provided to the discontinued business by GCG. General corporate overhead
expenses were not allocated to discontinued operations. However, such
allocations are not necessarily indicative of the level of expenses which might
have been incurred had the industrial chemicals business been operating as a
stand-alone entity during the periods presented or expected to be incurred in
the future.
In connection with the Spinoff, General Chemical Industrial Products, a
subsidiary of GCG, entered into certain financing arrangements prior to the
completion of the Spinoff. Out of the proceeds, approximately $130,000 was used
to repay outstanding borrowings of GCG under credit facilities existing prior to
the Spinoff.
F-32
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 3 -- STOCKHOLDER'S EQUITY
Prior to the Spinoff, a stockholder converted 5.8 million shares of GCG
Class B Common Stock into an identical number of shares of GCG Common Stock. On
the Spinoff Date, GCG issued shares of Common Stock and Class B Stock of GenTek
and distributed them to the holders of GCG's stock on a one-for-one basis.
Accordingly, as of the Spinoff Date, the equity accounts have been reclassified
to reflect the formation of GenTek and the issuance of its stock by recording
the par value of the stock issued and reclassifying all other equity to paid in
capital.
In conjunction with the Spinoff, the distribution of the net liabilities
of the industrial chemicals business has been recorded as a capital contribution
of $46,815 to the Company. Certain industrial chemical business asset and
liability balances, including but not limited to pension, postretirement and
deferred taxes, have been recorded based on preliminary estimates. As a result,
the capital contribution recorded by the Company reflects these estimates and is
subject to adjustment based on the final calculation of these balances.
NOTE 4 -- COMPREHENSIVE INCOME
Total comprehensive income is comprised of net income and foreign
currency translation gains and losses. Total comprehensive income for the three
months ended September 30, 1998 and 1999 was $11,824 and $10,764, respectively.
Total comprehensive income for the nine months ended September 30, 1998 and 1999
was $32,638 and $24,063, respectively.
NOTE 5 -- 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 also includes
the exercise of all stock options and restricted units, using the treasury stock
method.
The shares outstanding used for the basic and diluted earnings per
common share computation are reconciled as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per common share:
Weighted average common shares
outstanding............................... 21,099,838 20,989,245 21,085,181 20,942,676
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted earnings per common share:
Weighted average common shares
outstanding............................... 21,099,838 20,989,245 21,085,181 20,942,676
Options..................................... 776,724 442,800 894,297 494,766
---------- ---------- ---------- ----------
Total.................................. 21,876,562 21,432,045 21,979,478 21,437,442
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
At September 30, 1998 and 1999 options to purchase 423,500 shares and
1,574,500 shares of common stock, respectively, were not included in the
computation of diluted earnings per common share because the exercise price was
greater than the average market price of the common shares. The options, which
expire from 2007 through 2009, were still outstanding at September 30, 1999.
F-33
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 6 -- ACQUISITIONS
On February 23, 1999, the Company acquired for $58,020 through a cash
tender offer, Defiance Inc. ('Defiance'), a manufacturer of specialty
antifriction bearings for the transportation industry and a provider of vehicle
testing services, tooling design and preproduction dies and components primarily
for the automotive industry. On April 6, 1999, the Company acquired for
approximately $220,000 Noma Industries Limited ('Noma'), a leading North
American producer of insulated wire and wire-related products for the
automotive, appliance and electronic industries. On August 20, 1999, the Company
acquired for approximately $222,000, including approximately $63,000 in assumed
debt, Berlin-based Krone AG from Jenoptik AG. Krone is a leading global supplier
of connector and distribution technology for telecommunications and data
networks. In addition, during the third quarter the Company made two small
acquisitions (Structural Kinematics, a leading provider of testing and
engineering services to the automotive, truck and agricultural equipment
industries, and the business of Pacific Pac International Inc. ('Pacific Pac'),
a supplier of ultra high-purity solvents to the electronics industry). Funding
for these transactions was provided by existing cash and borrowings under the
Company's existing debt and credit facilities. The acquisitions are accounted
for under the purchase method, and accordingly, the net assets and results of
operations are included in the financial statements from the date of their
respective acquisitions. The allocation of purchase price of Defiance, Noma,
Structural Kinematics, Krone and Pacific Pac is based on valuation information
available to the Company which is subject to change as such information is
finalized. Goodwill is being amortized on a straight line basis over a period
which ranges from 25 to 35 years. The following proforma information presents
the results of operations as if the acquisitions had occurred on January 1,
1998. The proforma information has been prepared for comparative purposes and is
not necessarily indicative of what would have occurred had the acquisitions
occurred on such date or of results which may occur in the future. Had the
acquisitions occurred as of January 1, 1998, net sales would have been
$1,135,000 and $896,917, income before extraordinary items would have been
$26,522 ($1.21 per share) and $26,392 ($1.23 per share) and net income would
have been $33,160 ($1.51 per share) and $22,459 ($1.05 per share) for 1998 and
the nine months ended September 30, 1999.
NOTE 7 -- ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Raw materials........................................... $11,395 $ 43,622
Work in process......................................... 6,049 22,054
Finished products....................................... 15,706 47,759
Supplies and containers................................. 4,469 4,577
------- --------
$37,619 $118,012
------- --------
------- --------
</TABLE>
F-34
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
MATURITIES 1998 1999
---------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Bank Term Loans -- floating rates.......... 1999-2007 $299,000 $249,625
$300,000 Revolving Credit
Facility -- floating rate................. 2005 -- 215,000
Senior Subordinated Notes -- 11%............ 2009 -- 200,000
Canada Senior Notes -- 9.09%................ 1999 48,269 --
General Chemical Canada Limited Revolving
Credit Facility -- floating rate.......... 2000 3,877 --
Other Debt -- floating rate................. 6,385 90,815
-------- --------
Total Debt............................. 357,531 755,440
Less: Current Portion.................. 50,802 43,236
-------- --------
Net Long-Term Debt..................... $306,729 $712,204
-------- --------
-------- --------
</TABLE>
On April 30, 1999, the Company entered into a new credit facility with a
syndicate of banks and other financial institutions consisting of a $100,000
Term Loan ('Tranche A') maturing on April 30, 2005, a $150,000 Term Loan
('Tranche B') maturing on April 30, 2007 and a $300,000 Revolving Credit
Facility maturing on April 30, 2005. The term loans and revolving credit
facility bear interest at a rate equal to a spread over a reference rate.
Tranche A is payable in consecutive quarterly installments commencing
September 30, 2000. Tranche B is payable in consecutive quarterly installments
which commenced on July 31, 1999. 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. The proceeds were used to repay outstanding borrowings of GCG
under its existing credit facilities prior to the Spinoff, resulting in an
extraordinary loss from the extinguishment of debt of $4,939, net of a tax
benefit of $3,231.
On August 9, 1999, the Company issued $200,000 of 11% Senior
Subordinated Notes due 2009. Net proceeds of the offering of $193,000 were used
to repay a portion of the borrowing outstanding under the Company's Revolving
Credit Facility.
NOTE 9 -- DIVIDENDS
On September 21, 1999, GenTek's Board of Directors declared a quarterly
cash dividend of $.05 per share of Common Stock and Class B Common Stock,
payable October 16, 1999, to shareholders of record on October 1, 1999.
NOTE 10 -- RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
The Company is party to a management agreement with Latona Associates
('Latona') which is controlled by a stockholder of the Company under which the
Company receives corporate supervisory and administrative services and strategic
guidance. Prior to the Spinoff, Latona provided these services to the GenTek
Business pursuant to its agreement with GCG. The Company was charged $3,369 and
$3,618 for the nine months ended September 30, 1998 and 1999, respectively. In
connection with the Spinoff, Latona agreed to provide its services separately to
GenTek and GCG. GenTek pays Latona, for periods subsequent to the Spinoff, a
quarterly fee of $1,125, to be adjusted after 1999 for increases in
F-35
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
U.S. CPI. In addition, if Latona provides advisory services to GenTek in
connection with any acquisition, business combination or other strategic
transaction, GenTek pays Latona Associates additional fees comparable to fees
received by investment banking firms for such services. During 1998, the Company
paid Latona $500 in connection with acquisitions. During 1999, GenTek was
charged fees of $3,600 in the aggregate in connection with the acquisitions of
Defiance, Noma and Krone. GenTek's agreement with Latona expires on
December 31, 2004.
TRANSITION SUPPORT AGREEMENT
After the Spinoff, GenTek provides GCG with certain administrative
services pursuant to the Transition Support Agreement. For the three and nine
months ended September 30, 1999, GenTek charged GCG $916 and $1,534,
respectively, related to this agreement.
OTHER TRANSACTIONS
GCG supplies soda ash and calcium chloride to General Chemical
Corporation, a wholly-owned subsidiary of GenTek. For the nine months ended
September 30, 1998 and 1999, purchases from GCG amounted to $4,045 and $10,045,
respectively.
NOTE 11 -- SEGMENT INFORMATION
Industry segment information for continuing operations is summarized as
follows:
<TABLE>
<CAPTION>
TOTAL REVENUES OPERATING PROFIT
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Performance Products..................... $238,265 $254,613 $39,188 $ 34,071
Manufacturing............................ 93,188 315,102 21,842 48,939
Telecommunications Equipment............. -- 39,609 -- 2,941
-------- -------- ------- --------
Total Segment....................... 331,453 609,324 61,030 85,951
Eliminations and other corporate
expenses............................... -- -- (4,859) (10,568)
-------- -------- ------- --------
Consolidated............................. $331,453 $609,324 56,171 75,383
-------- --------
-------- --------
Interest expense......................... 10,626 25,378
Other income, net........................ 269 1,652
------- --------
Consolidated income from continuing
operations before income taxes......... $45,814 $ 51,657
------- --------
------- --------
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
----------------------------
DECEMBER 31, SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C>
Performance Products.................................... $381,202 $ 344,737
Manufacturing........................................... 78,267 483,703
Telecommunications Equipment............................ -- 358,152
Corporate............................................... 2,057 8,892
-------- ----------
Consolidated............................................ $461,526 $1,195,484
-------- ----------
-------- ----------
</TABLE>
The Telecommunications Equipment segment is comprised of the businesses
of Krone which were acquired by the Company on August 20, 1999. Krone is a
leading global supplier of connection and distribution technology for
telecommunications and data networks.
F-36
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 12 -- SUMMARIZED FINANCIAL INFORMATION
The Company's 11% Senior Subordinated Notes due 2009 are fully and
unconditionally guaranteed, on a joint and several basis, by all of the
Company's wholly owned, domestic subsidiaries ('Subsidiary Guarantors'). The
non-guarantor subsidiaries are foreign or are part of the Industrial Chemicals
Business which are no longer part of GenTek as a result of the Spinoff.
The following condensed consolidating financial information illustrates
the composition of the combined Subsidiary Guarantors. The Company believes that
the separate complete financial statements of the respective guarantors would
not provide additional material information which would be useful in assessing
the financial composition of the Subsidiary Guarantors.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues............................ $ -- $307,157 $24,296 $ -- $331,453
Cost of sales........................... -- 216,493 18,442 -- 234,935
Selling, general and administrative
expense............................... 1,386 36,774 2,187 -- 40,347
------- -------- ------- -------- --------
Operating profit................... (1,386) 53,890 3,667 -- 56,171
Interest expense........................ 252 10,110 264 -- 10,626
Other (income) expense, net............. 24 (255) (38) -- (269)
------- -------- ------- -------- --------
Income from continuing operations
before income taxes and
extraordinary item............... (1,662) 44,035 3,441 -- 45,814
Income tax provision.................... (795) 18,648 988 -- 18,841
Equity in income from subsidiaries...... 33,518 11,792 -- (45,310) --
------- -------- ------- -------- --------
Income from continuing operations
before extraordinary item........ 32,651 37,179 2,453 (45,310) 26,973
Income from discontinued operations (net
of tax)............................... -- -- 9,339 -- 9,339
------- -------- ------- -------- --------
Income before extraordinary item... 32,651 37,179 11,792 (45,310) 36,312
Extraordinary item -- net of tax........ -- 3,661 -- -- 3,661
------- -------- ------- -------- --------
Net income......................... $32,651 $ 33,518 $11,792 $(45,310) $ 32,651
------- -------- ------- -------- --------
------- -------- ------- -------- --------
</TABLE>
F-37
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues............................ $ -- $449,163 $175,238 $(15,077) $609,324
Cost of sales........................... -- 335,745 133,270 (15,077) 453,938
Selling, general and administrative
expense............................... 7,299 53,585 19,119 -- 80,003
------- -------- -------- -------- --------
Operating profit................... (7,299) 59,833 22,849 -- 75,383
Interest expense........................ 20,874 18,741 6,187 (20,424) 25,378
Other (income) expense, net............. (20,399) (3,194) 1,517 20,424 (1,652)
------- -------- -------- -------- --------
Income from continuing operations
before income taxes and
extraordinary item............... (7,774) 44,286 15,145 -- 51,657
Income tax provision.................... (3,197) 20,338 6,749 -- 23,890
Equity in income from subsidiaries...... 33,350 9,402 -- (42,752) --
------- -------- -------- -------- --------
Income from continuing operations
before extraordinary item........ 28,773 33,350 8,396 (42,752) 27,767
Income from discontinued operations (net
of tax)............................... -- -- 1,006 -- 1,006
------- -------- -------- -------- --------
Income before extraordinary item... 28,773 33,350 9,402 (42,752) 28,773
Extraordinary item -- net of tax........ 4,939 -- -- -- 4,939
------- -------- -------- -------- --------
Net income......................... $23,834 $ 33,350 $ 9,402 $(42,752) $ 23,834
------- -------- -------- -------- --------
------- -------- -------- -------- --------
</TABLE>
F-38
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash.............................. $ 120 $ 7,711 $ 26,628 $ -- $ 34,459
Receivables....................... 4,366 101,521 106,112 -- 211,999
Inventories....................... -- 49,907 68,105 -- 118,012
Other current assets.............. 1,509 32,837 18,407 -- 52,753
-------- -------- -------- --------- ----------
Total current assets......... 5,995 191,976 219,252 -- 417,223
Property, plant and equipment, net..... -- 256,112 96,984 -- 353,096
Goodwill, net of amortization.......... -- 96,611 296,746 -- 393,357
Intercompany receivable (payable)...... 443,108 (439,218) (3,890) -- --
Investment in subsidiaries............. 83,068 217,211 -- (300,279) --
Other assets........................... 334 23,124 8,350 -- 31,808
-------- -------- -------- --------- ----------
Total assets................. $532,505 $345,816 $617,442 $(300,279) $1,195,484
-------- -------- -------- --------- ----------
-------- -------- -------- --------- ----------
Current liabilites:
Accounts payable.................. $ 6 $ 49,561 $ 40,485 $ -- $ 90,052
Accrued liabilites................ 4,514 65,973 91,265 -- 161,752
Current portion of long-term
debt............................ -- 1,176 42,060 -- 43,236
-------- -------- -------- --------- ----------
Total current liabilites..... 4,520 116,710 173,810 -- 295,040
Long-term debt......................... 515,000 8,264 188,940 -- 712,204
Other liabilities...................... 500 137,774 37,481 -- 175,755
-------- -------- -------- --------- ----------
Total liabilites............. 520,020 262,748 400,231 -- 1,182,999
Equity (deficit)....................... 12,485 83,068 217,211 (300,279) 12,485
-------- -------- -------- --------- ----------
Total liabilites and equity
(deficit).................. $532,505 $345,816 $617,442 $(300,279) $1,195,484
-------- -------- -------- --------- ----------
-------- -------- -------- --------- ----------
</TABLE>
F-39
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities................ $ (905) $ 29,063 $ 4,409 $ -- $ 32,567
Cash flows from investing activities:
Acquisition of businesses net of
cash acquired.................. -- (90,935) -- -- (90,935)
Cash provided by discontinued
operations..................... -- -- 19,509 -- 19,509
Other............................ -- (21,644) (285) -- (21,929)
--------- --------- -------- ------ --------
Net cash provided by (used in)
investing activities................ -- (112,579) 19,224 -- (93,355)
--------- --------- -------- ------ --------
Cash flows from financing activities:
Intercompany cash transfers...... (281,412) 310,188 (28,776) --
Other............................ 291,241 (210,787) 6,385 86,839
--------- --------- -------- ------ --------
Net cash provided by (used in)
financing activities................ 9,829 99,401 (22,391) -- 86,839
--------- --------- -------- ------ --------
Effect of exchange rates on cash...... -- -- (368) -- (368)
--------- --------- -------- ------ --------
Increase (decrease) in cash and cash
equivalents......................... 8,924 15,885 874 -- 25,683
Cash and cash equivalents at beginning
of period........................... 51 20,350 -- -- 20,401
--------- --------- -------- ------ --------
Cash and cash equivalents at end of
period.............................. $ 8,975 $ 36,235 $ 874 $ -- $ 46,084
--------- --------- -------- ------ --------
--------- --------- -------- ------ --------
</TABLE>
F-40
<PAGE>
GENTEK INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities................ $ (1,144) $ 39,371 $ 8,777 $ -- $ 47,004
Cash flows from investing activities:
Acquisition of businesses net of
cash acquired.................. -- (445,020) -- -- (445,020)
Cash provided by discontinued
operations..................... -- -- 122,711 -- 122,711
Other............................ -- (18,274) (3,630) -- (21,904)
--------- --------- -------- ------ --------
Net cash provided by (used in)
investing activities................ -- (463,294) 119,081 -- (344,213)
--------- --------- -------- ------ --------
Cash flows from financing activities:
Intercompany cash transfers...... (215,169) 320,787 (105,618) -- --
Other............................ 213,286 53,688 3,704 -- 270,678
--------- --------- -------- ------ --------
Net cash provided by (used in)
financing activities................ (1,883) 374,475 (101,914) -- 270,678
--------- --------- -------- ------ --------
Effect of exchange rates on cash...... -- -- (320) -- (320)
--------- --------- -------- ------ --------
Increase (decrease) in cash and cash
equivalents......................... (3,027) (49,448) 25,624 -- (26,851)
Cash and cash equivalents at beginning
of period........................... 3,147 57,159 1,004 -- 61,310
--------- --------- -------- ------ --------
Cash and cash equivalents at end of
period.............................. $ 120 $ 7,711 $ 26,628 $ -- $ 34,459
--------- --------- -------- ------ --------
--------- --------- -------- ------ --------
</TABLE>
F-41
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<PAGE>
RIGHTS TO SUBSCRIBE
TO
3,371,340 SHARES
[GENTEK LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
January 25, 2000
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
AND THE INFORMATION TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE
ELSE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THE INFORMATION CONTAINED
IN THIS PROSPECTUS. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT
INFORMATION, YOU SHOULD NOT RELY ON IT. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE
ON THE FRONT PAGE OF THIS PROSPECTUS. ALSO, YOU SHOULD NOT ASSUME THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF GENTEK INC. SINCE THE DATE OF THIS
PROSPECTUS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities offered hereby.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 10,560
Subscription Agent Fee...................................... 40,000
Printing and Engraving Costs................................ 125,000
Legal Fees and Expenses..................................... 150,000
Accounting Fees and Expenses................................ 50,000
Miscellaneous............................................... 25,000
--------
Total.................................................. $400,560
--------
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
GenTek Inc. ('GenTek') is incorporated under the laws of the State of
Delaware. Section 145 of the Delaware Corporation Law, as amended, and
Article VIII of GenTek's Amended and Restated Certificate of Incorporation
provide for the indemnification, except in certain circumstances set forth
below, of officers, directors, employees and agents of GenTek for certain
expenses incurred in connection with any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative or
investigative, and for the purchase and maintenance of insurance by GenTek on
behalf of officers, directors, employees and agents of GenTek and its
subsidiaries against any liability asserted against, and incurred by, any such
officer, director, employee or agent in such capacity. Set forth below is the
text of Section 145 and the text of Article VIII of GenTek's Amended and
Restated Certificate of Incorporation.
Section 145 of the Delaware Corporation Law, as amended, provides as
follows:
'145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE. -- (a) A corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding if this person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
this person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such
II-1
<PAGE>
action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
shareholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of shareholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not
the corporation would have the power to indemnify such person against such
liability under this section.
(h) For purposes of this section, references to `the corporation' shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to `other enterprises'
shall include employee benefit plans; references to `fines' shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to `serving at the request of the corporation' shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest
of the participants and beneficiaries of an employee
II-2
<PAGE>
benefit plan shall be deemed to have acted in a manner `not opposed to the
best interests of the corporation' as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of shareholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorney's fees).'
Article VIII of the Amended and Restated Certificate of Incorporation of
GenTek provides as follows:
'Article VIII LIMITATION OF LIABILITY. A Director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except for
liability (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from
which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Amended and Restated Certificate
of Incorporation to authorize corporation action further eliminating or
limiting the personal liability of Directors, then the liability of a
Director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended.'
As permitted by Section 145 of the General Corporation Law of the State
of Delaware, as amended, GenTek has purchased and maintains insurance providing
for reimbursement to elected directors and officers of GenTek and its
subsidiaries, subject to certain exceptions, of amounts they may be legally
obligated to pay, including but not limited to damages, judgments, settlements,
costs and attorneys' fees (but not including fines, penalties or matters not
insurable under the law), as a result of claims and legal actions instituted
against them to recover for their acts while serving as directors or officers.
ITEM 15. 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 General
Chemical Group. New Hampshire Oak was the sole shareholder of GenTek Inc. until
the spinoff, as described in the section entitled 'Summary -- Recent
Transactions' in the Prospectus. Before the spinoff, GenTek Inc. issued to New
Hampshire Oak additional shares of its Common Stock and issued shares of its
Class B Common Stock, par value $.01 per share, such that the number of issued
and outstanding shares of Common Stock and Class B Common Stock of GenTek Inc.
was the same as the number of shares of common stock and Class B common stock of
General Chemical Group then issued and outstanding. New Hampshire Oak then
immediately distributed all such shares of GenTek Inc. to General Chemical
Group.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 -- Amendment No. 2 to Form 10 of GenTek Inc. for
registration of Securities of GenTek Inc. Incorporated by
reference to GenTek Inc.'s Amendment No. 2 to its
Registration Statement on Form 10 (File No. 001-14789)
filed with the Securities and Exchange Commission on April
8, 1999 (the '1999 GenTek Form 10').
2.2 -- Separation Agreement among the Company, GenTek Inc., The
General Chemical Group Inc. and General Chemical
Corporation. Incorporated by reference to the relevant
exhibit to the 1999 GenTek Form 10.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.3 -- Stock Purchase Agreement, dated July 12, 1999, between
Jenoptik AG and GenTek Inc. Incorporated by reference to
the Current Report of GenTek Inc. on Form 8-K (File
No. 001-14789) filed with the Securities and Exchange
Commission on September 3, 1999.
3.1 -- Amended and Restated Certificate of Incorporation of
GenTek Inc. Incorporated by reference to the relevant
exhibit to the 1999 GenTek Form 10.
3.2 -- Amended and Restated By-Laws of GenTek Inc. Incorporated
by reference to the relevant exhibit to the 1999 GenTek
Form 10.
*4.1 -- Form of Subscription Warrant to Subscribe for Shares of
GenTek Inc. Common Stock.
*5.1 -- Opinion of Debevoise & Plimpton.
10.01 -- GenTek Inc. Restricted Unit Plan for Non-Employee
Directors. Incorporated by reference to the relevant
exhibit to the 1999 GenTek Form 10.
10.02 -- GenTek Inc. Retirement Plan for Non-Employee Directors.
Incorporated by reference to the relevant exhibit to the
1999 GenTek Form 10.
10.03 -- GenTek Inc. Performance Plan. Incorporated by reference
to the relevant exhibit to the 1999 GenTek Form 10.
10.04 -- GenTek Inc. Long-Term Incentive Plan. Incorporated by
reference to the relevant exhibit to the 1999 GenTek
Form 10.
10.05 -- Employee Benefits Agreement among GenTek Inc., The
General Chemical Group Inc., General Chemical Industrial
Products Inc. and General Chemical Corporation.
Incorporated by reference to the relevant exhibit to the
1999 GenTek Form 10.
10.06 -- Tax Sharing Agreement between GenTek Inc. and The General
Chemical Group Inc. Incorporated by reference to the
relevant exhibit to the 1999 GenTek Form 10.
10.07 -- Intellectual Property Agreement among GenTek Inc.,
General Chemical Corporation, The General Chemical Group
Inc. and General Chemical Industrial Products Inc.
Incorporated by reference to the relevant exhibit to the
1999 GenTek Form 10.
10.08 -- Management Agreement between GenTek Inc. and Latona
Associates Inc. Incorporated by reference to the relevant
exhibit to the 1999 GenTek Form 10.
10.09 -- Registration Rights Agreement between Paul M. Montrone
and the General Chemical Group Inc., as assumed by GenTek
Inc. with respect to Common Stock of GenTek Inc.
Incorporated by reference to the relevant exhibit to the
1999 GenTek Form 10.
10.10 -- Credit Agreement, dated as of April 30, 1999, among
GenTek Inc., Noma Acquisition Corp., the several Lenders
from time to time parties thereto, The Chase Manhattan
Bank, as Administrative Agent, The Bank of Nova Scotia, as
Syndication Agent, and Bankers Trust Company as
Documentation Agent. Incorporated by reference to the
relevant exhibit to GenTek Inc.'s 10-Q for the three
months ended March 31, 1999 filed with the Securities and
Exchange Commission on May 17, 1999 (the 'GenTek First
Quarter 1999 10-Q').
10.11 -- Guarantee and Pledge Agreement, dated as of April 30,
1999, made by GenTek Inc. and certain of its subsidiaries
in favor of the Chase Manhattan Bank, as Administrative
Agent. Incorporated by reference to the relevant exhibit
to the GenTek First Quarter 1999 10-Q.
10.12 -- Indenture, dated as of August 9, 1999, between the
Company and U.S. National Trust Association, as Trustee.
Incorporated by reference to the relevant exhibit to
GenTek Inc.'s 10-Q for the nine months ended
September 30, 1999 filed with the Securities and Exchange
Commission on November 15, 1999.
21.1 -- Subsidiaries of GenTek Inc. Incorporated by reference to
the relevant exhibit to GenTek Inc.'s Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-91171)
filed with the Securities and Exchange Commission on
December 2, 1999.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Deloitte & Touche LLP, Chartered Accountants.
23.3 -- Consent of Deloitte & Touche GmbH.
23.4 -- Consent of Debevoise & Plimpton. Included in Exhibit 5.1
hereto.
*24.1 -- Powers of Attorney.
*99.1 -- Form of Subscription Agent Agreement between GenTek Inc.
and ChaseMellon Shareholder Services L.L.C.
*99.2 -- Form of Information Agent Agreement between GenTek Inc.
and ChaseMellon Consulting Services L.L.C.
*99.3 -- Form of Instructions as to Use of Subscription Warrant.
*99.4 -- Form of Notice of Guaranteed Delivery.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
*99.5 -- Form of Letter to Stockholders of Record.
*99.6 -- Form of Letter from Brokers or Other Nominees to
Beneficial Owners of Common Stock.
*99.7 -- Form of Instructions by Beneficial Owners to Brokers or
Other Nominees.
*99.8 -- Form of Announcement of Filing Registration Statement.
*99.9 -- Form of Letter to Dealers and Other Nominees.
*99.10-- Form of Announcement of Determination of Record Date.
</TABLE>
- ------------------------
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED DEDUCTIONS BALANCE AT
PERIOD TO INCOME FROM RESERVES END OF PERIOD
------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts................... $3,652 $ 55 $(288) $3,419
Year ended December 31, 1997
Allowance for doubtful accounts................... $3,419 $134 $ -- $3,553
Year ended December 31, 1998
Allowance for doubtful accounts................... $3,553 $584 $(411) $3,726
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED DEDUCTIONS BALANCE AT
PERIOD TO INCOME FROM RESERVES END OF PERIOD
------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Environmental Liabilities......................... $16,628 $ 6,771 $(7,080) $16,319
Year ended December 31, 1997
Environmental Liabilities......................... $16,319 $ 5,546 $(5,621) $16,244
Year ended December 31, 1998
Environmental Liabilities......................... $16,244 $10,674 $(6,802) $20,116
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(b) to supplement the prospectus and, after the expiration of the
subscription period, to set forth the results of the subscription
offer;
(c) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will,
II-5
<PAGE>
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue;
(d) for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective; and
(e) for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, GenTek Inc.
has caused this Registration Statement on Form S-1 to be signed on its behalf by
the undersigned, thereunto duly authorized, on the 25th day of January, 2000.
GENTEK INC.
By: *
...................................
NAME: RICHARD R. RUSSELL
TITLE: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of this Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
* President and Chief Executive Officer January 25, 2000
.........................................
RICHARD R. RUSSELL
PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER:
* Vice President and Chief Financial Officer January 25, 2000
.........................................
WILLIAM C. KEIGHTLEY
DIRECTORS:
* Chairman and Director January 25, 2000
.........................................
PAUL M. MONTRONE
* Vice Chairman and Director January 25, 2000
.........................................
PAUL M. MEISTER
* Director January 25, 2000
.........................................
RICHARD R. RUSSELL
* Director January 25, 2000
.........................................
JOHN W. GILDEA
* Director January 25, 2000
.........................................
SCOTT M. SPERLING
* Director January 25, 2000
.........................................
IRA STEPANIAN
* Director January 25, 2000
.........................................
BRUCE KOEPFGEN
*By: /s/ TODD M. DUCHENE
.........................................
TODD M. DUCHENE
SECRETARY, GENTEK INC.
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. NUMBER
--- ------
<S> <C> <C>
2.1 -- Amendment No. 2 to Form 10 of GenTek Inc. for
registration of Securities of GenTek Inc. Incorporated by
reference to GenTek Inc.'s Registration Statement
Amendment No. 2 on Form 10 (File No. 001-14789) filed with
the Securities and Exchange Commission on April 8, 1999
(the '1999 GenTek Form 10')...............................
2.2 -- Separation Agreement among the Company, GenTek Inc., The
General Chemical Group Inc. and General Chemical
Corporation. Incorporated by reference to the relevant
exhibit to the 1999 GenTek Form 10........................
2.3 -- Stock Purchase Agreement, dated July 12, 1999, between
Jenoptik AG and GenTek Inc. Incorporated by reference to
the Current Report of GenTek Inc. on Form 8-K (File
No. 001-14789) filed with the Securities and Exchange
Commission on September 3, 1999...........................
3.1 -- Amended and Restated Certificate of Incorporation of
GenTek Inc. Incorporated by reference to the relevant
exhibit to the 1999 GenTek Form 10........................
3.2 -- Amended and Restated By-Laws of GenTek Inc. Incorporated
by reference to the relevant exhibit to the 1999 GenTek
Form 10...................................................
*4.1 -- Form of Subscription Warrant to Subscribe for Shares of
GenTek Inc. Common Stock..................................
*5.1 -- Opinion of Debevoise & Plimpton...........................
10.01 -- GenTek Inc. Restricted Unit Plan for Non-Employee
Directors. Incorporated by reference to the relevant
exhibit to the 1999 GenTek Form 10........................
10.02 -- GenTek Inc. Retirement Plan for Non-Employee Directors.
Incorporated by reference to the relevant exhibit to the
1999 GenTek Form 10.......................................
10.03 -- GenTek Inc. Performance Plan. Incorporated by reference
to the relevant exhibit to the 1999 GenTek Form 10........
10.04 -- GenTek Inc. Long-Term Incentive Plan. Incorporated by
reference to the relevant exhibit to the 1999 GenTek
Form 10...................................................
10.05 -- Employee Benefits Agreement among GenTek Inc., The
General Chemical Group Inc., General Chemical Industrial
Products Inc. and General Chemical Corporation.
Incorporated by reference to the relevant exhibit to the
1999 GenTek Form 10.......................................
10.06 -- Tax Sharing Agreement between GenTek Inc. and The General
Chemical Group Inc. Incorporated by reference to the
relevant exhibit to the 1999 GenTek Form 10...............
10.07 -- Intellectual Property Agreement among General Chemical
Corporation, The General Chemical Group Inc., GenTek Inc.
and General Chemical Industrial Products Inc. Incorporated
by reference to the relevant exhibit to the 1999 GenTek
Form 10...................................................
10.08 -- Management Agreement between GenTek Inc. and Latona
Associates Inc. Incorporated by reference to the relevant
exhibit to the 1999 GenTek Form 10........................
10.09 -- Registration Rights Agreement between Paul M. Montrone
and The General Chemical Group Inc., as assumed by GenTek
Inc. with respect to Common Stock of GenTek Inc.
Incorporated by reference to the relevant exhibit to the
1999 GenTek Form 10.......................................
10.10 -- Credit Agreement, dated as of April 30, 1999, among
GenTek Inc., Noma Acquisition Corp., the several Lenders
from time to time parties thereto, The Chase Manhattan
Bank, as Administrative Agent, The Bank of Nova Scotia, as
Syndication Agent, and Bankers Trust Company as
Documentation Agent. Incorporated by reference to the
relevant exhibit to GenTek Inc.'s 10-Q for the three
months ended March 31, 1999 filed with the Securities and
Exchange Commission on May 17, 1999 (the 'GenTek First
Quarter 1999 10-Q').......................................
10.11 -- Guarantee and Pledge Agreement, dated as of April 30,
1999, made by GenTek Inc. and certain of its subsidiaries
in favor of the Chase Manhattan Bank, as Administrative
Agent. Incorporated by reference to the relevant exhibit
to the GenTek First Quarter 1999 10-Q.....................
10.12 -- Indenture, dated as of August 9, 1999, between the
Company and U.S. National Trust Association, as Trustee.
Incorporated by reference to the relevant exhibit to
GenTek Inc.'s 10-Q for the nine months ended September 30,
1999 filed with the Securities and Exchange Commission on
November 15, 1999.........................................
21.1 -- Subsidiaries of GenTek Inc. Incorporated by reference to
the relevant exhibit to GenTek Inc.'s Amendment No. 1 to
its Registration Statement on Form S-4
(File No. 333-91171) filed with the Securities and
Exchange Commission on December 2, 1999...................
23.1 -- Consent of Deloitte & Touche LLP..........................
23.2 -- Consent of Deloitte & Touche LLP, Chartered
Accountants...............................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. NUMBER
--- ------
<C> <S> <C>
23.3 -- Consent of Deloitte & Touche GmbH.........................
23.4 -- Consent of Debevoise & Plimpton. Included in Exhibit 5.1
hereto....................................................
*24.1 -- Powers of Attorney........................................
*99.1 -- Form of Subscription Agent Agreement between GenTek Inc.
and ChaseMellon Shareholder Services L.L.C................
*99.2 -- Form of Information Agent Agreement between GenTek Inc.
and ChaseMellon Consulting Services L.L.C.................
*99.3 -- Form of Instructions as to Use of Subscription
Warrant...................................................
*99.4 -- Form of Notice of Guaranteed Delivery.....................
*99.5 -- Form of Letter to Stockholders of Record..................
*99.6 -- Form of Letter from Brokers or Other Nominees to
Beneficial Owners of Common Stock.........................
*99.7 -- Form of Instructions by Beneficial Owners to Brokers or
Other Nominees............................................
*99.8 -- Form of Announcement of Filing Registration Statement.....
*99.9 -- Form of Letter to Dealers and Other Nominees..............
*99.10 -- Form of Announcement of Determination of Record Date......
</TABLE>
- ------------
* Previously filed.
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as ............................... 'TM'
The registered trademark symbol shall be expressed as .................... 'r'
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement
of GenTek Inc. (File No. 333-94297) of our report dated February 11, 1999
(March 18, 1999 as to Notes 1 and 3 and July 12, 1999 as to Note 18), appearing
in the Prospectus, which is a part of this Registration Statement.
We also consent to the reference to us under the headings 'Summary
Historical and Pro Forma Financial Data', 'Selected Financial Data' and
'Experts' in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of GenTek Inc., listed in
Item 16. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
January 24, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to the
Registration Statement of GenTek Inc. (File No. 333-94297) of our report dated
February 19, 1999 (except for Note 17 which is as of March 12, 1999), with
respect to the consolidated balance sheets of Noma Industries Limited as at
December 31, 1998 and 1997 and the consolidated statements of earnings, retained
earnings (deficit) and changes in financial position for each of the years in
the three year period ended December 31, 1998, included in the Form 10, filed by
GenTek Inc., incorporated by reference in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading 'Experts' in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
Chartered Accountants
Toronto, Ontario
January 24, 2000
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to the
Registration Statement of GenTek Inc. (File No. 333-94297) of our report dated
October 20, 1999, with respect to the consolidated balance sheets of Krone AG as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years then ended,
included in the Current Report on Form 8-K/A, filed November 3, 1999 by GenTek
Inc., incorporated by reference in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading 'Experts' in such
Prospectus.
/s/ DELOITTE & TOUCHE GMBH
Berlin/Duesseldorf, Germany
January 24, 2000
